In this case, not a question of international borders but rather, do you really know what your bank is doing with your money?
The Climate Safe Lending Network (CISL) has released a report arguing that corporate cash is the largest source of emissions, a critical lever for many businesses, one with huge potential to realign the balance of power in terms of climate action.
It warns that company cash held in large banks and investments today often works against corporate climate goals.
The Carbon Bankroll
The Carbon Bankroll: The Climate Impact and Untapped Power of Corporate Cash, jointly published by the Climate Safe Lending Network (CSLN), The Outdoor Policy Outfit (TOPO) and BankFWD, warns that the carbon footprint for many of the world’s largest companies is in fact driven significantly by their investments and cash held in big banks – and that there is significant climate impact.
In one example, while Google is expending effort on cutting product related emissions, inclusion of investment related emissions could increase its emissions profile by 111% immediately.
Investments contribute to emissions
The 13 largest companies (by cash holding) on the S&P 500 hold over $1 trillion in cash and investments.
By discovering the enormous scale of this emissions source, the report emphasises the need for companies to prioritise the decarbonisation of their cash and investments.
There is an acceptance of the complexity of measuring such impact. Dependent on where funds are held and in what instruments, they can have a very different impact. No matter what, they provide insight into a previously unexplored area of emission profiling and potentially set the scene for a new area of corporate responsibility.
As footprint analysis expanded across Scope 1 and 2 to Scope 3, as Influence Map reported on the impact of corporate lobbying on climate lobbying, this research could extend Scope 3 beyond the supply chain and across the entire global value chain.
Banks are funding the fossil fuel industry
It’s widely accepted that today’s banks finance the growth of the fossil fuel industry, with ShareAction reporting that 25 of Europe’s banks have provided $400 billion to fossil fuel companies since 2016.
It’s also interesting to note that HSBC, whose head of Responsible Investment has been suspended for saying climate risk was an irrelevancy for loan financing decisions, provided the most finance during this period, at $59 billion.
If banks continue to finance fossil fuel growth, the Paris Agreement targets will become even further out of reach.
Assessing corporate behaviour
While there are questions to be asked, the report’s research and replicable methodology, which was produced in partnership with finance data experts at well-respected climate finance consultant South Pole, fills what its backers call critical data gaps that “underscore the magnitude of the emissions generated by corporate cash and investments.”
Basically the report provides a new way to assess corporate behaviour, and explores the hidden climate impact of corporate finance.
As James Vaccaro CEO of RePattern says, “Collective impact could be realised by corporations selecting climate-positive financial institutions and products, engaging with providers on the most impactful decisions, innovating new solutions and structures to drive real additionality, and advocating for broader financial policies to bring about systemic change.”
World’s leading companies have increasing money-related carbon footprints
It’s time to become aware of the scale of emissions generated by a company’s cash, investments and financial practices.
Using 10 major corporations’ publicly available data, the report assesses how the financial system – particularly the banking sector, which uses client cash to finance fossil fuels – actually undermines the sustainability efforts of climate-conscious companies.
For some of the world’s largest companies, including Google (NASDAQ: GOOG), Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT), Paypal (NASDAQ: PYPL) and Salesforce (NYSE: CRM), their cash holdings are their largest source of emissions, increasing total emissions by 91% to 112% when compared to most recently reported emissions.
Microsoft carbon emissions
In 2021, for example, the emissions generated by Microsoft’s $130 billion held in cash and investments were comparable to the ‘cumulative emissions generated by the manufacturing, transportation and use of every Microsoft product in the world’.
Cash holdings one of the largest carbon emission sources
Even for companies with more carbon-intensive operations such as Amazon (NASDAQ: AMZN) and Johnson & Johnson (NYSE: JNJ), their cash holdings still constitute one of their largest carbon emissions sources, increasing total emissions by 11%-15% compared to most recently reported emissions.
Amazon cash holding carbon emissions
In 2020, Amazon’s $81 billion held in cash and short-term investments generated more emissions than the purchased energy used to power every Amazon facility around the world, which includes its data centres, fulfilment centres, physical stores and other facilities.
James Vaccaro, executive director of CSLN, says: “By helping businesses recognise how the financial system converts the money they manage day to day into the activities that shape our economies for the decades to come, with the associated positive and negative impacts, we hope to stimulate a new dialogue between corporations and the finance sector that could super-charge the net-zero transition.”
Paul Moinester, executive director of TOPO, added: “This report reveals that these companies’ substantial climate accomplishments are being severely undermined by a misaligned financial system that is channelling hundreds of billions of corporate US dollars into the carbon-intensive sectors driving the climate crisis.”
financial supply chain is a crucial ESG factor
What’s interesting about the report is not just that companies facing analysis are not energy companies coping with the transition, but consumer-facing companies which are having to deal with a changing social expectation of corporate behaviour.
At the same time, the world’s largest oil and gas giants are making money hand over fist in the current energy crisis and there is little doubt that an analysis of the impact of their cash holdings would reflect a similar pattern.
What matters here is recognition that while decarbonisation and sustainability efforts within industry are welcome, nothing works in isolation.
It is becoming as important to address the financial supply chain as the physical one.
For consumers, the little power they have consists of votes, purchasing decisions and investments. Businesses have the same opportunities, the power to influence the financial system through the deployment of their own funds, via banking, investment or philanthropy.
Valerie Rockefeller, co-chair of BankFWD and board chair of the Rockefeller Brothers Fund and Rockefeller Philanthropy Advisors, says: “Bank choice is a largely untapped frontier for climate leadership with massive potential for impact. We’ll be proud to support the first companies that seize this leadership opportunity and let banks know they expect serious climate action.”
Decarbonising the financial supply chain, either by putting pressure on existing banks or moving funds, could contribute positively to the achievement of climate goals – and definitely help avoid criticism for being part of the hidden problem.