How Financial Institutions Serve as the Backbone of the Net Zero Agenda

In the pursuit of net zero, sectors like oil and gas, energy, and transportation often lead the narrative. Yet, the financial sector, as a facilitator of economic activity, plays an equally indispensable role in global climate efforts. 

Financial institutions (FIs) are transitioning to sustainable finance and aligning with net zero goals, making it an imperative to measure greenhouse gas emissions from their business activities—i.e., financed emissions. Given this, the investment and lending decisions of these institutions act as central support systems, directly influencing the pace of this transition. 

According to Standard Chartered’s net zero roadmap, financed emissions account for a staggering 98.7% of total emissions, while operational emissions make up just 0.1%. This large gap signals the urgent need for FIs to prioritise addressing financed emissions in order to achieve meaningful progress toward net zero goals. 

By embracing net zero targets and transparently reporting emissions–banks, asset managers, and insurers actively safeguard the planet while managing climate risks to protect their portfolios. 

This transition demands collaboration, not just individual efforts. Global initiatives and standardised frameworks stabilise the net zero agenda and equip FIs with tools and guidance that aid them in aligning with climate goals. 

Global Forces Guiding Climate Commitments 

The Glasgow Financial Alliance for Net Zero (GFANZ) drives the financial sector’s commitment to sustainability. GFANZ unites over 675 institutions managing 40% of global private assets, each pledging to decarbonise their portfolios by 2050. Frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) guide FIs as they evaluate and disclose climate risks.  

Meanwhile, the Partnership for Carbon Accounting Financials (PCAF) sets a global standard for measuring and tracking financed emissions. Across the GCC, eight FIs have joined PCAF, reflecting a growing commitment to transparent emissions accounting. FIs consistently use PCAF as their preferred framework as it aligns with industry needs and simplifies emissions accounting across portfolios.  

Sustainable Square’s in-house Financed Emissions Tool supports financial institutions in assessing their climate impact by calculating and analysing greenhouse gas emissions associated with their financed activities, aligning with the PCAF framework. 

Complementing these efforts, the Science-Based Targets initiative (SBTi) is developing a Financial Institution Net zero (FINZ) standard, which is set to launch in 2025. Currently, the UAE leads in the GCC region with three FIs actively participating in SBTi, accentuating the region’s increasing engagement in science-based climate action. This standard will help align portfolios with global climate targets and ensure FIs take measurable steps in the low-carbon transition. 

Advancing Net Zero in the GCC 

The financial sector’s commitment to achieving net zero is non-negotiable for the GCC, given its heavy reliance on oil and gas. Although reaching sustainability goals poses unique obstacles for these economies, the region has demonstrated a strong focus on net zero targets. For instance, Oman plans to achieve net zero emissions by 2050, and Bahrain targets carbon neutrality by 2060. These goals align with national visions such as Oman Vision 2040 and Bahrain Economic Vision 2030, which aim to diversify and fortify their economies. 

FIs in the GCC are advancing sustainable finance by issuing green and sustainability-linked bonds, sukuks, and loans, while enhancing transparency in carbon accounting. In 2024, sustainable bonds comprise 15–20% of the region’s total issuances, outpacing the global average of 12–14%. 

A notable example is Emirates NBD’s $750 million green bond issued in 2023 to fund projects in renewable energy, green buildings, and clean transportation. These projects include the Mohammed bin Rashid Solar Park in Dubai and Saudi Arabia’s NEOM Green Hydrogen Project, which is expected to produce 600 tonnes of green hydrogen daily by 2026. Together, these initiatives are projected to prevent over 4.65 million tonnes of carbon emissions annually. 

Aligned with the UAE’s Net Zero 2050 strategy, Emirates NBD’s portfolio reveals the role of sustainable finance in supporting a low-carbon economy, setting a benchmark for FIs across the GCC. 

Essential Drivers of Change for Financial Institutions 

Beyond creating and issuing green finance instruments, FIs need to explore the right tech stack and adopt innovative strategies to build a strong foundation for external financing efforts.  

Core Tools Driving Change  

• Carbon Accounting Software: Enables institutions to track, manage, and report operational and financed emissions in line with frameworks like TCFD, while leveraging a built-in library of emission factors to ensure accurate, validated and efficient reporting.  

• AI-Driven Data Visualisations: Simplifies emissions tracking with customisable dashboards and graphs, offering actionable insights and progress monitoring towards net zero goals. 

• Centralised Data Hub: Streamlines access to critical information, improving organisational decision-making and ensuring compliance. 

• Automation for Efficiency: Automates data collection and review processes, reducing resource burdens and allowing staff to focus on sustainability training and long-term objectives. 

• Role-Based Validation: Ensures data accuracy by assigning specific roles for entry and approval, enhancing overall reliability. 

Sustainable Square’s AI-powered ESG solution offers a comprehensive suite of tools to support financial institutions in their journey to net zero. From emissions tracking to data visualisation and automation, SQUARELY empowers institutions to align with global climate goals and drive lasting impact. 

What COP29 Means for Financial Institutions 

The COP29 conference, dubbed as the ‘Climate Finance COP,’ has reshaped the finance sector’s net zero commitments further. Key outcomes include the confirmation of a new climate finance target, requiring developed nations to provide $300 billion annually by 2035 to support developing countries in addressing climate change. These funds are expected to be directed towards two main areas: preparing for the impacts of climate change and facilitating the transition away from emissions-producing fossil fuels. For FIs, this raises the bar on accountability and transparency, as funding flows will be scrutinised to ensure alignment with net zero goals. 

Stricter global standards and reporting requirements are now on the horizon, particularly for institutions financing high-emission sectors such as energy and manufacturing. Policymakers and stakeholders demand enhanced transparency, which could compel FIs to align their objectives more closely with frameworks like the SBTi and the GFANZ. These frameworks not only guide institutions in setting credible climate targets but also help them demonstrate how their financial strategies contribute to net zero pathways. 

To bridge the gap between ambition and action, financial institutions must actively participate in shaping sustainable finance practices. The private sector and regulators need to engage in meaningful dialogue to create policies that incentivise low-carbon investments. Governments and organisations are fundamental in raising awareness, providing risk-sharing mechanisms, and enabling impactful investments across all levels—from commercial entities to individual consumers. 

Conclusion 

FIs form the backbone of the global net zero agenda and have the power to shape a sustainable future. As COP29 redefines the finance sector’s role in climate action, the challenge becomes clear: will your organisation rise to the occasion, or will it risk slipping behind in the push for a low-carbon economy?