ESG: Addressing Scope 3 emissions

We all know about climate change; it has become a major talking point in our day to day lives, and we all continue to make changes to lower our impact. Reducing our plastic consumption, moving to electric vehicles, and even smaller tasks such as day-to-day recycling have become embedded into society’s consciousness. So, it is only natural that ESG aims to address this, and one of the most significant ways that lenders can address their impact is through analyzing their Scope 3 emissions.

There are three “scopes” of emissions – Scope 1, Scope 2, and Scope 3. We have explained the differences between these in one of our previous blogs, which you can read here. Scope 1 and Scope 2 emissions are not usually a huge concern for lenders as they don’t tend to have high emissions in these areas.

Scope 3 emissions are most important to secured lenders as they include financed emissions, which are the emissions produced by borrowers. This means that if a lender is offering finance towards a high-emission project, this directly contributes to their Scope 3 impact. Scope 3 emissions are significantly higher than Scope 1 and 2 for lenders.

Why is the focus on emissions so important?

Net Zero is the goal for governments around the world. This is where the amount of CO2 we produce is no more than the amount taken away, resulting in no net increase. The Paris Agreement is one of the most influential treaties on climate change, which has an aim to reach net zero emissions globally by 2050 in order to limit global warming by 1.5 degrees Celsius by the end of the century. 194 States and the European Union have all joined the agreement, meaning that not only is this goal a global effort, but we could see much more legislation introduced surrounding it.

There are much more ambitious targets also being worked towards. The Climate Pledge, signed by 445 companies across 38 countries, wants to bring the Net Zero target forward to 2040. The idea of this pledge is to bring together top companies to work collaboratively to meet this target, and while it may not be law, it shows a clear shift in companies wanting to address the impact that they have.

How can lenders reduce their Scope 3 emissions?

Secured lenders now have a great opportunity to expand their product offering, capture their share of an emerging market, and most importantly, reduce their emissions. Solifi Open Finance Platform has the flexibility you need to scale up your product offering. As our solutions are fully configurable, you can expand on your ESG strategy with ease.

Offering finance options to “green” assets is one of the biggest ways to tackle their emissions. There is no set definition of what a green asset is, but based on ESG principles, these could include assets such as solar panels or electric vehicles.

Another way to reduce emissions is by offering leasing options. By leasing, consumers can upgrade to newer, more efficient products (such as the latest electric vehicle), while the lenders get more usage out of a single asset as it can be leased again and again. The lenders are in control of the asset too, meaning that they can ensure it is well maintained, and when it reaches end-of-life, it can recycle its usable materials rather than the customer disposing of it when they no longer need it. Overall, lenders have a great opportunity to offer new types of loans while also reducing their Scope 3 emissions.