Measuring & labeling the carbon footprint of banking products

Confidentiel © 2008 Utopies

Sustainability & business strategy

Measuring & labeling the carbon footprint of banking productsNovember 2009

Contacts :

Stanislas Dupré, Executive Director Utopies

[email protected] ; +33 664 273 060

CO2

mailto:[email protected]


Stan Dupré, executive director & partner

• Working for Utopies: since 2000

• Role in the project: inventor of the methodology to calculate the carbon footprint of financial portfolios.

Stan Dupré, executive director & partner

• Working for Utopies: since 2000

• Role in the project: inventor of the methodology to calculate the carbon footprint of financial portfolios.

Leading CSR Consultancy in France

• Created in 1993

• Staff: 20 (consultants, engineers, lawyers…)

• Clients: Caisse d’Epargne, CDC, MACIF, MAIF…Veolia, EDF, Bouygues, Suez, Sodexo…

Leading CSR Consultancy in France

• Created in 1993

• Staff: 20 (consultants, engineers, lawyers…)

• Clients: Caisse d’Epargne, CDC, MACIF, MAIF…Veolia, EDF, Bouygues, Suez, Sodexo…



Carbon footprint of banking activitiesThe project: labeling savings products

Sustainability & business strategySustainability & business strategy

An increasing media and political pressure on banks

Before the project (june 2007)

• Climate change: latest studies from NGOs estimate that induced carbon emissions represent 1000 times direct emissions

• NGOs and media consider that banks’ marketing approach prevent the mainstreaming of SRI

• Some retailers commit to applying a carbon label on their products

• Most banks are strongly criticized for hiding the risks related to some savings and credit products

Since the public launch (mid 2008)

• Carbon labeling of consumer goods became mandatory in France and is supported by public authorities in Europe

• The financial crisis spotlighted the socio-economic impact of banks, the lack of traceability of savings products and the systemic risks related to irresponsible loans (subprime loans)


How the project started?Caisse d’Epargne commits to labelling all its savings products

• Caisse d’Epargne is the 4th French retail bank with a net income of €10 Bn

Commitment in June 2007 to label all their savings products by mid 2008 and publish their scope 3 carbon footprint in 2009

Labelling scheme & methodology co-developed with a stakeholder panel

Self-assessments verified by the statutory auditors

No financial risk for you with this product, the annual interest rate is warranted.

A Socially Responsible Investment approach is applied but the impact on the asset management process is limited.

Example: Are your savings…

Safe for Society?

Your money is invested in French Government bonds and low carbon intensity industries: 220g of CO2 per € of savings

Sou

rce:

Ca i

sse

d 'E

parg

ne/

Uto

pies

Safe for You?

Safe for the Climate?

Short label on each product leaflet

Detailed fact sheet on each product on the website


Evolution of the projectFrom best practice to industry standard

Project open to every bank and insurer

The companies and the panel formed the Association for Transparency and Labeling of financial products

The panel lobbies for mandatory requirements in France & Europe

2 insurers join the project. 5 other companies showed interest (Portugal, Brazil, Canada, France)

Scheme and methodology co-designed with a stakeholder panel

Open Source

Workshop with CSR Europe to explore next steps



Carbon footprint of banking activitiesMethodology

?


IntroductionBasic application of the carbon footprint to a bank

Scope 1: Energy consumed Scope 2: Electricitypurchased

Scope 3: Induced emissions

Heating

Owned vehicules

Employees business travel

Office construction

Supplies

Tons of eCO2 / year

Applied by many banks including: Deutsch Bank, Barclay’s, HSBC…

Principle: measuring all the carbon emissions linked with the company’s activities Methodological framework:

WBCSD/WRI GHG Protocol


IntroductionDid you notice?

… the emissions induced by financial activities, that represent as much as 1,000 times direct emissions

Annual emissions of CO2

Something is missing…

States

Banks

Listed companies

Projects

SMEs

Consumption

Houses

Cars


The methodologyCore principle #1: considering the use of the money saved on your bank account or fund

Ethique

Risque

Climate

Bank

Customer

CO2

CO2

Corporate bonds

Government bonds

CO2

CO2

Corporate shares

data provided by:All type of securities taken into account


The methodologyCore principle #2: estimating the carbon footprint of all activities financed by an investor

Investor

The core principle is: proportional allocation of emissions (when one finances 10% of an activity or organization, it is allocated 10% of its annual CO2 emissions )

Supply chain emissions

Direct emissions

Products emissions

indirect emissions

All GHG protocol scopes are taken into account

This principle is derived from the GHG protocol’s equity share principle

10%

CO2

CO2

10%


The methodologyCore principle #3: considering of types of securities and assets

We identify the asset behind each security so as to allocate a carbon emission factor per M€ of holdings

Securities Carbon emissions factors per type of asset

Stocks

Private equity

Corporate bonds

Gov.bonds

Loan book

HousingEnergy consumption

CashAverage consumption

SMEOperations

Listed companiesOperations

CarCar use

Commercial real estateEnergy consumption

States & citiesOperations, public expenditures & SOEs

ProjectOperations

CO2 /M€

M€ of holdings of Shareholder equity + Financial debt



Carbon footprint of banking activitiesOverview of the results


Kg

CO

2 in

du

ced

per

yea

r p

er €

10,0

00 o

f h

old

ing

80

% b

on

ds

; 2

0%

eq

uity

Util

itie

s, p

ha

rma

What did we learn?

