The prominence of environmental, social, and governance (ESG) issues today and the market demand for greater insights are reshaping requirements for disclosure and analytics. Customers, investors, and other stakeholders are seeking to learn more about a company’s ESG track record, while companies are looking to dig deeper on their strengths and weaknesses to take meaningful action.
This U.K. commercial bank wanted to better understand the carbon footprint of its loan portfolio. This would enable meaningful targets to be set for reducing financed emissions and help the bank craft a message to the market about efforts that were underway. In addition, the bank wanted to prepare for upcoming regulations proposed by the Prudential Regulation Authority requiring the use of scenario analysis to evaluate potential risks. The bank established a task force with representatives from the sustainability team, data services, and business groups to put in place a plan of action.
Pain Points
The task force needed access to comprehensive environmental data to create a baseline carbon footprint for the loan portfolio. With data on revenues and debt outstanding for each loan customer, it would be possible to calculate the portion of emissions being financed by the bank. It was very difficult to find this type of information in the public domain, however. In addition, the bank had a large loan business with small- and medium-sized enterprises (SMEs), and these firms did not report their emissions. Given these challenges, it was important to identify an information provider that could deliver:
- A single source of broad and reliable environmental data for public companies.
- Financial data to readily understand a company’s revenues and debt obligations.
- A sound methodology to estimate emissions for SMEs.
- The ability to easily map internal to external data that use different classification schemes, in order to have one unified database.
- The ability to house data in a company-wide warehouse for use across the bank. This would include pulling the data into a portfolio management system to help the asset management division assess the impact of its investments on the bank’s carbon footprint.
The team began discussions with S&P Global Market Intelligence (“Market Intelligence”) to learn more about the firm’s offering.
The task force wanted to create a baseline to understand the current carbon intensity of its loan portfolio. Importantly, this required a sound methodology to estimate emissions for the large number of loan customers that were SMEs and did not disclose this data.
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The Solution
Market Intelligence discussed some of its traditional data, plus numerous offerings of S&P Global Trucost that assesses risks relating to climate change, natural resource constraints, and broader ESG factors. This set of solutions would enable members of the task force to:
Establish a carbon baseline for the loan book
Carbon Emissions Data contains information on over 16,000 companies,1 covering Scope 1, 2, and 3 with metrics on quantities and intensities of carbon-equivalent emissions (tCO2e, tCO2e/US$ revenues) and their estimated damage cost equivalents, along with impact ratios. Sector revenue data gives revenues and percentages of company revenues derived from each of 464 business sectors. Data goes back to 2005, where available.
Determine the bank’s share of financed emissions
S&P Capital IQ Premium Financials for public and private companies provides standardized data for over 5,000 financial, supplemental, and industry-specific data items for over 150,000 companies globally, including over 95,000 active and inactive companies across multiple industries.
Debt data within the package provides a deep look at a company’s capital structure to assess its liabilities. This covers over 82,000 public and private companies worldwide
Estimate carbon emissions for SMEs that don’t report
S&P Global Trucost Environmentally-Extended Input-Output (EEIO) Model brings together a vast database of industry-specific environmental impact data with quantitative macroeconomic data on the flow of goods and services between different sectors of the economy. The EEIO model lets users estimate environmental impacts for a company’s own operations and across their entire global supply chain, given the availability of company revenue details by industry sector.
Better understand energy assets of loan customers
The Energy Offering delivers a range of capabilities from company financials and commodity pricing to detailed statistics, summaries, and project tracking. Data covers industry subsectors, such as power, natural gas, renewables, and coal. Key types of data available include: News, market details, corporate finance data, supply and demand analytics, power plant data, third-party commodity prices, power forecasts, and more.
Easily integrate internal and external data
Business Entity Cross Reference Services quickly links the standardized and proprietary IDs for over 28 million entities to the primary key, the S&P Capital IQ Company ID.
Store data in a centralized warehouse for use across divisions
XpressfeedTM automates the download and management of Market Intelligence data to a centralized company warehouse, supporting delivery as needed in a ready-to-query relational database.
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Key Benefits
Members of the bank’s task force thought that Market Intelligence’s comprehensive solution set could help them address financed emissions in the loan portfolio and meet upcoming regulations. In addition, the information could be used more broadly across the organization to inform the company’s new product development teams, as well as the asset management and insurance divisions. In particular, the task force saw value in having:
- Ready access to a single source of broad and trusted environmental data that could be stored in a centralized warehouse and shared across the organization to drive numerous applications.
- A sound methodology for determining the bank’s share of carbon emissions for loan customers that report this information and, importantly, the ability to estimate emissions for SMEs that comprise a large part of the portfolio.
- Ongoing support to thoroughly understand these methodologies, enabling the task force to effectively describe them to stakeholders.
- Improved workflows with easy integration of data with internal applications using a powerful data feed solution and cross-referencing capabilities.
- The ability to publicly announce targets for reducing the bank’s carbon footprint, along with appropriate strategies for meeting these goals.
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1All data as of February 2021.