The Client: A large Japanese Bank

Users: The sustainability team

Banks and other financial institutions are under increasing pressure from stakeholders to evaluate the greenhouse gas emissions emitted by the businesses or assets they finance, invest in, or underwrite (Scope 3 emissions). This trend of evaluating financed emissions is expected to push financial institutions to make transparent climate disclosures on their emissions exposures, set targets in line with the Paris Agreement and other international standards, and evaluate progress against those goals.1 However, methodologies for estimating financed emissions vary significantly, and the necessary data is not easily accessed. At the same time, third-party verification and evaluation is becoming increasingly demanded by stakeholders across the industry.2

The sustainability team at this large Japanese bank wanted to evaluate their financed emissions from specifically their vehicle portfolio, broken into emissions from Well to Tank (emissions associated with extracting, processing, and transporting the fuel) and Tank to Wheel (combustion emissions). The team wanted to adopt a more granular, quantitative approach that could directly identify the drivers of emissions from a vehicle portfolio and project likely emissions pathways into the future. Their goal was to work with their automotive portfolio companies to set and progress towards reasonable emissions goals for 2030 and 2050.

Pain Points

While each vehicle manufacturer in their portfolio disclosed their GHG emissions, the sustainability team quickly realized that the methodologies, assumptions, and data quality varied significantly across the industry. They needed to identify a well-recognized third party that could provide:

  • Information on vehicle emissions by make, model, and powertrain combinations, accounting for geography and usage.
  • Details on the adjustments necessary to account for electric vehicles, including energy charging needs and grid emission factors.
  • Vehicle production and sales forecasts for various geographies under business-as-usual and climate-adjusted future scenarios.
  • Local and regional statistical data for distance travelled plus vehicle fuel efficiency and type.
  • A deep understanding of the leading financed emissions standards and calculations necessary to support reporting and net zero target setting.

The sustainability team contacted S&P Global Mobility and S&P Global Sustainable1 to address these challenges. The Mobility division is the world’s foremost provider of automotive data and insights. Sustainable1 brings together S&P Global’s extensive ESG resources to provide clients with a 360-degree view to help achieve their sustainability goals.

S&P Global Mobility’s sustainable mobility division works with the world’s largest vehicle manufacturers to analyze millions of vehicles and provide a range of nuanced insights. In turn, Mobility engages with financial institutions to evaluate the financed emissions across clients’ vehicle investment portfolios in a way that has supported due diligence, strategic decision-making and a comprehensive understanding of emissions forecasts. Robust and consistent data models give a holistic picture of emissions at the vehicle type, company and portfolio -level, along with actionable takeaways.

Banks and financial institutions are becoming increasingly pressured to report on their financed emissions, set net-zero targets in line with the Paris Agreement, and work with portfolio companies to progress towards those goals.

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The Solution

The sustainability team worked with S&P Mobility to identify key information on their financing of automotive manufacturers. With this data, the S&P Mobility team broke out the calculation of vehicle emissions into three key steps: (1) vehicle lifetime emissions, including tank-to-wheel (combustion) and well-to-tank (supply chain) emissions, (2) manufacturer-level emissions projections, and (3) portfolio-level analysis with net zero goal setting.

Step 1: Calculate Well-to-Wheel Emissions

Well-to-Wheel emissions is broken out into Well-to-Tank emissions (associated with extracting, processing, and transporting the fuel) and Tank-to-Wheel (combustion) emissions. For Well-to-Tank emissions, the S&P Global Mobility team had to estimate the upstream CO2 production for gasoline (including extraction, refinement, and shipping) and electric (including grid emissions) vehicles. For Tank-to-Wheel emissions, the S&P Global Mobility team had to estimate lifetime mileage and CO2 production per mile for each gasoline vehicle-powertrain combination in the dataset.

Step 2: Calculate Manufacturer-Level Emissions Projections

Using the vehicle-powertrain level well-to-wheel emissions, the S&P Global Mobility team was able to create manufacturer-level average emissions, as required for financed emissions calculations. Pairing these estimates with production forecasts, the S&P Global Mobility team produced forecasted emissions by year of production for each major vehicle manufacturer.

Step 3: Calculate Financed Emissions and Set Net-Zero Goals

Armed with forecasted emissions for each major vehicle manufacturer, the Sustainability team estimate the vehicle emissions financed by their automotive portfolio. Alongside these manufacturers, the client Sustainability team could set clear, informed 2030 and 2050 emissions targets and identify paths to net zero.

Key Benefits

Members of the sustainability team recognized that actionable net zero goals would require detailed and accurate baseline information on the financed emissions of their vehicle portfolio. They were impressed with S&P Global Mobility’s deep vehicle-level data and bottom-up approach that aggregates to the portfolio level for multiple GHG concentration scenarios and time horizons, generating actionable results. Following the work with S&P Global Mobility, the client was able to:

  • Understand and trace the Scope 3 emissions from their vehicle portfolio, across the entire vehicle lifecycle, based on a transparent methodology and rigorous analysis.
  • Evaluate projections for the emissions of their portfolio under business-as-usual and climate-adjusted future scenarios.
  • Establish ambitious net-zero goals for their vehicle portfolio in line with the Paris Agreement and other international standards.
  • Develop a plan to work with their portfolio companies to meet their net-zero goals.