1.Through their indirect carbon emissions banks can easily become the next main target of pressure groups and the policy makers

CO2

€10,000

=

CO2

CO2 CO2


What did we learn?

2. Assessing the carbon footprint of banking activities guaranties the traceability of the activities financed by the bank, thus allowing to track potential toxics

Super FundTrust me A.M.


Downloadswww.utopies.com/bank-label

Full

methodology

Report on the

carbon footprintFOE reports on

banks and insurers



Back up slides for Q&A

Carbon footprint of banking activitiesAnnexes CO2


Overview of the resultsComparing industries (application to stocks and corp. bonds)

Carbon intensity (CO2/turnover)

The carbon intensity of a portfolio is determined by…

2. The companies or industry sub-groups selected

1. The industry group allocation

data provided by:

This graph shows the gap between the best and the worst company by sector.


Overview of the resultsComparing securities (application to portfolios)

1 to 100

data provided by:

Tons of CO2 induced per year per 1M€ of holding


Overview of the resultsComparing products (application to a savings products)

To

ns

of

CO

2 in

du

ced

per

yea

r p

er 1

M€

of

ho

ldin

g

€10.000 invested = 1 vehicle on the road

data provided by:

80

% b

on

ds

; 2

0%

eq

uiti

es

Util

itie

s, p

ha

rma


Overview of the resultsOptimizing a portfolio (application to equity fund management)

data provided by:Investors who wish to minimize their exposure to climate risk without undoing their portfolio allocation by industry will favor a policy of optimization. In practical terms, they will select the least carbon-intensive companies within the most carbon-intensive industries. Testing on an average share portfolio indicate that its carbon intensity can be reduced by at least 35%.


Overview of the principlesHow do we calculate the carbon footprint of a bank?

1. Identifying economic activities financed by the bank Analysis of the bank’s balance sheet Analysis of the type of products sold (retail banking)

M€ of holdings per type of asset

2. Finding carbon intensity factors to each type of asset Annual emissions of the organization/activity Book value of the organization/activity

CO2 emissions per M€ invested in the organization/activity

3. Consolidating emissions M€ of each organization/activity financed by the bank

CO2 emissions associated to the bank balance sheet

CO2


How can you use this?

As a bank: Understand where you money goes Choose climate-friendly products Favor Best-in-class or cleantech sectors

As asset managers Identify carbon intensive activities in

your portfolio Use the carbon intensity as a basis for

carbon risk exposure Prevent reputation risks Design climate-friendly products!

-35% without breaking the balance between industries

Divided by >100 by investing in cleantech

Bonds and loan-backed securities are not intensive


How can you get involved?

Quick wins /Low cost

Ground breaking /Investment

CO2

Calculate the carbon footprint of your savings products (internal use)

CO2

Publish your full carbon footprint (CSR report)

Label your savings products(POS material)

Label your other products(POS material)



Sources for carbon & financial data

Carbon footprint of banking activitiesAnnexes CO2


We can identify the securities in the portfolio (own portfolio, major products sold)

data base provides the carbon intensity factor for 1.800 MSCI World companies (applicable to stocks & corporate bonds)

database provides the carbon intensity factor for 40 States (governmental bonds)

The bank needs to provide the ISIN codes and the value of holdings

We find “new” clusters or securities in the balance sheet

&estimate the emission intensity factor of the activity based on existing raw data or ad hoc research*. It can be applied to: investments in non MSCI stocks, private equity portfolio, industry-oriented portfolio, etc.

The bank provides a description of the economic activity

Sources for carbon intensity factorsOverview of the approaches

3 approaches will be applied depending on the information available and the weight of the portfolios concerned.

We only know the profile of the portfolio (third party funds sold, funds of funds, etc.)

applies average emission intensity factors per cluster: • Equity portfolio with balanced allocation by industry• Governmental bonds• RMBS & home loans• Real estate portfolio• SMEs

The bank needs to provide the portfolio breakdown by cluster

Means: desk research

*The number of companies is limited and will be defined to fit the budget


Sources for carbon intensity factorsMain source for carbon intensity factors per industry

The main source used is the Carnegie Mellon Institute’s EIOLCA database. The Economic Input-Output Life Cycle Assessment (EIO-LCA) method estimates the GHG emissions resulting from activities in the US economy. The method uses information about industry transactions - purchases of materials by one industry from other industries, and the information about direct environmental emissions of industries, to estimate the total emissions throughout the supply chain. The model includes 500 industry sectors. When you select an industry (ex.: Cement manufacturing) the model shows the direct and indirect emissions (per type of supplier) for a million dollars of economic activity.

