Integrating Climate Risk into Credit Risk Management

Climate Risk
9 min read

As financial institutions race toward net zero commitments, financed emissions—the greenhouse gas emissions linked to lending and investment portfolios—have become the cornerstone of climate accountability. Yet, the credibility of these emissions calculations hinges entirely on data quality. Poor data doesn’t just skew numbers; it undermines decarbonization strategies, triggers regulatory backlash, and erodes stakeholder trust. Here’s why data quality is the bedrock of credible financed emissions reporting.

Enabling Science-Based Target Setting and Portfolio Decarbonization

High-quality data is the backbone of credible, science-based target setting for financial institutions. When banks, asset managers, and insurers have accurate, granular data on their financed emissions—the greenhouse gas (GHG) emissions linked to their loans and investments - they can:

  • Establish credible baselines: Reliable data ensures that the starting point for decarbonization strategies reflects the true climate impact of a portfolio.
  • Set realistic, science-based targets: Initiatives like the Science-Based Targets Initiative for Financial Institutions (SBTi-FI) require robust data to validate net zero financed emissions commitments.
  • Track progress effectively: High-quality data allows institutions to monitor emissions reductions over time, ensuring that decarbonization efforts are on track and can be adjusted as needed.

To support financial institutions on their decarbonization journey, StepChange offers the NetZero Navigator - a comprehensive suite of solutions designed to measure, analyze, and reduce financed emissions and manage climate risks with precision and confidence. NetZero Navigator empowers banks, asset managers, and insurers to quantify Scope 1, 2, and 3 emissions across their portfolios using robust, globally recognized methodologies such as the PCAF standard. The platform’s Financed Emissions module enables users to assess carbon intensities, benchmark performance against industry standards, and set science-based targets for portfolio decarbonization. Integrated climate risk and ESG scorecard modules further help institutions identify vulnerabilities, manage transition and physical risks, and optimize ESG metrics in line with evolving regulatory frameworks like TCFD, GRI, IFRS, and GHG Protocol. With scalable, customizable deployment options and alignment to international disclosure standards, NetZero Navigator provides the actionable insights and tools needed to safeguard long-term portfolio value and lead in sustainable finance.

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