We started the project before the financial crisis, and before the emergence of carbon labeling initiatives in France and the UK. The main drivers for the bank were consumer associations pressure on transparency and NGOs pressure on climate change and SRI
The project has been developed for the Caisse d’Epargne group, which was the 4 th largest retail bank in France (it is now merged with another group to form the 2 nd largest) The committed to label the products on three criteria : Security: is the product safe for the customer? Financial risk Safe for society? is it invested in green or black industries? Is an ESG approach applied? Safe for the Climate? is your money invested in carbon intensive of climate friendly activities? The simplified label is displayed on all newly printed leaflets, and A 4 pages product fact sheet is posted on the website
The methodology as been developed by Utopies, the bank and a stakeholder panel composed of NGOs, the French Environmental Agency and a consumer association. The stakeholders having the final cut on the document. It is open source: every bank can read it and use it – INCLUDING YOU The project gathered momentum in 2008 and 2009: • New partners joined the initiative • An association of users has been created • The stakeholders now lobby for mandatory requierements in this area.
I will get into the details of the carbon criteria now
Today many banks publish their carbon footprint or claim to offset their carbon emissions.
But when you take a closer look, you figure out that they forget the emissions induced by financial activities… Exceptions: - City started to report its loans to coal power plants The world bank start to report on some projects Some banks have climate-neutral funds…
So the core principle is to consider the use of the money you give to your bank and to inform your choice when selecting a product
if an investor finance 10% of an economic activity, it takes responsibility for 10% of its emissions. We take into account all emissions: direct and indirect, as well as what the GHG protocol calls “scope 3”: emissions related to the supply chain and products in use. W hen we invented the methodology a similar approach was already applied to equity funds by Centre Info in Switzerland, and by Trucost in the UK - but only on direct emissions
The innovative part was to extend this approach to all kinds of securities: bonds, loans, private equity… We calculated the carbon intensity factor for all types of assets: listed companies, States, SMEs, houses, cars, etc And we allocated these emissions by Million Euro invested in the activity
>> The first finding was that the impact and the lever for progress are huge : >>10 000 euros invested on a savings product generate as much emissions as a car on the road. >> And their is as much difference between 2 savings product as between a motorcycle and an SUV.
The second finding was that asset managers in most cases ignore where they invest their money: >> They know the credit rating and the asset classes, but in many cases they do not understand the economic activities behind many securities and the social and environmental risks associated. >> Today experts consider that the Madoff case and the subprime crisis are just the first symptom of a deeper « mad cow » disease affecting the banking industry: • toxics assets like subprimes and madoff funds are are the toxics • asset managers are the cows • and products sold to consumers at the end of the chain are a mix of various unknown components In this respect performing a carbon footprint bring the traçability the industry needs.
The first conclusions are : T here is a huge difference between industries, and that scope 3 emissions represent the main part in most industries Within an industry group, you can still make a difference by choosing the most carbon efficient companies
Stan: As a consequence, there is a huge difference between the different kinds of securities you can find in a portfolio: Obviously: Oil shares are intensive, cleantech share are low-carb. Loans to individual are low carb two : non productive investments We also discovered that States bonds are relatively light : Health expenses, social services…
When we applied this approach to savings products: Not surprisingly we find the Oil and cleantech industries at the two ends of the spectrum. We also see that the savings accounts deposits that are turned into loans mostly are relatively light. Finally, balanced funds and SRI funds are less intensive than standard equity funds. The major conclusion of this for the bank is that you can produce easily products that are safe products are also climate-friendly ! And that gives room to mainstream these products !
For instance, if you try to minimize the carbon risk exposure of a standard equity portfolio, you can cut the emissions by 35% without increasing of the financial risk.
As you can see, the project deals with a lot of issues, many of them being very sentive. But if you was to get involved, you do not necessarly need to adress all of them at the same time: there are several ways to start : >> The most easy and cost effective is to calculate the carbon footprint of your savings products for internal use. It takes a couple of weeks and gives a good overview of what a labelling will look like >> Then you can extend this to the whole bank and publish it in your annual report. It can be a good basis to set relevant targets on CO2 >> finally you can label your savings products like Caisse d’Epargne did >> Or even join the association to help extend the labeling scheme to loans and insurance products
In this context, Caisse D’Epargne wanted to take the lead on CSR in France. We suggested various commitments including the sustainability labeling of all products. The committed to label the products on three criteria : Security: is the product safe for the customer? Responsibility: is your money invested in a responsible way? Climate: is your money invested in carbon intensive of climate friendly activities? The simplified label is displayed on all leaflets printed, and A 4 pages product fact sheet is posted on the website The methodology as been developed by Utopies, the bank and a stakeholder panel composed of NGOs, the French Environmental Agency and a consumer association. It is open source: every bank can read it and use it.