CO2


Sources for carbon & financial dataOther sources of raw data

Other LCA databases and industry specific studies to allocate carbon emissions factors to products’ use phase (energy consumption)

Industry specific statistics and corporate annual reports to adjust the carbon emission factor to the company’s specificities for carbone intensive industries (fleet for an airline, sales by type of vehicule for car manufacturer, technologies used for a cement company, etc.)

Financial databases and corporate annual reports to breakdown the company’s activity into industry groups, and determine the value of Shareholder equity + Financial debt

CO2

National and international statistics to determine the breakdown of public expenditures, SMEs activities or consumption by industry group and/or product

CO2

30% recycling

40% incineration

30% waste collection



Organizations involved

Carbon footprint of banking activitiesAnnexes


ProposalPartners & service providers

• Project management• Consolidation of the balance sheet• Production of deliverables • Calculation of new emissions intensity factors

• Access to the MSCI World database (1,800 Cies)• Ad hoc research on listed companies*

Association for Transparency and Labeling of Financial Products

• R&D on the methodology

Contact: Stan Dupre, Executive Director

Contact: Philippe Spicher, Executive Director

Contact: Marie Christine Korniloff, President

All partners are co-contractors. Project management is performed by Utopies.

*Limited number of companies

Utopies


Created in 1993 by Elisabeth Laville Member of Nature & Découvertes BoD Business woman 2008 Veuve Clicquot Award

Activities Strategic planning & services Information & research

Company 18 employees in Paris Turnover: 2,6 M€ Capital held by the founder and managers

Skills and academic background Business School + Big 5 Engineers & biologists Lawyer specialized in Environmental issues, Former Greenpeace activist

Partners Communication: Ogilvy Group Consultancies: Rever (Brazill), Sair Da Casca

(Portugal), Centre Info (Switzerland), SustainAbility (UK) Research: Graines de Changement

Utopies Sustainability think tank & consultancy

"Utopies, the pionnering consultancy for sustainability strategies" Enjeux-Les Echos, oct. 2001

”Within 15 years, a revolution took place in the field of social and environmental responsibility of companies and organizations like Utopies largely contributed in raising their awareness on these issues."

François Lemarchand, CEO-Founder of Nature & Découvertes

www.

Constructiondurable.com

.com

.com


Sustainable construction

Missions :- Dedicated private-sector initiative since 2004- Sectoral CSR strategies - Green building consulting (construction & operation)- Carbon footprintTM

Sustainable construction

Missions :- Dedicated private-sector initiative since 2004- Sectoral CSR strategies - Green building consulting (construction & operation)- Carbon footprintTM

Strategy

Missions:- Benchmarking, CSR issue analysis- Commitments charters & CSR action plans- Stakeholder consultation & panels

Strategy

Missions:- Benchmarking, CSR issue analysis- Commitments charters & CSR action plans- Stakeholder consultation & panels

Responsible innovation

Missions:- Product portfolio SD analysis - Responsible procurement- Eco conception- Responsible marketing

Responsible innovation

Missions:- Product portfolio SD analysis - Responsible procurement- Eco conception- Responsible marketing

Transparency & labelling

Missions:- CSR reporting - Ethical labelling of products

Transparency & labelling

Missions:- CSR reporting - Ethical labelling of products

Our servicesAdvisory services on SD and Corporate Responsibility


Our clients

Pionneers Large caps Public agencies

Association for Transparency and Labeling of Financial Products


The associationAim: gather users and stakeholders

• Members :

• Users (open to all banks and insurers)

• Stakeholders (4 organizations in 2009)

• Objectives• Fine tune the methodology for savings products

• Develop the methodology for other products

• Enforce the label rules of use

• Promote the initiative, recruit new users

• Means• €100k annual budget for research

• Monthly meeting to validate the new methodological principles

• Speeches in conferences and workshops

• Lobbying at French and EU levels

• Governance• Voting rights: 50% users, 50% stakeholders

• Members financial contribution:• Users: $30k

• Observers (industry associations, cies): €10k

• Stakeholders: free

Users

Stakeholders panel

Research contractor (2009)

Centre Info


The firm

The Firm

Centre Info Ltd. is an independent company based in Switzerland that employs twelve people, including six senior analysts. Centre Info benefits from more than 15 years of experience in the ESG notation. Centre Info, together with INrate AG in Zurich, provides data and solutions suited to investors who want to consider ESG issues, either on the grounds of socially responsible investment or with the aim of minimising extra-financial risks in traditional investment. Centre Info also conducts specific research projects related to ESG issues and provides advisory services for the conception of SRI products or for defining investment strategies in line with SRI concepts.

DatabaseenvIMPACT® measures the exposure of companies to carbon risks. Companies facing high carbon risks are those whose business models are based on high carbon intensity activities. The carbon intensity of activities is analysed through the whole value chain of products and services. Currently, envIMPACT is used for the sustainable management of assets in excess of EUR 1.3 billion


Downloadswww.utopies.com/bank-label

Full

methodology

Report on the

carbon footprintFOE reports on

banks and insurers

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Measuring & labeling the carbon footprint of banking products

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