The Big Smoke: The Global Emissions of the UK Financial Sector

This study, commissioned by Greenpeace and WWF, assesses the greenhouse gas emissions associated with global investments of the 15 largest British banks and 10 largest asset managers. Using publicly disclosed data, it finds that the examined institutions financed activities responsible for the equivalent of 805 million tons of CO2 emissions. Although not directly comparable, this represents almost 1.8 times the UK’s domestically produced emissions and is larger than the total emissions of Germany or Canada.

This is the first analysis of its kind based on data publicly disclosed by financial institutions. It comes as the Bank of England (BoE) prepares to launch a substantial stress-testing exercise to examine the resilience of the UK’s largest financial institutions to different possible climate scenarios.

Led by climate analytics company South Pole, the study uses 2019 emissions data from company disclosures in sustainability reports and from corporate reports to standards bodies such as the Carbon Disclosure Project, the Taskforce on Climate-related Financial Disclosures and Pillar 3 of the Basel Consolidated Framework.

Where data was incomplete, disclosed emissions are used as proxies for the remaining value of assets under management. Emissions are calculated following the methodological principles of the Global GHG Accounting and Reporting Standard and the application guidelines provided by the Partnership for Carbon Accounting Financials. A high-level sample check was completed prior to publication to ensure substantial changes had not taken place during 2020.

The assessment covers a variety of asset classes, industries and geographical areas, differentiating it from similar studies focusing only on carbon intensive sectors. The highly publicised headline finding of the exercise is that, if they were a country, the 25 financial institutions examined would together rank ninth in the world for carbon emissions.

However only direct Scope 1 and energy-related Scope 2 emissions are assessed, with indirect Scope 3 emissions in company value chains not considered for methodological reasons. Pension schemes and insurance premiums are also excluded, so the true emissions financed by these institutions is likely to be substantially higher than the results would indicate.

The report concludes with a series of policy proposals to reduce the impact of UK financial institutions on climate change. For example, the UK government should enact legislation requiring all UK regulated financial institutions to adopt and implement a transition plan aligned with the 1.5°C target of the Paris Agreement. The report also calls for the BoE to adjust its macroprudential regulatory framework so climate-related risks and impacts are more accurately reflected in capital liquidity rules, and to ensure climate-related risks and impacts are integrated into asset purchase schemes and the collateral framework