Hi guys. Welcome to the Fintech Coffee Break. I’m your host Isabelle Castro.
A few weeks ago, I sat down in London with Matt Bullivant, OakNorth’s, Director of ESG strategy.
In the race to meet Net Zero targets, greenwashing has been cited as the ultimate enemy, and a lack of transparency in ESGs has been fueling the flames of skepticism. For fintech, scope three carbon emissions is an area where companies can make a significant impact on reaching sustainable goals.
OakNorth has been particularly focused on supporting sustainable growth within their own company as well as providing tools to shed a light on others’ impact on the environment. They form a part of many international consortiums campaigning to do the same.
I spoke to Matt about the issues with ESGs, the power of scope three emissions, and why fintech could be integral to meeting Net Zero targets.
Matt Bullivant – I’ve got a coffee because I had a cold last week, which is nothing to write home about, but Tom will know that yesterday I came in, and my voice was all over the place. It just kind of started to get back to normal.
Isabelle Castro – Well, it is the coffee break podcast.
Matt – Well, exactly. It would be foolish of me not to have one.
Isabelle – Yes, exactly. Okay. Hi, Matt. Nice to see you.
Matt – Hi, morning.
Isabelle – I’m really happy to be here at the OakNorth offices. To begin with, I just want to know what gets you up in the morning,
Matt – You mean aside from many alarms and vast amounts of coffee. But seriously, I think without being too cliched, working in ESG and sustainability means you never really know what you’re going to encounter from one day to the next. There are so many exciting innovations and inspirational people out there doing incredible things to achieve extraordinary positive outcomes. And it really is worth getting up for.
Isabelle – I agree. I agree. And you guys are one of these people. What attracted you to looking at the sustainable side of finance and to come into OakNorth?
Matt – Yeah, so originally, my background was in mainstream banking and finance. And I first started looking at sustainability from an investor perspective. And what became very apparent to me is that sustainability in any business had gone from being a nice to have to a need to have, both in terms of growing stakeholder awareness and expectation on social and environmental matters, as well as huge generational challenges like climate change.
Banks really are uniquely placed in that their financing can influence a whole array of customers that they support, covering multiple sectors and industries across the whole economy. And OakNorth has a really refreshing level of ambition when it comes to sustainability and climate change. Because not only were they an organization that already had a leading climate product within their credit intelligence software, but a real desire to have a truly positive impact, and fast.
You can see that through things like our 2035 Net Zero target, which covers everything we do. And that’s one of the punchiest targets of any bank out there. And that really attracted me to OakNorth.
Isabelle – So when I first saw you, it was at the Innovate finance, Fintech for Good forum. And there you were talking about scope three emissions. To start off, can we just get an overview? What are scope three emissions? How do they differ from other scopes?
Matt – Yeah, sure. So scope one emissions are those you might directly produce through burning fossil fuels. And unless you’re a power company, for example, burning coal, for most companies, that’s things like the petrol or diesel in your company cars, for example.
Scope two is the indirect emissions from the purchase of energy power and heating. So that’s things like your electricity bills.
Scope three essentially is everything else that you indirectly influence. And that might be emissions from your supply chain from your waste and water use, the travel and commuting of your people, the products and services you sell, and particularly for financial services firms like us, the emissions of those customers you finance through loans or investments, which is by far the largest contributor to any bank’s overall emissions.
Isabelle – So it’s very, very wide. That must be really complicated. Why are they relevant? FinTech would you say?
Matt – Yeah, I mean, fintechs generate scope three missions like any other business, though, for us, we tend to have usually more straightforward supply chains than, say a retail or manufacturing business. And those might be specific identifiable sources, like server use our software, which helps.
Unlike mainstream banks, our largest source of emissions is likely to come through the products and services that we fund. So our loans or investments and So we see a lot of scope three there.
Where fintechs, I think, have a particular role to play is their capabilities around data and analytics. Scope three emissions are notoriously hard to track and to measure, especially if your counterparties are, say, small businesses or SMEs, where there really is a recognized absence of available information. So I think this is an area where fintech can really make a difference.
Isabelle – Okay, and do you think that they could help reduce the scope three emissions, then?
Matt – Yeah, I mean, I think any financial institution has a much broader sphere of influence than just its own operations through the businesses and individuals that they finance. And with that, comes a responsibility to try and help move things in the right direction.
And what’s particular about fintech is linked to that data and analytics capability. Better data gives you a better perspective on what action needs to be taken and where.
So if I think about OakNorth’s climate software, for example, we can take an extremely granular subjective view of any borrower, and on a forward-looking basis, we can model the potential impact on their creditworthiness from a climate point of view. And that could be carbon prices, it could be cap x required to decarbonize oil prices, policy change, and so on and so forth, and specific to that particular industry and its own supply chain.
