Hitting the target without missing the point

Written by Bevis Watts on 10th Nov 2021

This article is an extract from our new Good Guide to Net Zero, which explains what net zero actually is, how it affects you, and how you can apply the concept to your own life and finances. In partnership with Triodos Bank, Ecology Building Society, Nest pensions, Ethex and Make My Money Matter.

With some inconsistency around how net zero is defined, the targets and announcements from financial institutions can be somewhat confusing. Here, we explain our approach to target setting at Triodos and some important points to look out for.

Measuring emissions

It is hopefully clear now that in order to reach net zero, an organisation needs to tackle its impact across all three scopes of emission. It is often the ‘scope 3’ that is the largest area and the hardest to measure, but crucially for financial institutions like banks it must include the greenhouse gas (GHG) emissions of loans and investments. They must not shy away from this responsibility – it is a huge challenge.

The first step is measuring these emissions effectively and consistently. In 2016, in the wake of the Paris Agreement, the Partnership for Carbon Accounting Financials (PCAF) was established in the Netherlands and it has become the globally recognised standard for measuring the carbon footprint of loans and investments. Triodos implemented the PCAF methodology in our own reporting for the first time in 2018 and extended the scope of accounting to cover 100 per cent of loans and fund investments in 2019.


Of course, Triodos Bank does not invest in fossil fuels and so, as you might expect, our climate impact report shows that we have a relatively low climate intensity from our loans and funds. Even so, transparency around the challenges involved is key – be it in housing portfolios, food & agriculture or small businesses who might be struggling to measure their emissions. Triodos leads the way by publishing the confidence we have in our emissions data, and how we plan to improve this year on year.

Can ‘offsets’ be used by banks to reach net zero?

There must be transparency on the role of offsetting in a net zero strategy. In order to reach net zero, the Science Based Targets initiative (SBTi) framework states that an organisation should first reduce its emissions as much as possible, along its full value chain (so scope 1, 2 and 3) in order to be consistent with limiting global warming to 1.5 degrees. Then they must neutralise the impact of any emissions that cannot be eliminated by permanently removing an equivalent volume of carbon from the atmosphere.

The ‘compensation’ type of offsetting can complement a net zero strategy, but it is really important to note that avoided emissions can’t be used to ‘balance the books’ as some banks are trying to do. At Triodos we have ‘avoided emissions’ from fossil-fuel power generation due to investing in, for example, renewable energy.

But we present these avoided emissions in our reporting beneath actual emissions. This is because, while avoided emissions play a very positive role, they do not remove existing carbon from the atmosphere. Offsetting investments in high carbon projects against avoided emissions is not a reasonable definition of net zero.

What you need to know about: Triodos Bank

Removing carbon from the atmosphere

In essence, in the quest for a science-based net zero target banks need to reduce emissions in their lending and investing as much as possible, and then neutralise any emissions that are left over by removing carbon from the atmosphere. Some others look to new technology to offer the solution, such as carbon capture and storage.

But we are a long way from scaling these options and the economics around a price on carbon are not developing quick enough. We hope that offsets might take the form of large-scale investments in nature-based solutions that sequester emissions – such as restoring natural carbon sinks like forests, wetlands and peatlands.

What about a ‘just transition’?

In order to set a robust net zero target, we are most conscious of the need to reflect critically on our portfolio – particularly as we want to support a sustainable and just transition. For Triodos, we don’t want net zero targets to adversely affect our mission and the positive impact we strive for – or the holistic nature of our impact. The transition to a net zero economy must be a just one (you could call it ‘Just Zero’) as we continue to deliver on our mission to finance positive impact while supporting social inclusion.

Sustainable banking means using money consciously today without compromising the needs of future generations. A just transition is one thatconsiders these needs, addresses wealth inequality, and delivers both social and environmental outcomes in tandem.

A Good Egg: Triodos Bank

No one should be pretending net zero is easy

If they are not doing so already all banks need to reflect critically on their
lending and investments portfolio. The setting of targets is useful to show intention – which is why Triodos has previously voiced its support to the Net-Zero Banking Alliance that agrees to align operational and attributable emissions from portfolios with pathways to net-zero by 2050 or sooner. But it is all our responsibility to ask those promoting their targets the important question – ‘how’?

We must hit the target without missing the point. Setting net zero goals needs to be done carefully rather than announcing arbitrary targets too quickly and using them in marketing campaigns that give the impression that it can be ‘carry on as usual’ and delay meaningful action or system change.

We will continue to urge the financial sector to stop investing in fossil assets and any new upstream exploration activity, as recommended by this year’s International Energy Agency (IEA) report. We will call for a ‘reset of the economy’. Only if we recognise the urgency and act together can we combat climate change effectively.

Don't miss the good stuff!

Sign up for the newest and best green money deals in your inbox every week