The role of CSO or chief sustainability officer in the rapidly growing financial services industry is changing. More and more CSOs are taking proactive steps to mitigate climate change in a bid to limit global warming to pre-industrial levels.

It must be noted that the IPCC has warned that to limit global warming to 1.5 degrees Celsius, emissions must peak before 2025, then decrease by 40% by 2050, and a quarter by 2030.

Commitments:

A recent Deloitte and the Institute of International Finance (IIF) survey reveals that FSI leaders are aware of time constraints and have shifted their approach to managing net zero internally. According to the survey, 45% of firms now have a chief sustainability officer (CSO), with more business functions taking responsibility for specific net-zero tasks.

The firms must be at the forefront of a whole economic transition to meet decarbonization targets, the Deloitte study notes.

It found that a majority of the world’s largest publicly traded companies have yet to announce net-zero targets. Nearly two-thirds of the companies have not fully specified how they plan to reach them. However, global financial firms are moving ahead at speed, with rapid growth in net-zero commitments, particularly through the Glasgow Financial Alliance for Net Zero (GFANZ).

Key findings:

Financial firms must transform themselves and manage risks to drive real-world change, engaging with customers and markets, and designing credible decarbonization strategies to transition economies to a low-carbon future.

A net-zero commitment is crucial for firms to meet the climate challenge, leading to increased product innovation, enterprise engagement, and faster progress on data sourcing.

The CEO delivers the net-zero strategy, which requires tight program management across multiple divisions and operating layers.

Over 70% of firms now have a CSO or equivalent, and CSOs must be agile change agents. Talent is also increasing, with over 50% hiring to deliver net-zero strategies.

Firms are shifting their focus to new value drivers and opportunities, launching new products to accelerate clients’ transitions.

Risk skillsets are in high demand, and modeling methodologies are maturing rapidly. Firms must design credible decarbonization strategies, focusing on data, communication, and the ecosystem.

The key to effective net-zero communications is transparency, accountability, and authenticity. The only way to meet the unique nature of the climate challenge is through extensive collaboration across the entire ecosystem, including peers, clients, scientists, NGOs, governments, and regulators.

The regional divide:

The survey of global financial firms reveals significant variations in their approach to implementing and executing net-zero commitments.

The study analyzes climate risk management in businesses across different regions. Most firms incorporate net zero into risk management, but regional variations were observed. North America and the rest reported basic integration, while APAC and European businesses had more integration.

Overall, regional confidence in data accuracy was low.

Businesses in APAC and Europe frequently use shadow carbon pricing, with NGOs moderately influencing net-zero commitments. Financial sector cooperation with governmental bodies and public institutions is crucial for energy transition.

European respondents prioritize societal expectations and regulatory compliance, while North American respondents highlight the market opportunity’s scale.

Asia-Pacific participants highlight physical factors escalating climate risk, prompting businesses in developing nations and emerging markets to address the concerns of significant foreign investors.

Businesses in many geographical areas exhibited a similar pattern of integration. However, North American businesses showed similar integration patterns but reported low net-zero strategy integration with overall corporate strategy, customer screening, and product innovation.

Businesses in all regions agree that their governance systems do not effectively represent their net-zero objectives, with North America reporting the least updates or revisions.

The way forward:

The sector already shows an appetite for this challenge and an undertaking to help green the global economy. A growing number of financial institutions have pledged to make their portfolios net zero by 2050 or sooner, and a few have already started measuring their financed emissions.