Measuring & labeling the carbon footprint of banking products
Measuring & labeling the carbon footprint of banking products November 2009 Contacts : Stanislas Dupré, Executive Director Utopies [email_address] ; +33 664 273 060 CO 2
Sustainability & business strategy 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 …
Carbon footprint of banking activities The project: labeling savings products
An increasing media and political pressure on banks <ul><li>Before the project (june 2007) </li></ul><ul><li>Climate change: latest studies from NGOs estimate that induced carbon emissions represent 1000 times direct emissions </li></ul><ul><li>NGOs and media consider that banks’ marketing approach prevent the mainstreaming of SRI </li></ul><ul><li>Some retailers commit to applying a carbon label on their products </li></ul><ul><li>Most banks are strongly criticized for hiding the risks related to some savings and credit products </li></ul><ul><li>Since the public launch (mid 2008) </li></ul><ul><li>Carbon labeling of consumer goods became mandatory in France and is supported by public authorities in Europe </li></ul><ul><li>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) </li></ul>
How the project started? Caisse d’Epargne commits to labelling all its savings products <ul><ul><li>• Caisse d’Epargne is the 4th French retail bank with a net income of €10 Bn </li></ul></ul><ul><ul><li>Commitment in June 2007 to label all their savings products by mid 2008 and publish their scope 3 carbon footprint in 2009 </li></ul></ul><ul><ul><li>Labelling scheme & methodology co-developed with a stakeholder panel </li></ul></ul><ul><ul><li>Self-assessments verified by the statutory auditors </li></ul></ul> 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 CO 2 per € of savings Source:Caisse d'Epargne/ Utopies 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 project From 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 activities Methodology ?
Introduction Basic application of the carbon footprint to a bank Scope 1: Energy consumed Scope 2: Electricity purchased Scope 3: Induced emissions Heating Owned vehicules Employees business travel Office construction Supplies Tons of eCO 2 / 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
Introduction Did you notice? <ul><li>… the emissions induced by financial activities, that represent as much as 1,000 times direct emissions </li></ul>Annual emissions of CO 2 Something is missing… States Banks Listed companies Projects SMEs Consumption Houses Cars
T h e methodology Core principle #1: considering the use of the money saved on your bank account or fund Ethique Risque Climate Bank Customer CO 2 CO 2 Corporate bonds Government bonds CO 2 CO 2 Corporate shares data provided by: All type of securities taken into account
T h e methodology Core 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 CO 2 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% CO 2 CO 2 10%
T h e methodology Core 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 Housing Energy consumption Cash Average consumption SME Operations Listed companies Operations Car Car use Commercial real estate Energy consumption States & cities Operations, public expenditures & SOEs Project Operations CO 2 /M€ M€ of holdings of Shareholder equity + Financial debt
Carbon footprint of banking activities Overview of the results
What did we learn? <ul><li>1. Through their indirect carbon emissions banks can easily become the next main target of pressure groups and the policy makers </li></ul>Kg CO 2 induced per year per €10,000 of holding 80% bonds ; 20% equity Utilities, pharma CO 2 € 10,000 = CO 2 CO 2 CO 2
What did we learn? <ul><li>2. Assessing the carbon footprint of banking activities guaranties the traceability of the activities financed by the bank, thus allowing to track potential toxics </li></ul>Super Fund Trust me A.M.
Downloads www.utopies.com/bank-label Full methodology Report on the carbon footprint FOE reports on banks and insurers
Back up slides for Q&A Carbon footprint of banking activities Annexes CO 2
Overview of the results Comparing industries (application to stocks and corp. bonds) <ul><li>Carbon intensity (CO 2 /turnover) </li></ul>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 results Comparing securities (application to portfolios) 1 to 100 data provided by: Tons of CO 2 induced per year per 1M€ of holding
Overview of the results Comparing products (application to a savings products) Tons of CO 2 induced per year per 1M€ of holding € 10.000 invested = 1 vehicle on the road data provided by: 80% bonds ; 20% equities Utilities, pharma
