The enterprise neighborhood has entry to monumental monetary capital that may be powerfully deployed to shift the monetary system away from carbon-intensive sectors and towards local weather options and regenerative financial exercise. By leveraging monetary relationships and assets, corporations can speed up the worldwide finance transition towards “drawdown” — the purpose sooner or later when ranges of greenhouse gases within the ambiance cease climbing and begin to steadily decline. To turn into a “drawdown-aligned enterprise,” corporations should start to handle the local weather affect of their banking practices.
Drawdown Labs, Undertaking Drawdown’s personal sector testing floor for accelerating local weather options, just lately hosted a webinar about decarbonizing company money and investments. The webinar was co-hosted by the organizations behind the breakthrough report: The Carbon Bankroll, which uncovered the beforehand hidden local weather impacts of company money holdings; The Outside Coverage Outfit (TOPO); BankFWD; and the Local weather Protected Lending Community — along with Financial institution On Our Future, a global community of social actions working to strain the most important banks to align their enterprise practices with a good and liveable future.
Under, we’ve summarized key factors from that dialogue for workers or executives seeking to cut back the greenhouse gasoline emissions related to their firm’s monetary provide chain. (Editor’s observe: To look at the total webinar, test it out right here.)
1. Money shouldn’t be local weather impartial
Banks use money from companies to assist a variety of enterprises, together with industries inflicting local weather change, equivalent to fossil fuels and deforestation-linked agriculture. Since 2015, the world’s 60 largest industrial and funding banks have channeled $4.6 trillion into the fossil gasoline business, although the science clearly tells us that we are able to construct no new fossil gasoline infrastructure if we need to hold warming under 1.5 levels Celsius. The businesses that companion with these massive banks are culpable for that local weather hurt.
For example, 5 years in the past, Patagonia was actively supporting the water protectors’ effort to halt the Dakota Entry Pipeline when it realized that the banks immediately funding the pipeline have been a few of Patagonia’s largest banking companions. In different phrases, these banks have been lending a portion of Patagonia’s money holding to tasks that actively undermined the corporate’s values and mission. Since then, Patagonia has been on a mission to decarbonize its company money. Patagonia is certainly one of solely a handful of corporations monitoring these impacts, not to mention working to eradicate or ameliorate them.
Corporations can affect the path of these flows of finance into the actual economic system, to drive systemic change towards a inexperienced transition.
2. Finance is a key lever for local weather motion
For corporations seeking to make a climate-positive affect, finance-related local weather actions are uniquely highly effective.
As James Vaccaro, government director of the Local weather Protected Lending Community, defined within the webinar, “Banks make long-term credit score selections primarily based upon folks’s or corporations’ short-term money holdings. It is truly remodeling day-to-day money flows into the infrastructure and actions that are going to be round for many years to return. That pivot level proper there may be what makes this significantly attention-grabbing as a leverage level. Corporations can affect the path of these flows of finance into the actual economic system, to drive systemic change towards a inexperienced transition.”
3. Corporations should decarbonize money to align with the Paris Settlement
Decarbonizing company money is the method by which corporations observe and cut back the carbon depth of their money and investments. The simplest manner to do that is by shifting all or a few of an organization’s money holdings to banks with “Paris-aligned” lending practices, which are usually smaller banks or fintechs.
Native credit score unions additionally are inclined to have much less carbon-intense lending practices, largely as a consequence of their dimension. If smaller banks and credit score unions can’t present the required banking providers, corporations ought to prioritize banks which have exclusion insurance policies that restrict how a lot they’re prepared to lend to probably the most polluting industries, equivalent to tar sands oil, coal-fired energy vegetation and deforestation-linked companies.
Importantly, all corporations ought to interact with current banking companions, ask them how they’re managing local weather danger and push them towards Paris alignment. Banks (if sensible) will hearken to their enterprise shoppers.
4. For a climate-leading firm, decreasing financed emissions ought to be high of thoughts
The Carbon Bankroll report discovered that an organization’s money may be certainly one of its largest sources of emissions. For corporations which have gotten severe about reining of their different sources of emissions, the carbon footprint of their money could also be one of many final chunks left to deal with.
Decarbonizing money is a brand new frontier for company sustainability, and it may be a strong apply for advancing broader local weather motion. Patrick Flynn, senior vp and world head of sustainability for Salesforce, put it nicely in the course of the webinar: “Any aspiring chief this yr on Planet Earth must be placing as a lot effort as doable in the direction of these methods which have an opportunity to ship affect at a velocity and scale that Planet Earth can truly discover. Addressing financed emissions is a type of methods.”
