Corporate Banking is Fueling Environmental Destruction
The Carbon Bankroll Report Reveals the Financial Footprint of Large Corporations
By Asiyah Choudry
June 29, 2022
The Carbon Bankroll report quantifies the emissions associated with the cash and investments of some of the world’s largest corporations. You may be surprised to find out that the financial footprint of many large corporations far exceeds their operational emissions. Let’s take a closer look at The Carbon Bankroll report and what this means for the average investor and banking at large.
How does corporate banking fuel climate change?
The banking sector has a fossil fuel problem. American banks JPMorgan Chase, Wells Fargo, and Citi are the three largest fossil fuel financiers in the world and funneled an estimated $149 billion into the industry in 2021.
When corporations (or individuals) deposit their funds at a financial institution, banks loan that money to a range of projects and companies, including fossil fuels and other high-emitting sectors. Emissions associated with lending and investment activities fall under a bank’s Scope 3 emissions. A study by the Carbon Disclosure Project found that a bank’s indirect emissions from lending and investment are more than 700 times greater than direct emissions from operational activities.
By depositing their money in banks, corporations are passively fueling climate change by providing capital for fossil fuel projects!
The Carbon Bankroll was developed by the Climate Safe Lending Network, BankFWD, and The Outdoor Policy Outfit to call attention to a source of corporate carbon emissions that has previously gone unnoticed. Using pre-existing carbon intensity estimates for different asset classes, researchers were able to determine the financial footprint of the cash and other financial holdings of large companies.
The report found that PayPal’s cash and investments contributed to an estimated 1,345 ktCO2e of emissions in 2021, equivalent to the emissions from energy use of 169,420 homes in one year! That’s 5,512% higher than PayPal’s operational emissions for that same year, which totaled 24 ktCO2e. Substantially lower than emissions from cash and investments, PayPal’s operational emissions are equivalent to the energy use of 3,023 homes over one year.
When cash and investments were accounted for, Disney saw a 169% increase in emissions, Meta saw a 112% increase, and Google a 111% increase beyond reported emissions.
Even companies like Amazon and Johnson & Johnson—whose business operations are more carbon intensive—saw a significant increase in their emissions when their financial footprint was included. In 2020, financed emissions contributed an additional 6,786 ktCO2e to Amazon’s carbon footprint (11% increase from 60,640 ktCO2e operational emissions) and an additional 3,207 ktCO2e to Johnson & Johnson’s (15% increase from 21,121 ktCO2e operational emissions).
The report further contextualizes this data to show the immense climate impact of corporate finances. For example, Netflix’s financial footprint was 10 times higher than global emissions from streaming in 2021. It’s alarming to see that such large quantities of emissions have gone unreported!
What does this mean for the financial sector?
Here are our four takeaways from The Carbon Bankroll:
1) Corporate cash and investments are a major source of emissions
For many companies, emissions associated with cash and investments far exceed operational emissions. However, few organizations have developed targeted strategies for greening their finances. Given the lack of transparency surrounding corporate banking, you might want to consider impact investing if you’re looking for a climate-friendly way to invest your funds.
2) The world needs more fossil-free banking options
The decarbonization of cash and investments is critical to reducing the financial footprint of large corporations, however major financial institutions continue to finance unsustainable industries. Sustainable banking options are becoming more widely available for the average consumer, but there is a lack of fossil-free banking options offered at large financial institutions where corporations keep their cash. In fact, many financial institutions aren’t even disclosing the emissions associated with their lending activities.
3) We need greater transparency from financial institutions
While large companies like Meta, Google, and Microsoft are ramping up their climate disclosures and publishing their Scope 1, Scope 2, and Scope 3 emissions, financial institutions have failed to do the same. In fact, The Carbon Bankroll found that the top six US banks do not report their total emissions. This makes it hard to accurately assess the carbon intensity of bank deposits.
4) There is immense potential for the redirection of capital towards sustainable projects
The UN IPCC’s Climate Mitigation Report demonstrates that financial flows will play a critical role in the low carbon transition. According to the Carbon Bankroll report, Meta’s cash and investments were valued at nearly $48 billion in 2020. Imagine the impact that corporate cash and investments could have if they were redirected towards climate change mitigation and adaptation.
Corporate banking: The next frontier of climate action
The Carbon Bankroll report demonstrates that a company’s financial footprint is an important indicator of climate impact. As organizations move towards greening their operations and supply chains, they have the opportunity to leverage their capital and sociopolitical influence to push financial institutions towards decarbonizing their investments. Similarly, as individuals, we can redirect our capital towards banks that aren’t using our deposits to finance environmental destruction.
Going forward we hope to see greater transparency from financial institutions that have the capacity to redirect substantial capital towards building a more sustainable future.
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