Now, our banking clients can use that data themselves to get a really granular view of where their borrower climate exposures lie, much greater efficiencies in assessing climate risk, and where they need to take action, which ultimately, in turn, should start to drive emissions downward across their portfolio. So that’s the sort of thing where I can see the power of fintech to drive change, drive decarbonization, and reduction of scope three emissions through the power of its capabilities.
Isabelle – There seems to be kind of more of a shift towards doing this recently. Why? Why is it happening now? Why should it happen now, as opposed to in a few years? I can imagine this requires a lot of planning a lot of development.
Matt – It does. I think to answer that, firstly, there’s the net zero transitional argument that early action is key. So it isn’t just about setting Net Zero targets for 10, 20, 30 years time, it is really well recognized now that the sooner we act, the more likely it is that hitting those targets, keeping warming to around only one and a half degrees, remains realistic.
Secondly, yes, regulation around carbon emissions is growing and at pace. Regulatory frameworks like the TCFD proposals by the SEC, and the recently formed ISSB, because we all love an acronym in sustainability – they’ve all begun to have requirements to disclose material scope three emissions. And if you aren’t caught by that regulation yet, inevitably, it will apply to you at some point soon. So it really is best to be prepared now, rather than scrambling around to find hard-to-obtain data when it becomes mandatory.
And thirdly, it’s a huge opportunity for fintech to showcase its capabilities and to get ahead of the game in identifying customers and suppliers who are higher or lower risk or who need assistance in decarbonizing and to really stake your claim to financing some of those trillions of dollars of investment that’s needed to transition to net zero over the next decade.
Isabelle – Yeah, this is something that a lot of people seem to be quite concerned about the cost of it. And also the complexity, especially given the current economic climate. I mean, there’s been, I’ve heard quite a lot of reports of people saying because of the climate or the economic climate, it’s not a viable option right now. What do you say to this?
Matt – Yeah, I mean, I get it. But I also think we’ve got to be prepared to think longer term and to not fall into the trap of short-sightedness or short-termism, which really is easy to do in the current economic environment. I agree. And with energy prices, how they are and the fact that those are probably likely to stay elevated.
The payback period of investing in more energy-efficient alternatives or decarbonizing your operations is rapidly diminishing. And that return on low carbon investment is still really strong. And we see customers and consumers willing to pay a premium for genuinely sustainable options. And if we were to consider, for example, if there have been large-scale investment, and I mean, large-scale investment in renewables ten years ago, what might that have meant for our energy security and our energy pricing today? Do we really want to repeat the same mistake by limiting our foresight to alleviate short-term economic pain, only to find ourselves in similar difficulties a few years from now because we didn’t invest in decarbonizing? So it’s all interconnected.
I think the last point I’ll make on this is if Businesses are finding they need assistance to fund decarbonizing now, given the current financial challenges, then that’s absolutely where all banks, not just fintechs, should be stepping up to offer support.
Isabelle – No, I agree with you make very good points. Within this whole ESG thing is greenwashing. I mean, there are a lot of people against ESG purely due to the greenwashing aspect. How does one steer away from greenwashing? Or even just errors? Because of how complex it is?
Matt – Yeah, I mean, transparency is key here. Current approaches to carbon accounting they’re built on layers of assumptions, best estimates, inferences, and a lot of the methodologies, you know, they’re open to interpretation, or they simply have gaps in them right now. You know, it’s not a case, the one size fits all. It’s a known challenge, particularly with scope three, that a holistic precise and standardized approach just doesn’t exist yet. So it really is imperative that you’re open about how you’ve got about the task.
Public confidence in sustainable claims relies upon being able to trust what they’re being told. And for that reason, you have to be absolutely clear on the basis by which you’ve measured your impact or concluded that one thing is actually greener than another. So what is your methodology? Where did you get your data? Are there any limitations to it? What have you had to assume or estimate if so, how? And that’s not to say that some methodology is flawed and open to errors, because some are, but if you’ve openly told everyone your approach and where its shortcomings lie, then no one can accuse you of trying to mislead anyone.
And the other point here is on as on data quality. As the saying goes, you get out what you put in. And if fintechs can lead the charge on enhancing or accessing better quality data sources, then that significantly reduces the chance of unwittingly holding something up or sustainable without really knowing.
Isabelle – Yeah, no, absolutely. I’ve seen that OakNorth is a part of TechZero. Tell me a bit about what the group does and why you think it’s important?
Matt – Yeah, we became one of the first fintechs to join Tech Zero back in June 2021. And it’s an action group for tech companies who are committed to fighting the climate crisis. Because collaboration is really important to drive innovation and progress on net zero, and that’s why we’re regular and active participants in a number of industry initiatives like this.