Flynn notes that Salesforce is aware of its affect over suppliers, together with monetary establishments, can create change past its 4 partitions. That is why the corporate unveiled a Sustainability Exhibit that requires suppliers to have a science-based goal and emissions discount plan, disclosing Scope 1, 2 and three emissions and delivering all providers and items on a carbon-neutral foundation.
5. Corporations should prolong the idea of provide chains to incorporate monetary provide chains
Most climate-concerned corporations are monitoring and trying to scale back their bodily provide chain emissions. In the course of the webinar, Patagonia treasury director Charlie Bischoff described how the corporate made the leap from bodily to monetary provide chains: “Patagonia for many years has made a apply of partaking with our mills and factories all over the world and making an attempt to verify we’re making clothes with the least hurt doable. However because the local weather disaster worsens and as we’ve modified our mission assertion to ‘We’re in enterprise to avoid wasting our dwelling planet,’ that’s tasked all areas of Patagonia to search out methods to contribute. So I have a look at it as simply an extension of the manufacturing provide chain due diligence work we have all the time completed as an organization. We’re now increasing the scope of labor to incorporate our banks, insurance coverage corporations and funding corporations, or our monetary provide chain.”
6. Placing decarbonizing company money in perspective
The U.S. Inflation Discount Act allocates $369 billion in clear vitality financing over 10 years. Whereas important, this quantity pales compared to the $1.2 trillion that simply JPMorgan Chase, Citi, Wells Fargo and Financial institution of America have invested within the fossil gasoline business since 2015 or the $742 billion that the world’s 60 largest monetary establishments gave to fossil fuels in 2021 alone.
The monetary system can transfer extra money on quicker time frames. That energy have to be harnessed in order that the monetary system now not funds fossil fuels and deforestation however as a substitute powers a transition to wash vitality, transportation, buildings, business, sustainable agriculture and well-being for all folks.
One of many issues that we actually look out for is, what are they doing on the sustainable finance facet, but additionally what are they doing on the dangerous facet by way of funding environmentally dangerous industries.
7. Monitoring ‘financed emissions’ will turn into greatest apply
As outlined within the Carbon Bankroll report, corporations haven’t traditionally included the emissions generated by their money and investments of their reported company carbon footprints. That is about to vary.
The Greenhouse Gasoline (GHG) Protocol already consists of financed emissions in an organization’s Scope 3, Class 15 emissions (apologies for the wonky terminology) — however till now corporations haven’t been reporting these emissions as a consequence of knowledge and methodological constraints. Nonetheless, these methodological deficiencies now not exist. This implies corporations can and may publicly report the emissions related to their monetary practices.
8. Watch out for greenwashing
As corporations begin to interact with banks, it will be significant that they look ahead to false sustainability claims and greenwashing. Bischoff has some helpful ideas: “Lots of banks will take sustainability as a possibility to only market a product that’s primarily no completely different than it was previous to including a sustainability spin to it. So one of many issues that we actually look out for is, what are they doing on the sustainable finance facet, but additionally what are they doing on the dangerous facet by way of funding environmentally dangerous industries. And a extremely good proxy for that’s trying on the ratio of unpolluted vitality lending to fossil gasoline vitality lending.”
9. Take motion
- Measure your financed emissions. (To be taught extra about methodology, try the Carbon Bankroll or contact TOPO or BankFWD.)
- Ask your current monetary establishments about their local weather transition plans, and clarify requests to incentivize higher practices. If doable, carry somebody out of your firm’s C-suite to this engagement so monetary companions know you imply enterprise.
- Show demand for inexperienced finance.
- Financial institution signaling: Allocate a portion of money to banks which might be fossil-fuel free, certifed as a B Corp or members of the World Alliance for Banking on Values (GABV). Or pledge to maneuver it to the primary main world financial institution to sufficiently align its practices with 1.5-degree Celsius objectives.
- Financial institution switching: Shift your banking service in entire or partly to small neighborhood banks or banks which have much less publicity to fossil fuels and deforestation of their lending and financing portfolios.
- Publicize your organization’s motion to ship sturdy market alerts and encourage others to observe your lead. Inform the story of your enterprise taking motion to financial institution higher.
Study extra about all of the leverage factors within the Drawdown-Aligned Enterprise Framework and the broader work of Drawdown Labs, which works to democratize enterprise local weather motion and lift the bar for local weather management. Should you work in finance, here’s a guidelines motion information tailor-made for you.
