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Corporate investments are a massive hidden source of carbon emissions

Just because companies are publicly decreasing carbon footprints doesn't mean their cash isn't doing the opposite

Many large corporations are taking measures to reduce their carbon footprints, but a new report claims that for some, the greatest source of emissions is actually from investments being made with their wealth, and this is undermining their own environmental efforts.

The Carbon Bankroll report highlights the documented carbon dioxide emissions of a number of large corporations and contrasts these with pollutants being generated as a result of the cash and investments held by those companies, comprising cash, cash equivalents, and marketable securities.

In some instances, this figure is greater than the emissions generated by their own business, demonstrating, in the words of the report, that "climate accomplishments are being undermined by a misaligned financial system that is channeling hundreds of billions of corporate US dollars into the carbon-intensive sectors driving the climate crisis."

The report was jointly published by the Outdoor Policy Outfit, the Climate Safe Lending Network, and BankFWD, an initiative founded by the Rockefeller family that campaigns for banks to phase out financing for fossil fuels.

One company named in the report is Microsoft, which has already set itself the goal of becoming carbon negative by 2030. Earlier this year, it published an annual sustainability report claiming to have reduced its own CO2 emissions by about 17 percent during 2021, although the overall carbon footprint had grown because of Scope 3 emissions, those resulting from the company's value chain and not directly caused by Microsoft itself.

However, the Carbon Bankroll report states that for 2021, the emissions generated by Microsoft's $130 billion in cash and investments were comparable to the cumulative emissions generated by the manufacturing, transporting, and use of every Microsoft product in the world.

In its favor, the report does credit Microsoft with its Climate Innovation Fund, which is investing $1 billion in new carbon reduction and removal technologies.

But it isn't just Microsoft. The report indicates that for big companies with carbon-intensive operations such as Amazon and Johnson & Johnson, their cash holdings still constitute one of their largest emissions sources, increasing their total emissions by 11 to 15 percent over recently reported data.

The problem, according to the report, is that many banks around the globe are still major suppliers of capital to carbon-intensive sectors as well as fossil fuel industries by providing loans and underwriting and issuing bonds to maintain the flow of funds into these sectors.

To illustrate this, the report states that the largest US banks and asset managers were responsible for finance that drove the equivalent of 1.968 billion tons of CO2 in 2020, which, according to the report, would make the US financial sector the world's fifth-largest emitter if it were a country.

Unlike many large corporations, the six largest banks in the US have also yet to begin reporting their total CO2 emissions, and have not committed to cutting their emissions by 50 percent by 2030.

Companies haven't previously included emissions generated by their cash and investments in their reports of their corporate carbon footprints, but this needs to change, say the authors.

Corporate cash and investments have always been part of a company's Scope 3 emissions (specifically, they fall under Category 15), but companies have apparently been able to omit mention of these due to data and methodological limitations, limitations that no longer exist, according to the report.

Companies also need to decarbonize their "financial supply chain" by persuading their banks to decrease financing for fossil fuels, or by moving their money elsewhere.

"Bank choice is a largely untapped frontier for climate leadership with massive potential for impact," said BankFWD co-chair Valerie Rockefeller. "We'll be proud to support the first companies that seize this leadership opportunity and let banks know they expect serious climate action."

Large companies such as those highlighted in the report are well positioned to help with this transformation of the finance sector because they can deliver huge financial pressure on banks to take steps to decarbonize, the report states.

As major stakeholders, such companies can pressure banks to implement policies such as ending financing and underwriting for fossil fuel expansion and setting 2030 emission reduction targets.

Doing so would divert hundreds of billions of dollars currently being channeled into carbon-intensive sectors and instead direct it to climate-friendly investments.

"Every individual and business can impact the world around them through their finances in one of three ways, via their investments, their philanthropy, and their banking. The power of this report is that its data tell us that the lever we use the least turns out to be the most powerful tool we have – where and how we choose to bank," said Rockefeller. ®

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