So last year, for example, we joined GFANZ, the Glasgow financial alliance for Net Zero via the Net Zero Banking Alliance, which also aligns us with the UN Race to Zero campaign. And also members of Bankers for Net Zero, which is an initiative that brings together banks, businesses, regulators, and policymakers, to enable banks to successfully support their clients and accelerate the transition to net zero, as well as to deliver on the UK government’s ambitions for addressing climate change.
And these sorts of measures and memberships also hold us to account and drive progress by requiring us to measure and publish our full scopes of emissions, set out net zero targets, and those who are accountable for achieving them and regularly report back on the progress that’s been made against them, which is really important in moving things forward.
Isabelle – Yeah, it sounds like it’ll do a lot against the greenwashing stuff. Exactly. Exactly.
What do you hope will be invented or achieved in the next 20 years?
Matt – How long have we got? I mean, joking aside, there are still some big challenges out there, on the carbon front, concrete, steel, agriculture, effective ways to backup and store renewables so that we can finally enable phase out of fossil fuel power and heat. And there’s some really innovative solutions being developed to try and solve some of these problems. But also, personally, I really hope we achieve some rapid restoration of biodiversity now that we’ve started to recognize and target that.
I think, for way too long, we’ve overlooked the critical role that the natural world has to play in restoring balance to the climate. Things like peatlands, mangroves, and seagrasses, they can all act as massive carbon sinks, not to mention the quality and enjoyment of our surroundings and the environment we live in, which I think is really important. Everybody thinks about kind of carbon emissions and numbers around CO2, but actually, you know, we’ve got an incredible world and environment around us that we need to look after and enjoy.
Isabelle – No, absolutely. I would like to go into that a lot more. But unfortunately, the podcast is a certain length of time, so I’m going to move on to what is your favorite quote and why?
Matt – Well, I’m not sure if I call it my favourite. But the one that comes to mind is the classic Peter Drucker quote that you can’t improve what you can’t measure.
And this comes up time and again in the context of carbon emissions for obvious reasons. And the reason I call it out is that we need to be careful not to lose sight of the bigger picture. This sentiment is right, and we need to effectively measure carbon emissions to identify where the need for action is greatest, to ensure we can demonstrate that we’re making reductions.
But can we really not start doing the right thing without that measurement? If you’re heating and powering a load of buildings, using gas boilers and generators, for example, you know that switching them to more sustainable and energy-efficient alternatives will make a big improvement to your carbon footprint. And you don’t need to measure those emissions to know that. So, I guess what I’m saying is, let’s get on with it. And not hold ourselves back by tying ourselves in knots around accounting methodologies and precision before acting on those positive steps that we could be taking right now. Because we can and should
Isabelle – Absolutely, completely agree. Before I let you go, you have your curveball question, which I refused to tell you before. It’s a nice one though.
What book, record and luxury item would you bring to a desert island if all things necessary for survival are already there? Just these three luxury items that you would bring.
Matt – I think that’s three questions in one.
Isabelle – I was gonna go with the luxury item, but this means that you can’t choose a book or record.
Matt – Crikey. So I really want to be very cliched and say, you know, a book would be Bill Gates’s How to Avoid a Climate Disaster would be a really good book to bring along for someone who’s passionate about this sort of thing. So I’ll leave that one out there from a literature perspective.
Record for me, it will probably be Sultans of swing by dire straits. It’s just something I can always relax to, and I think a desert island is a good place to relax if you’re not worried about being stranded.
And luxury item. Do you know what, I think on a desert island, despite there being a beach, I’d still want an armchair.
Isabelle – Armchair. That’s a great one.
Matt – That makes me sound a lot older than my years. But I’m afraid I’m not much of a lawyer down on beaches. I’d rather sit and read said book. Yes. And I think that counts as a luxury item.
Isabelle – Yes, definitely. I would say so. That’s a really unique one as well like that. How can people get a hold of you or follow or get hold of OakNorth in general?
Matt – Yeah, absolutely. I mean, you can find me through the usual sort of social media channels and OakNorth Please do have a look at our website, and please do have a look at our kind of blog posts. There are some from me on there as well. And if you look on there, you can absolutely reach out to us in terms of finding what we’re doing in this space. And, of course, being a bank, how we can help finance this sort of thing if you are looking at decarbonizing your business.
Isabelle – Okay, perfect. Thank you so much for your time. I really enjoyed our conversation.
Matt – Likewise,
Isabelle – Have a great rest of your day.
Matt – Thanks as well.
Isabelle – As always, you can reach out and chat with me on my personal LinkedIn or Twitter on @IZYcastrowrites. But for access to great daily content, check out Fintech Nexus on LinkedIn, Twitter, Facebook or Instagram. You can also sign up for our daily newsletter bringing new straight to your inbox.
For more fintech podcast fun, check out the website, where you can find more fascinating conversations hosted by Peter Renton and Todd Anderson.
That’s it from me. Until next time, enjoy your downtime.
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