A quick look at how Rabobank acts on climate
Rabobank is committed to act on climate and align its financing with 1.5⁰C pathways. Its commitment goes beyond its own operations: it wants to help its customers transition to climate-friendly practices as well. Rabobank’s approach to this journey is detailed in the climate plan it published in November 2022: Our Road to Paris. It describes which sectors of its portfolio have the most climate impact, how much science says that impact can and must be reduced, and how the bank can help its customers achieve these reductions. An extensive plan and that’s why we are interviewing Luke Disney to shed some light on it. As part of the Group Sustainability team he leads the climate team who made this plan.
So, to kick off, could you give a quick view of how much of Rabobank’s portfolio is already incorporated in its plan?
Disney: “Well, our plan does two important things: first of all it provides an inventory of both our own operational greenhouse gas (GHG) emissions and those of our customers. Secondly, we identify and set reduction pathways for our own operational emissions and for 12 sector/region combinations in our portfolio with a high intensity of GHG emissions. We set these targets using science-based decarbonization pathways.
Our first GHG inventory covered 85% of our relevant assets. In our most recent Impact Report (March 2023) we have expanded this to 87% and of course we are working to come close to 100% soon . The biggest challenges we face in making this inventory is that the vast majority of our customers do not report their GHG emissions, so we have to calculate these emissions using proxies. And for some economic sectors, such as agriculture, the calculation methodologies are still being developed. The good news is that more and more customers are reporting on their emissions and methodologies are continuing to develop.
Our 12 sector/region targets account for EUR 259.3 billion in exposure and 67% of the aforementioned customer’s emissions. We will increase the number of sector/regions as more data becomes available and methodologies improve.
We aim to work with our customers across sectors to help accelerate the low-carbon transition. As part of a broader climate strategy, we aim to help farmers shift to more sustainable agricultural practices – such as regenerative agriculture - and connect them to net zero committed businesses.”
Could you elaborate on the alignment between the Paris Climate Agreement and Rabobank's overall corporate strategy?
The Paris Climate Agreement highlights the importance of making finance flows consistent with a pathway toward low greenhouse gas emissions and climate-resilient development. In addition to the Paris alignment, Rabobank has also signed up for the UN's Net Zero Banking Alliance; an industry-led climate initiative under the Principles for Responsible Banking to accelerate science-based climate target setting and develop common practices.)
“Supporting the Paris Climate Agreement is in line with our roots as a cooperative bank and our mission of Growing a Better World Together: we're not just a financial institution that focuses on finance. We want our capital to make a positive contribution to today and tomorrow’s society. From a sustainability perspective we have three main priorities: (1) Act on Climate; (2) Value Nature and (3) Enable People.”
Disney continues: “The Paris Climate Agreement calls for a shift from financing activities with negative climate impacts to those with positive climate impacts, while continuing to support long-term development objectives. In the meantime, every person needs food and energy for their existence. And at the same time, both the food as well as the energy ‘system’ as a whole already have a strong impact on climate and nature and the rapidly growing world population will ask for more. Therefore, a significant change is required to make it future-proof, with strongly reduced greenhouse gas emissions and increased nature protection and restoration. That’s why, we will also contribute to a future-proof food system and energy system. To us, that is not only about climate and nature, but also about people. It for example asks for sustainably produced food and energy that will be more affordable, available and accessible. In addition to helping customers transition, we support the development of climate solutions, such as renewable energy, but also nature-based solutions such as our Acorn program, which is helping small-holder farmers to generate income through the sale of carbon-removal units (CRU).”
Why does Rabobank help its customers reduce their emissions? What are the challenges in doing so?
“Rabobank is a cooperative bank that is firmly rooted in local communities. Since our inception, our primary societal role has been to provide businesses and individuals access to affordable financial services, and, in so doing, to help build an economy that provides a solid and stable foundation for businesses and individuals to prosper. A stable climate, healthy natural environment and strong social cohesion are essential conditions for a solid economy in which people can flourish. In today’s world, being climate-smart and thinking seriously about sustainability is good business practice. Simply put, it’s in the best interests of our customers, us as a bank, and our society at large to be concerned about and act on the climate and our natural environment.”
“Our Energy and Food System Transition teams, as well as departments for major business lines, develop customer value propositions to support our customers in these transitions. For example, in the Netherlands, we have reserved 3 billion euros - for example for low-interest and deferred payment loans - to support farmers to become more sustainable. And we have just announced that we will offer mortgage customers with homes with a low energy efficiency label 1,000 euros to improve the insulation in their homes”, Disney continues.
“It’s important to keep in mind that climate, nature and people are all related. Helping our customers grow sustainably means taking all three into consideration. ”
How does Rabobank measure its scope 3?
The Greenhouse Gas Protocol (GHG Protocol) is a widely-used, comprehensive, global standardized framework for accounting and reporting GHG emissions. Scope 1 and 2 emissions are defined as direct emissions from a company’s owned or controlled sources, and indirect emissions are from purchased energy, according to the protocol. Meanwhile, Scope 3 emissions are the result of activities from assets not owned or controlled by a company, but that indirectly affect its value chain.
“For Rabobank, when we talk about our customers’ GHG emissions, we are talking about Scope 3 emissions, also known as ‘financed emissions’. There are essentially two steps to calculating our financed emissions. First, we need to know what our customers GHG emissions are. Second, we need to determine what fair share of those emissions can be attributed to our financing; in other words, how much of those emissions did our financing make possible. Both steps have their challenges.
Determining customer’s emissions is challenging due to data constraints. Only around 20% of our customers (mainly listed companies) currently report their own emissions, and there's a lot of variation in terms of data quality. For customers that do not publish their emissions, we rely on top-down, proxy-based calculations following PCAF (Partnership for Carbon Accounting Financials) guidelines, a methodology that most banks have adopted to calculate emissions. In the agricultural sector, we are encouraging customers to measure and share their emissions with us.
To calculate our fair share of our customers emissions we use the same PCAF methodology. However, PCAF, as with most methodologies for target-setting and calculating customer’s emissions, were initially focused on fossil fuel sectors. This has left financial institutions with large agricultural sector portfolios with a significant methodological hurdles to calculate an important component of their emissions or to set reduction targets for those parts of their portfolios.
In 2020, Rabobank and other banks set up a platform called Banking for Impact on Climate in Agriculture, together with the World Business Council for Sustainable Development, UNEP FI, to work on filling this gap”, says Disney.
As a closing remark Disney says Rabobank is seen as a leader in this area for financial institutions with agricultural portfolios. “We are proud of our progress, but we've still got a long way to go. In our latest GHG Inventory disclosure [March 2023, ed.] we managed to disclose 87% of our material on-balance sheet climate-related lending activities (51.5 Mt CO2e). And our goal is to have 100% of our lending portfolio covered by 2025.”
Rabobank’s climate and nature approach
Marie-Claire Franzen, Lead Nature, and Luke Disney, Lead Climate, explain more about Rabobank’s sustainability approach to Nature and Climate.