Leveraging corporate cash to scale climate solutions

The business community has access to enormous financial capital that can be powerfully deployed to shift the financial system away from carbon-intensive sectors towards climate solutions and regenerative economic activity. By leveraging relationships and financial resources, companies can accelerate the global financial transition to “drawdown,” when levels of greenhouse gases in the atmosphere stop rising and start steadily falling. To become a “levy-aligned business,” companies must begin to address the climate impact of their banking practices.

Drawdown Labs, Project Drawdown’s private sector testing ground for accelerating climate solutions, recently hosted a webinar on decarbonizing corporate cash and investment. The webinar was co-hosted by the organizations behind the groundbreaking report: The Carbon Bankroll, which revealed the previously hidden climate impacts of corporate cash; Outdoor Policy Attire (TOPO); BankFWD; and the Climate Safe Lending Network – in addition to Bank On Our Future, an international network of social movements working to pressure the biggest banks to align their business practices around a just and livable future.

Below, we’ve summarized key points from that discussion for employees or executives looking to reduce greenhouse gas emissions associated with their company’s financial supply chain. (Editor’s note: To watch the full webinar, view it here.)

1. Money is not climate neutral

Banks use corporate cash to support a wide range of businesses, including industries causing climate change, such as fossil fuels and agriculture linked to deforestation. Since 2015, the world’s 60 largest commercial and investment banks have pumped $4.6 trillion into the fossil fuel industry, even though science clearly tells us we can’t build any new fossil fuel infrastructure. if we want to keep warming below 1.5 degrees Celsius. The companies that partner with these big banks are guilty of this climate damage.

For example, five years ago Patagonia was actively supporting water protectors’ efforts to shut down the Dakota Access Pipeline when it realized that the banks directly funding the pipeline were among Patagonia’s largest banking partners. . In other words, these banks were lending some of Patagonia’s cash to projects that actively undermined the company’s values ​​and mission. Since then, Patagonia has been on a mission to decarbonize its corporate treasury. Patagonia is one of the few companies tracking these impacts, let alone working to eliminate or improve them.

Companies can influence the direction of these financial flows to the real economy, to drive systemic change towards a green transition.

2. Finance is a key lever for climate action

For companies looking to have a positive impact on the climate, climate actions linked to financing are particularly powerful.

As James Vaccaro, Executive Director of the Climate Safe Lending Network, explained in the webinar, “Banks make long-term credit decisions based on the short-term cash holdings of people or businesses. daily cash flows into infrastructure and operations that are going to be around for decades. That pivot point there is what makes this particularly interesting as a leverage point. Companies can influence the direction of those cash flows. in the real economy, to drive systemic change towards a green transition.”

3. Companies must decarbonize cash to align with the Paris Agreement

Corporate cash decarbonization is the process by which companies track and reduce the carbon intensity of their cash and investments. The most effective way to do this is to transfer some or all of a company’s cash holdings to banks with “Paris-aligned” lending practices, which tend to be smaller banks or fintechs.

Local credit unions also tend to have less carbon-intensive lending practices, largely due to their size. If smaller banks and credit unions cannot provide the required banking services, companies should give priority to banks that have exclusion policies that limit the amount they are willing to lend to the most polluting industries, such as tar sands oil, coal-fired power plants and deforestation-related businesses.

It is important that all companies engage with existing banking partners, ask them how they manage climate risk and push them towards Paris alignment. Banks (if they are smart) will listen to their business customers.

4. For a leading climate company, reducing financed emissions must be a priority

The Carbon Bankroll report found that a company’s cash flow can be one of its biggest sources of emissions. For companies that have taken controlling their other sources of emissions seriously, the carbon footprint of their cash flow may be one of the last pieces to deal with.

Cash decarbonization is a new frontier for corporate sustainability, and it can be a powerful practice for advancing broader climate action. Patrick Flynn, Senior Vice President and Global Head of Sustainability for Salesforce, said it well during the webinar: “Any aspiring leader this year on planet Earth needs to put as much effort as possible into strategies that have a chance to impact at a speed and scale that planet Earth can actually notice.Tackling funded emissions is one such strategy.