Overview of the results Optimizing 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 principles How do we calculate the carbon footprint of a bank? <ul><li>Identifying economic activities financed by the bank </li></ul><ul><ul><li>Analysis of the bank’s balance sheet </li></ul></ul><ul><ul><li>Analysis of the type of products sold (retail banking) </li></ul></ul><ul><ul><li> M€ of holdings per type of asset </li></ul></ul><ul><li>Finding carbon intensity factors to each type of asset </li></ul><ul><ul><li>Annual emissions of the organization/activity </li></ul></ul><ul><ul><li>Book value of the organization/activity </li></ul></ul><ul><ul><li> CO2 emissions per M€ invested in the organization/activity </li></ul></ul><ul><li>Consolidating emissions </li></ul><ul><ul><li>M€ of each organization/activity financed by the bank </li></ul></ul><ul><ul><li> CO2 emissions associated to the bank balance sheet </li></ul></ul>CO 2
How can you use this? <ul><li>As a bank: </li></ul><ul><ul><li>Understand where you money goes </li></ul></ul><ul><ul><li>Choose climate-friendly products </li></ul></ul><ul><ul><li>Favor Best-in-class or cleantech sectors </li></ul></ul><ul><li>As asset managers </li></ul><ul><ul><li>Identify carbon intensive activities in your portfolio </li></ul></ul><ul><ul><li>Use the carbon intensity as a basis for carbon risk exposure </li></ul></ul><ul><ul><li>P revent reputation risks </li></ul></ul><ul><ul><li>Design climate-friendly products! </li></ul></ul><ul><ul><ul><li>-35% without breaking the balance between industries </li></ul></ul></ul><ul><ul><ul><li>Divided by >100 by investing in cleantech </li></ul></ul></ul><ul><ul><ul><li>Bonds and loan-backed securities are not intensive </li></ul></ul></ul>
How can you get involved? Quick wins / Low cost Ground breaking / Investment CO 2 Calculate the carbon footprint of your savings products (internal use) CO 2 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 activities Annexes CO 2
Sources for carbon intensity factors Overview of the approaches 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 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 factors M ain 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. CO 2
Sources for carbon & financial data Other 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 CO 2 National and international statistics to determine the breakdown of public expenditures , SMEs activities or consumption by industry group and/or product CO 2 30% recycling 40% incineration 30% waste collection
Organizations involved Carbon footprint of banking activities Annexes
Proposal Partners & 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
<ul><li>Created in 1993 by Elisabeth Laville </li></ul><ul><ul><li>Member of Nature & Découvertes BoD </li></ul></ul><ul><ul><li>Business woman 2008 Veuve Clicquot Award </li></ul></ul><ul><li>Activities </li></ul><ul><ul><li>Strategic planning & services </li></ul></ul><ul><ul><li>Information & research </li></ul></ul><ul><li>Company </li></ul><ul><ul><li>18 employees in Paris </li></ul></ul><ul><ul><li>Turnover: 2,6 M€ </li></ul></ul><ul><ul><li>Capital held by the founder and managers </li></ul></ul><ul><li>Skills and academic background </li></ul><ul><ul><li>Business School + Big 5 </li></ul></ul><ul><ul><li>Engineers & biologists </li></ul></ul><ul><ul><li>Lawyer specialized in Environmental issues, </li></ul></ul><ul><ul><li>Former Greenpeace activist </li></ul></ul><ul><li>Partners </li></ul><ul><ul><li>Communication: Ogilvy Group </li></ul></ul><ul><ul><li>Consultancies: Rever (Brazill), Sair Da Casca (Portugal), Centre Info (Switzerland), SustainAbility (UK) </li></ul></ul><ul><ul><li>Research: Graines de Changement </li></ul></ul>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." Fran ç ois Lemarchand, CEO-Founder of Nature & D é couvertes www. Constructiondurable .com .com .com
Our clients Pionneers Large caps Public agencies
Association for Transparency and Labeling of Financial Products
The association Aim: gather users and stakeholders <ul><ul><li>Members : </li></ul></ul><ul><ul><ul><li>Users (open to all banks and insurers) </li></ul></ul></ul><ul><ul><ul><li>Stakeholders (4 organizations in 2009) </li></ul></ul></ul><ul><li>Objectives </li></ul><ul><ul><li>Fine tune the methodology for savings products </li></ul></ul><ul><ul><li>Develop the methodology for other products </li></ul></ul><ul><ul><li>Enforce the label rules of use </li></ul></ul><ul><ul><li>Promote the initiative, recruit new users </li></ul></ul><ul><li>Means </li></ul><ul><ul><li>€ 100k annual budget for research </li></ul></ul><ul><ul><li>Monthly meeting to validate the new methodological principles </li></ul></ul><ul><ul><li>Speeches in conferences and workshops </li></ul></ul><ul><ul><li>Lobbying at French and EU levels </li></ul></ul><ul><li>Governance </li></ul><ul><ul><li>Voting rights: 50% users, 50% stakeholders </li></ul></ul><ul><ul><li>Members financial contribution: </li></ul></ul><ul><ul><ul><li>Users: $30k </li></ul></ul></ul><ul><ul><ul><li>Observers (industry associations, cies): €10k </li></ul></ul></ul><ul><ul><ul><li>Stakeholders: free </li></ul></ul></ul>Users Stakeholders panel Research contractor (2009)
The firm <ul><li>The Firm </li></ul><ul><li>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. </li></ul>Database envIMPACT® 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
Downloads www.utopies.com/bank-label Full methodology Report on the carbon footprint FOE reports on banks and insurers