Banks can turn climate compliance into a competitive edge: McKinsey

Many banks are still unable to trace and measure their financed emissions.

Climate-related compliance challenges can be a new business opportunity for banks, said McKinsey & Company.

“Leading firms are turning those compliance obligations into an opportunity: They’re using insights about climate-related risks and clients’ financed emissions to reprice risk, generate new business, and strengthen client relationships,” the management consulting company said in a June 2026 report.

Governments are rolling out regulations around financed emissions, and banks face financial energy transition risks such as stranded assets, carbon taxes, and regulatory penalties, McKinsey wrote in the report, “Turning sustainability compliance into a competitive edge.”

Many financial firms are still unable to trace and measure their emissions. There is a lack of reliable and consistent emissions data especially for small and midsize companies, and without it, banks are unable to develop emissions baselines for these clients.

“They also cannot fully assess their own exposure to the risks posed by their clients’ emissions,” McKinsey wrote.

Many companies also don’t incorporate sustainability analytics into their business decisions.

“For example, while some have started to offer financing tailored to specific decarbonization efforts, in most cases that financing isn’t based on data indicating the investments clients would need to make to reach their desired emissions reductions,” the report said.

Sustainability-related functions are often disconnected from strategic decision-making, McKinsey said.

Leading banks are creating industry emissions profiles, which combine publicly reported emissions into industry-level views. These models help in estimating bank clients’ emissions and in comparing the clients’ decarbonisation progress with other companies.

Financial institutions are advised to use industry-level models to build marginal abatement cost curves (MACCs) that recommend the most cost-effective decarbonisation actions for clients.

MACCs are analytical charts used to compare the costs and potential of various options to reduce greenhouse gas emissions

McKinsey said that one bank used MACCs to identify approximately 35% of emissions in a client portfolio that could be reduced through cost-neutral or value-creating actions.

Some financial institutions are developing bespoke ten-year transition plans for their clients. These plans outline capital investments and see banks simulate a range of scenarios for their clients’ decarbonisation journeys.

McKinsey said that banks should integrate emissions reduction targets into the criteria for credit underwriting, capital allocation, and risk management.