Following the Money, Leading the Change

The launch of?The Carbon Bankroll?report highlights the climate impact of cash held by global businesses and the potential power to transform financial supply chains.

It’s easy to slip into thinking about money ‘in the bank’ as being literally ‘in’ the bank. But the financial system doesn’t work that way. Ultimately, if you follow the money then it will lead to real economy impacts – both positive and negative – through the underlying activities which are financed. When you take the cash that businesses hold – in particular global businesses – those sums of money and potential impacts can add up quickly. The 13 largest companies, by cash holding on the S&P500 alone, have more than $1trillion in cash and investments. For them it’s day-to-day liquidity: money that their corporate treasury departments manage to oil the wheels of their business. But as it passes through the financial system, those funds are used to finance the long-term investment decisions that will shape and define our economy for decades to come.?

For businesses addressing climate emissions across their entire extended operations, it’s important not to forget about the financial value chains. For some of the world’s largest corporations, it turns out that the climate impact associated with their cash and investments is bigger than everything else they do. Take Apple, Microsoft, Meta (Facebook, Instagram, WhatsApp) and Alphabet (Google) – four companies with half a trillion dollars of cash and investments on their balance sheet. That money is invested through the financial system into activities with a climate impact comparable in size to everything else those companies do. And these funds are only one part of a company’s financial supply chain: consider the retirement accounts and pensions funds offered to employees, all of the foreign currency facilities, trading and transaction services, support with mergers and acquisitions, and insurance policies.?

There’s been huge strides made by companies in making their supply chains more socially responsible and environmentally sustainable in recent years. Much of that progress has been a clear win-win: actions such as reducing waste reduce environmental impact and save money. There’s a more subtle, but very significant, systemic win-win on offer through influencing financial supply chains. Redirecting the flows of finance away from high-carbon activities and towards climate solutions can open up transition pathways, making it easier for all companies to get to net zero.?

“A misaligned financial sector would mean a ‘Race to Zero’ with the handbrake on. Whereas a rapid redirection into financing climate solutions could super-charge the rapid and just global transition we need.”

By mobilising the power to transform their financial supply chains, there’s a massive opportunity for companies to lead the change, working with banks and other financial institutions to accelerate decarbonisation. Major corporations know how to innovate and drive markets; banks respond to their customers and know how to scale up solutions efficiently. Brought together this could spark transformative change at a time when it is needed most. Collective impact could be realised by corporations selecting climate-positive financial institutions and products, engaging with providers on the most impactful decisions, innovating new solutions and structures to drive real additionality, and advocating for broader financial policies to bring about systemic change.?

As companies figure out their own transition plans for a climate-safe future across their whole business, they’re likely to realise that a misaligned financial sector would mean a ‘Race To Zero’ with the handbrake on. Whereas a rapid redirection into financing climate solutions could super-charge the rapid and just global transition we need, not just for these large corporates, but for everyone.?

James Vaccaro?is Executive Director of the Climate Safe Lending Network (CSLN) and a member of the advisory panel for the Glasgow Finance Alliance for Net Zero (GFANZ).