“It was never going to be straightforward”, says Joe Bakowski, Metro Bank’s director of procurement, supplier risk and commercial management, when referring to the firm’s ambitious – and troublesome – carbon emissions plan.
The financial services sector faces a tricky set of challenges when it comes to determining emissions. While Scope 1 and 2 are relatively straightforward, in comparison its Scope 3 emissions are virtually intangible and therefore very difficult to quantify – or to know where to draw the line.
When setting out a carbon plan, a common approach is to go for low-hanging fruit; set your policies and aim for several quick wins to get the ball rolling and instil confidence in the plan. But Metro Bank wanted to go beyond the industry baseline to truly inspire employees with a comprehensive carbon reporting plan that matched the company’s values and would deliver real results. The bank made a commitment to reach net zero by 2050, but soon found that even one seemingly simple decision was a can of worms.
Computers, for instance. When choosing computer devices, Bakowski recalled how the decisions quickly spiralled. Do you compare devices by plastic content, volume of precious metals, ethical production of said minerals and best scoring for end-of-life, or stick to energy efficiency? And how does that impact data centre power consumption and user behaviour?
Setting the parameters wasn’t the only early challenge. They then had to find a way of translating measurement into action, which the team says is missed in spend-based reporting.
“It doesn’t support meaningful interventions with suppliers. If we just report an average emission-per-pound spent, we can’t measure whether our suppliers are actually performing well or badly,” says Bakowski. “It also relies on average emissions per category improving in order for us to demonstrate progress in reducing supply chain emissions. So we’re essentially beholden to a reduction in market coefficients over time to show improvements, which is nice, but meaningless in terms of driving or recognising true reduction activity.”
Plan how to take action
Metro Bank’s goals hinged upon developing a meaningful way to measure supply chain emissions; one that would, in time, give it the capability to drive change to deliver the 2050 target.
The team drew up a three-point plan to drive the programme: prepare 20 questions to survey suppliers, identify which suppliers to focus on, and develop approaches to new and existing customers. Supplier responses to the questions were collected through the Financial Services Qualification System (FSQS) community – a group of more than 50 financial institutions that have joined forces on supplier due diligence to share effort and improve data quality.
Suppliers were selected according to their spend and relative environmental impact “to see where we can have the greatest effect”, says Bakowski, who explains the methods used differed greatly depending on whether dealing with new or existing suppliers. “New suppliers are evaluated against questions at RFO and we build ESG requirements into contracts. But existing suppliers, where we already have contracts in place, are much more of a challenge,” he says, noting that for the most part those suppliers are often much bigger than Metro Bank.
“We measure how they are performing versus a group of similar peers, and play that back to them at regular business reviews. The aim is to recognise those that are already doing well, cajole those that are doing less well, and have conversations with all of them about what more they could do.”
Overcoming challenges
As Bakowski and his team drilled down deeper into the emissions activities of their main suppliers, tech companies and professional services firms, the challenges began to emerge. He says: “It becomes very esoteric when you’re looking to analyse the emissions of cloud computers, software and other technology, and the professional service providers that develop software for us.
“Determining quite what the carbon intensity is of those things is really quite challenging. Big data centres generate an awful lot of carbon because they’re huge consumers of electricity, so how do you get your arms around that in a way that’s meaningful, understanding what portion of it is attributable to you? I can’t point to that server in an AWS data centre and say that’s Metro Bank’s one, in the same way that I could to a car coming off an assembly line, for instance.”
Then there was the question of how to compare supplier emissions. “We could compare the suppliers’ total emissions, but if one is much bigger than the other, and has greater emissions as a result, it doesn’t automatically follow that they’re a worse supplier,” says Bakowski. He says an obvious solution would be to develop a common intensity measure such as tCO2e/£m revenue, but even this has its problems when making comparisons.
“If one supplier is based in London and the other is in Bangalore, there’s a risk the UK firm will appear better because they charge higher day rates. If one supplier offers professional services only, but the other offers professional services and software as a service (SaaS), it doesn’t mean the second is automatically worse. If one supplier starts with a relatively modest emissions intensity that remains constant, whereas the other starts with high emissions that are reducing fast, which is better?” he asks.
Keep nudging forward
Developing a robust carbon reporting plan has uncovered unexpected degrees of complexity, and limitations, but Metro Bank has stuck by its ambitious data capture goals. “While we have imperfect data, we need to strike the right balance between thinking and doing,” says Bakowski.
Despite having plunged into a metaphorical rabbit hole, he says there was no turning back if the bank was to control its journey to net zero Scope 3 emissions by 2050. “In order to target our long-term actions more effectively, our data and overall understanding needed to get better,” he adds. And the plan looks to be paying off.
Bakowski remains confident that Metro Bank is on course to develop an increasingly objective plan that will nudge suppliers in the right direction. Although initially he had been unsure about comparing suppliers within their peer groups, it was a winning element. He says: “I was quite nervous about introducing that because I expected all sorts of pushback from them, that they might say you’re not calculating it properly and so on. But so far it’s landed well. The suppliers that have got a good story are saying, ‘This is great. This is exactly the sort of thing that we want.’ It’s most effective where a supplier is strong in certain areas.
“Our approach is already proving its worth. Some of our largest global suppliers are engaging really positively, and initial feedback from them is that our approach is among the most advanced and effective they’ve seen; we’re also talking to a couple of consultancies that want to learn more about what we’re doing for their own best practice. As regards effectively measuring impact – that’s the next step, as we move from spend-based Scope 3 emissions calculation to actual supplier emissions measurement.”
Some benign factors are expected to help the bank on this journey. For one, the data will undoubtedly improve, although Bakowski says, “We’re yet to get the thing we’re crying out for: a central standardised view of emissions that allows you to make genuine, proper decisions”.
It's a joint journey
There’s also a recognition that there is something of a shared journey with many of the suppliers, who are themselves navigating a route to net zero. “There is a slightly symbiotic relationship between ourselves and the big suppliers in that we are going to be entirely dependent on the big suppliers to get to their own net zero,” he says.
Metro Bank’s move from pure spend-based emissions reporting into actual emissions-based reporting should take place over the next two years. Bakowski says it will be a gradual movement, “in that we’re not going to do all our suppliers at once, but we’ll be able to increasingly turn it from something that is directional and theoretical into something tangible and real”.