Corporate depositors have a reason to care about their banks’ financed emission risks

Blake Goud
5 min readJun 29, 2022


By Dr. Eman Tabet, Research Associate, RFI Foundation

Companies with large holdings of cash in banks are more exposed than they might think to financed emissions risks. Unlike retail depositors, they have more options but also more risk in managing their large cash balances, and must become even more attuned to the risks they take in pursuit of higher returns.

  • An estimate of large technology companies has found that they had much more emissions exposure from their cash deposits than from their operations
  • Some companies may be more effective in reducing their emissions footprints by advocating for responsible finance policies with their banks than by pursuing operational investments
  • As corporate treasury balances finding returns on their free cash, they will have an opportunity and an obligation to understand and mitigate their financed emissions risks

Is offsetting all operational emissions enough for a company to earn a climate friendly badge? Not always, according to The Carbon Bankroll: The Climate Impact and Untapped Power of Corporate Cash. This new report published by a banking collaborative and carbon nonprofit estimates that financed emissions from the bank deposits of tech giants such as Meta, Microsoft and Alphabet are comparable with all of their emissions from manufacturing, transporting and using their finished products.

Data on financing for fossil fuels and other carbon-intensive industries by banks, in which large technology companies deposit their money, was used to create estimates of financed emissions. For example, Google’s financial footprint in 2021 was 38 times larger than the company’s total direct operational emissions (Scope 1) during the previous five years (2016–2020).

The report also estimates how companies’ reductions in their banking emissions exposure would compare to their other current efforts in emissions reduction. For example, if payments company PayPal could cut its banking emissions by just 10%, the net impact would represent about 5 times the annual emissions reduction the company would generate by eliminating its total 2021 reported Scope 1 and 2, and non-financing-related Scope 3, emissions.

Since most of those technology companies have their operational and supply chain policies working towards net zero on their own footprint, why wouldn’t they extend that to looking into the policies of the banks, and contributions or exposures of the banks that they use?

Financed emissions data are complex and relatively difficult to access, since they are often not reported directly by individual banks. Treasury managers at large companies have to make a lot of choices when it comes to prudently safeguarding their company’s liquid assets. When it comes to climate change, and linking their deposits with their overall net zero or emissions reduction objectives, there are two questions that are related to each other:

  • What is the level of linkage between a company’s decisions in terms of its ability to effectuate change for a tech company’s deposits compared to their own direct emissions?
  • How much of these banking emissions could be reduced in response to a single company considering where they should invest their surplus cash?

Once those companies put their billions of dollars into the financial system, banks are using them as one part of their loan portfolios, which extend across sectors. Banks’ loan portfolios include funding for a diverse range of sectors, in line with the economy-wide sectoral financing breakdown. That introduces some limits to how much their financing can influence emissions reductions, in addition to other concerns around portfolio decarbonization disconnected from changes in the real economy’s emissions.

The journey of the tech dollars does not end there. Technology companies don’t have large emissions operational footprints but do have wider impact when they are seen as part of value chains. Their suppliers’ and customers’ emissions also factor into their overall footprint, and when evaluating their response to the size of the financed emissions linked to their deposits, they will also have to compare the climate risk they face from suppliers and customers as well as their bank deposits.

There is an increasing amount of evidence that as climate financial risk becomes particularly severe, there is more pressure on banks to scrutinize the dirtiest industries as they fear financial as well as reputational repercussions of lending to them. In some cases, this response will leave them still financing companies without large direct emissions that are less visibly polluting without fully pricing in the climate-related financial risks they (and implicitly their largest depositors) are exposed to.

Ultimately, tech companies have the responsibility to look after their deposits and ensure they are protected and they are naturally incentivized to place their deposits with banks that offer better security and better rates. The high-liquidity nature of tech companies could cause them to struggle to find the right balance between security and financial returns, since their deposits will exceed the amount covered by deposit insurance. Even if they can get private insurance to cover their risk, either way they will still need to be concerned by the risks they’re exposed to, including climate risk, as it escalates.

Financed emissions are a particularly fast-evolving area, which is coming to be seen by regulators as more of a systemic challenge. Meanwhile, regulators, banks and climate-focused financial sector NGOs are developing new frameworks ranging from disclosures (TCFD), assessment tools (PACTA), and regulatory guidance (BIS principles for effective management and supervision of climate-related financial risks).

As the methodologies for quantifying emissions continue to develop, it is becoming clear that the way emissions are distributed, across scope 1–3, is heavily interlinked. Someone’s indirect emissions are always someone else’s direct emissions, and there isn’t a single measure that can be used to measure a company’s full footprint that can be aggregated within a financial institution’s or economy’s perspective without double counting.

Throughout RFI’s research, we have seen the same trend across countries where investors and policymakers affect the financial institution’s efforts on climate change. The climate concerns in major investors in banks trickles down into credit decisions and individual banks’ evaluation of their aggregate climate risks. Tech giants hold significant economic power, and perhaps an opportunity to advocate for the banks they work with to take action. They will have to evaluate what is the most effective method for their efforts to fulfill their objectives.

That could mean that tech companies push their banks towards greater transparency of climate disclosure relating to deposits, commitments by banks to limit their financing directed towards specific high-emitting sectors such as coal, or to set specific targets on greenhouse gas emissions to align with Paris Agreement ambitions, Nationally Determined Contributions or long-term Net Zero ambitions. As large depositors, they can serve as an ideal disciplining and monitoring role for the banks by either moving deposits or demanding higher rates based on a bank’s actions to respond to climate-related financial risks.

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Blake Goud

Promoting adoption of responsible finance in Islamic markets & Islamic finance. CEO @RFIFoundation.