The critical importance of digital decarbonisation

We live in an age where climate protection and sustainability have progressed beyond marketing buzzwords and are now an integral part of almost every finance company’s core business strategy.

Many have gone beyond “reducing their carbon footprint” and are now actively working to become “net zero” organisations – meaning that they not only offset their emissions but also actively work to remove carbon from the atmosphere.

While these measures are essential, they are often couched in terms of industrial or logistical output. How many smoke stacks are no longer belching smoke, how many truck convoys have been replaced by electric vehicles, how much energy has been saved by retrofitting production buildings with LED lighting, etc.

Unfortunately, this focus on the “hard” carbon numbers can obscure the equally significant carbon footprint of digital activity – the “dark carbon” of 1s and 0s that invisibly supports so much of the global value chain.

Reducing this often invisible carbon footprint isn’t as easy as switching to low-carbon energy sources or electric vehicles, but it’s essential if we’re going to meet our climate goals. 

So, what can be done?

The leading role of the financial services industry

Fintech and the financial services industry have always been digitally disruptive forces, pushing innovation in financial services and providing consumers with more choices. But as the industry continues to grow, so too does its digital carbon footprint.

The financial services industry itself is the world’s fifth-largest emitter of GHGs. This often comes as a surprise to those more used to thinking of the industry in terms of its potential to do good, not its environmental impact.

But as finance companies scale up their operations, they are increasingly relying on energy-intensive data centers and other infrastructure.

As GoCodeGreen’s Eric Zie points out, the conceptual disconnect between financial services and its growing digital carbon footprint is part of the problem:

“There is a lack of transparency around data points on the carbon footprint in financial services for their digital products and services, which is a problem for CEOs who want to understand where they should invest in fixing these problems,” he notes. “If you don’t have good data – you would shy away from making good decisions because you can’t base them on anything.” Eric also makes the point that good data doesn’t need to mean perfect data if it leads to positive action to reduce carbon impact.

In 2020 alone, Amazon and Microsoft’s data centers emitted an estimated 60 million tonnes of CO2e – more than the annual emissions of countries like Sweden or Egypt. And this is just the tip of the iceberg. 

However, cloud is not the only offender or the only problem to be addressed.

Cryptocurrencies, which are digital assets designed to work as a medium of exchange, also have a huge carbon footprint, as Eric points out:

“How dirty is Bitcoin? Production and mining releases about 22 million tons of carbon a year. That is the energy usage of the Netherlands, or to put it another way, you’d need a billion trees to sequester that carbon.”

Additionally, the financial services industry is responsible for the carbon footprint of its own lending. As Jacquie Perryman from GlobalLogic notes:

“Financial firms are in a unique position to change how the world invests in fossil fuels. Some of the bigger banks have already been penalised for financing fossil fuels investments while propagating an image of being environmentally friendly. And these stories are making headlines because the way banks do business matters not only to international bodies, but customers who are increasingly voting with their feet. The entire industry should be focusing on how they can reduce their environmental impact at all levels; for the sake of the planet, and their customers.”

Steps being taken, more steps needed

Thankfully the financial services industry is a leader in more than just profits. Many firms are working on ways to reduce their environmental impact and offset their carbon footprints.

Both Visa and Mastercard now publish their entire emissions inventory. Critically, this includes Scope 1 and 2 emissions, those from company-owned or -controlled sources, as well as Scope 3 emissions, those generated by the extended value chain.

This is important progress, given that most companies only report on their own direct emissions.

Driven by this example, Bank of America, Barclays Plc, and Morgan Stanley have committed to publishing the carbon footprint of their lending and investments.

However, as Method’s Sandrine Herbert-Razafinjato points out, there needs to be a cultural shift as well:

“There needs to be more circular solutions leading to a circular economy. We need a systemic change around how people behave and consume within the industry,” she notes. “We should be putting more effort into understanding how our digital activity might become regenerative.”

Join the solution creators

The financial services industry contains some of the brightest minds in business. They are the people who can help drive change and deliver solutions that will make a difference.

Which is why GlobalLogic, GoCodeGreen and Method are bringing together some of these minds for a Decarbonising Digital dinner on the 16th of November, 2022.

The goal? To explore how technology can enable the finance sector to meet its net-zero targets. 

To join us for an intimate evening of peer-to-peer conversation, new ideas and good food, contact Jacquie Perryman.