Flynn notes that Salesforce knows its influence over vendors, including financial institutions, can create change beyond its own four walls. That’s why the company unveiled a sustainability expo that requires suppliers to have a science-based goal and an emissions reduction plan, disclose scope 1, 2 and 3 emissions and provide all services and goods on a carbon neutral basis.

5. Companies should extend the concept of supply chains to include financial supply chains

Most climate-conscious companies track and attempt to reduce physical emissions from their supply chain. During the webinar, Patagonia’s Director of Treasury, Charlie Bischoff, described how the company moved from physical supply chains to financial supply chains: “For decades, Patagonia has had a tradition of engaging with our factories and factories around the world and trying to make sure we make the least harmful clothing possible. But as the climate crisis worsens and we have changed our mission statement to “We are in business to save our planet,” all regions of Patagonia were asked to find ways to help. Consider this just an extension of the manufacturing supply chain due diligence work we have always done in as a business.We are now expanding the scope of work to include our banks, insurance and investment companies, or our supply chain end old. ”

6. Putting the decarbonization of corporate cash into perspective

The US Inflation Reduction Act allocates $369 billion to clean energy funding over 10 years. While significant, this amount pales in comparison to the $1.2 trillion that JPMorgan Chase, Citi, Wells Fargo and Bank of America alone have invested in the fossil fuel industry since 2015 or the $742 billion that 60 of the world’s largest financial institutions spent on fossil fuels in 2021 alone.

The financial system can move more money in shorter time frames. This power must be harnessed so that the financial system no longer funds fossil fuels and deforestation, but instead propels a transition to clean energy, transport, buildings, industry, sustainable agriculture and human well-being. all.

One of the things we’re really watching is what they’re doing on the sustainable finance side, but also what they’re doing on the wrong side in terms of funding environmentally harmful industries.

7. Tracking “funded shows” will become best practice

As noted in the Carbon Bankroll report, companies have historically not included emissions generated by their cash and investments in their reported carbon footprints. This is about to change.

The Greenhouse Gas (GHG) Protocol already includes funded emissions in a company’s Scope 3 Scope 15 emissions (apologies for the wonky terminology) – but so far companies don’t did not report these emissions due to data and methodological constraints. However, these methodological shortcomings no longer exist. This means that companies can and should publicly report the emissions associated with their financial practices.

8. Beware of greenwashing

As companies begin to engage with banks, it is important that they watch out for misrepresentation of sustainability and greenwashing. Bischoff has some helpful advice: “A lot of banks will take sustainability as an opportunity to bring a product to market that is essentially no different than it was before, adding a touch of sustainability to it. So one of the things what we’re really looking at is what are they doing on the sustainable finance side, but also what are they doing on the wrong side in terms of financing environmentally harmful industries.

9. Take Action
  • Measure your funded emissions. (For more on the methodology, see the Carbon Bankroll or contact TOPO or BankFWD.)
  • Ask your existing financial institutions about their climate transition plans and make clear demands to encourage best practice. If possible, bring someone from your company’s C-suite to this engagement so that funding partners know you mean business.
  • Demonstrate demand for green financing.
    • Bank signalling: Allocate some of the cash to banks that are fossil-free, B Corp certified, or members of the Global Alliance for Banking on Values ​​(GABV). Or commit to moving it to the world’s first major bank to sufficiently align its practices with the 1.5 degree Celsius targets.
    • Change of bank: Shift all or part of your banking service to smaller community banks or banks less exposed to fossil fuels and deforestation in their lending and funding portfolios.
  • Publicize your company’s stock to send strong market signals and inspire others to follow your lead. Tell the story of your business taking steps to improve its banking operations.

Learn about all the leverage points of the Drawdown-aligned business framework and the broader work of Drawdown Labs, which strives to democratize corporate climate action and raise the bar for climate leadership. If you work in finance, here’s a checklist action guide designed for you.

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