Similar to its material supply network, every company has a financial supply chain. Financial service providers, including those who offer cash management, are part of the financial supply chain. The financial supply chain produces emissions, just like the material supply chain does. These result from the way banks support emissions-producing activities with funds from a corporation. If emissions from cash held in the bank were included, many corporations would have much higher overall greenhouse gas emissions. However, these emissions are not currently measured or recorded in the greenhouse gas accounting of corporations.[i] It’s not just the company’s cash holdings; it’s also pension pots, as ZCA discussed previously.
Theoretical framework of a financial supply chain
Source: Exponential Roadmap Initiative
The emissions related to the international investments held by 15 British banks and 10 asset managers were evaluated in a 2021 study by WWF and Greenpeace. They discovered their investments produce 805 million tonnes of carbon dioxide annually. Similar to other "carbon-intensive" industries, including oil and gas, coal, aviation, and transportation, the industry ranks ninth globally in terms of carbon emissions. Traditional loans, investments in industries including IT, energy, and industry, and mortgages were all included in the assessment. Although UK financial institutions have pledged to align their lending and investment portfolios with net-zero emissions by 2050, the quantity of carbon emissions linked with their existing financing and investments is almost twice as much as Britain's yearly domestic carbon emissions.[ii] Organisations that hold their money within institutions that are bankrolling the climate crisis, particularly those that are actively reducing their climate impact, may be left open-mouthed by the hidden impacts of their bank accounts.
Understanding what your money could be up to while it's safe in a bank vault is exactly the aim of the Exponential Roadmap Initiative’s new Greening Cash Action Guide.
The guide highlights seven key actions to reduce emissions from cash holdings:
1. Obtain top-level support- Success depends on top-level executive management's backing and the sustainability and finance teams' objectives being in line.
2. Gather bank data- The sustainability and financial teams should collaborate to assess the current emissions profile, climate policy, and performance trajectory of your institutions. To evaluate the reliability and strength of your banks' efforts to cut emissions and decarbonise the economy as a whole, you must be aware of these factors.
3. Calculate the carbon footprint of your cash in banks- It's imperative to calculate how many tonnes of CO2 cash holdings are indirectly producing through a bank's lending and investment practises.
4. Talk to your banks- Just as with other supply chain partners, it is crucial to communicate with your banks on their policies and strategies for the transition to a low-carbon economy.
5. Prioritise green cash management- By asking their banks to move some of the company's cash into "green" financial cash management solutions like green deposits, businesses can begin to decarbonise their financial operations.
6. Shift more money to climate-friendly banks- Consider shifting part or all of the company's funds to a bank that is doing adequate climate action if an investigation reveals that the company's current banks are not.
7. Create and share your plans, targets and progress- It's crucial to have a strategy in place for lowering the emissions made possible by your funding. Such a plan must contain precise, time-bound goals, anticipated effects, crucial steps, and the necessary funding.[iii]
ZCA has previously talked about the rise of ethical banks. So perhaps the first place to look to reduce the impact of one’s cash holdings could indeed be those banks that have already addressed their climate-negative investments.
This summer’s Wimbledon did show that the hosts were starting to focus on reducing emissions. Still, in the very same tournament, a chorus of celebrity voices cried out for an end to Wimbledon’s sponsorship deal with Barclays over the bank's investments in fossil fuels.[iv] Whilst it would be foolish to pretend that even such cultural icons as Emma Thompson and Richard Curtis alone could solve banking’s obsession with financing the climate crisis, their influence could be enough to shine a light on the shadowy places of cash holdings and, in so doing, guide businesses and organisations to a more informed decision-making process when it comes to where they keep their money.
The Rainforest Action Network, in their 2022 report ‘banking on climate chaos’ concludes that banks’ investments must:
‘Fully respect all human rights, particularly the rights of Indigenous Peoples, including their rights to their water and lands and the right to Free, Prior, and Informed Consent, as articulated in the UN Declaration on the Rights of Indigenous Peoples. Prohibit all financing for projects and companies that abuse human rights, including Indigenous rights.’[v]
This suggests the potential for pressure to come not only from those seeking to engender greater environmental protections but also from those already well-established oversight organisations that seek to improve banking’s human rights processes. One such example is The BankTrack Global Human Rights Benchmark, which, since they began applying pressure in 2019, has seen improvements begin to be made.[vi] A collaborative effort to highlight the intersection between human rights and the climate crisis could be a valuable lever in improving global banks’ investments in climate credentials.
[i] Exponential Roadmap Initiative- Greening Cash Action Guide
[ii] CISL- New estimates of carbon emissions from the UK’s finance sector
[iii] Exponential Roadmap Initiative- Greening Cash Action Guide
[iv] BBC News- Wimbledon: Stars call on championships to end Barclays sponsorship
[v] Rainforest Action Network- Banking on climate chaos
[vi] BankTrack- The BankTrack Global Human Rights Benchmark 2022
Oscar is a recent graduate with a background in earth science. He is currently studying an MSc focussing on disaster responses, emergency planning and community resilience. His postgraduate research project will assess the link between climate crisis risk perception and attitudes to green energy projects. “Adapting to the climate crisis through the pursuit of net zero requires community engagement and understanding. Zero Carbon Academy’s goals closely align with this approach and I’m excited to have the opportunity to research and communicate a variety of topics relating to our environment and sustainability”.
