The Climate of Business #23: Did you see your carbon shadow?

This week one article from October last year resurfaced and travelled the Internet landing in many inboxes and chats, to bring our attention back to what lies beyond carbon. Namely "Forget your carbon footprint. Let's talk about your climate shadow." (Link here). Not sure how this article's journey across the online universe kicked off, but it did show up 10 times within 2 days in my channels.

The concept of carbon footprint was brought to us by BP, the oil giant, in a carefully crafted campaign 20 years ago. The message resonated with many as it was simple - a calculator to quantify your impact on the planet. Decades later we are now in the reality of creating businesses around the topic (guilty as charged with Plan A), and while this is wonderful if it leads to the necessary fundamental shift for businesses to start reducing their emissions, it is still correct to question what lies beyond carbon.

The regenerative model requires understanding the totality of our existence as one creating inevitably negative impact. This impact is not only emissions, but also the act of supporting with our purchasing and investment power, as well as brain power, outdated, polluting modes of work. Because if it was only about emissions, and not an ecosystem and economic collapse, would koalas be listed as endangered this week (link below)?

Climate Change Reality

Extreme heat may simply become the new normal (CNBC)

Koala officially listed as ‘Endangered’ species by Australia (Bloomberg Green)

Wetlands can help fight climate change (Al Jazeera)

Massive 'pristine' reef of giant rose-shaped corals discovered lurking unusually deep off the coast of Tahiti (Live Science)

Is climate change changing the smell of snow? (Washington Post)

Can ‘Green’ Ammonia be a Climate Fix? (Wired)

The reality of Ice Caps melting: Mount Everest ice that took 2,000 years to form has melted in just 25 (Sky News)

Is the climate crisis outpacing our emotional capacity to describe it? (The New York Times)

Supercomputer climate simulations are encountering their limits as they run up against thousands of variables (The Wall Street Journal)

We shouldn’t blame it solely on climate change: there are other causes of disasters (Yale.edu)

A rare glimmer of hope: seeing 1000 fin whales back from near extinction (The Guardian)

Business Climate Reality

Greenflation: how extreme weather and energy are leading to soaring prices (The Altantic)

Biden officials putting a stop to a 11.3USD Billion gas-powered trucks contract from the Postal Service (Business Insider)

Research finds US firms talk cheap on climate change (Investors Corner)

The crack down on methane ‘super emitters’ - exposing emission sources through satellites (Washington Post)

New York Bill to bring more accountability to the fashion industry (The Verge)

Are top companies exaggerating their progress? (BBC)

Cutting through the greenwash in Australian energy retailers (The Guardian)

Germany Taps Greenpeace chief as climate envoy (Reuters)

US Army’ first climate plan (CNBC)

Food Waste Generators Now Required to Recycle in New York (NRDC)

Taiwanese firm recycles face masks into phone chargers (Independent)

Reality Check

Decarbonising the banking sector is easy. You reduce the travel of the employees, increase efficiency of the lights in the offices and allow for people to work from home a day a week. Oh, wait. What about all the rest that the bank does?

If you want read about Scope 1,2,3, read here.

Loans, grants, investments, leased assets. All of this accounts towards the environmental bill of a bank.

Banking & the Economy

The banking sector is the backbone of our economy. Banks secure the free flow of capital and liquidity of the market. The math is simple - if the sector is strong, the economy grows, and companies in an industry are better able to manage and safeguard themselves from risk.

When climate change comes in interplay with the financial system, the damage can be vast, if not managed in a time-conscious and risk-averse manner. If you break down the impact of climate change on our planet we are talking about droughts, wildfires, rising sea levels, and habitat loss that cause major economic and humanitarian harm. For the banking sector this means climate-related risks for the real economy, that impair the smooth run of the financial system. As these risks materialise, huge losses hit the financial system, exhausting the system’s ability to absorb losses and create negative feedback loops to the real economy.

Reducing the Impact of Banking

The reduction of Scope 3, in particular Category 1 (Purchased Goods and Services) and Category 15 (Investment) is obvious. But what more concretely can be done?

• Stock markets as opposed to Credit markets?- If economies receive relatively more of their funding from stock markets as opposed to credit markets, studies show they generate fewer carbon emissions per capita. There are two reasons for this: "equity finance is superior to debt finance in reallocating investment towards “green” sectors", and in pushing carbon-intensive sectors to develop “green” technologies and become more energy-efficient. (PRI)
• More detailed and action-focused disclosure - The more details we gather on the status-quo in a bank using date, the more clarity we will have what the risks are. This however as studies show hasn't to date limited growth in emissions. Hence why the focus should be on disclosure around what actions will the bank and its investments take to reduce emissions.
• Improving Standards - Less standards, more unification of the language around ESG and net zero, climate compatible finance labels as well as other informational instruments. These mechanics will help us identify which investments can support better the decarbonisation agenda of a financial institution. Bonus: They will also support us avoid greenwashing and increase overall transparency.
• Institutional and prudential regulation - The capital and liquidity requirements and clarification of fiduciary duties would decrease regulatory barriers, increase incentives for the integration of climate considerations into investment and loan decisions and help address climate compatible finance supply and demand. Climate stress tests would also further help financial institutions assess and bulletproof themselves from climate shocks. On the other hand, regulations targeting specific financial regulators (including stock exchanges) can help to further encourage different types of financial market participants to manage and report on climate change.

As a key support to large, medium-sized and small enterprises, as well as individuals, the financial industry is connected to every building block of the world economy. If financial institutions, in particular banks, decide to position themselves as a core pillar in the climate transformation of businesses, supporting them on their decarbonisation journey, by providing tools, thought leadership, and clear guideline on the path forward, they can ultimately expand their influence, investment portfolios and retain a social licence to operate, proven by their commitment to a strengthened economy.