Nov 24, 2022

Paper vs digital: The hidden costs of the paper bank guarantee lifecycle

Flexibility, security and transparency benefits are well documented, but the environmental benefits of moving away from paper are often overlooked.
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As part of our commitment to sustainability, Lygon has partnered with carbon and energy management specialists Pangolin Associates to assess the impact of a paper bank guarantee throughout its lifecycle.

It is common knowledge that the paper bank guarantee process is cumbersome and littered with risk, but the environmental impact of a process with over 400,000 physical instruments in circulation each year is a lesser-known output.

To shine a spotlight on the issues we are solving by digitising financial instruments, we have partnered with Pangolin Associates to use research from YouGov and quantify the emission figures from both the production and distribution of these paper documents throughout their lifecycle.

Paper production

The emissions from paper creation can, in large amounts, have significant negative impacts on the environment.

From our research, each bank guarantee consists of at least ten pieces of paper.

And this is the best-case scenario.

Sometimes, mistakes are made during the issuance of a bank guarantee, requiring the process to be started again and more paper to be consumed.

There are 400,000 bank guarantees in circulation annually within Australia, which means the amount of paper required to support this process regularly sits above 4 million pieces per year.

When looking at bank guarantees specifically, the emission factors associated with just one of these instruments include small levels of Mercury, Co2e and Total Reduced Sulphur.

Physical delivery

The greatest emissions generated from this process stem from the delivery of the physical instruments.

Each paper bank guarantee requires distribution between counterparties and crosses at least two sets of hands on their journey.

Our research found that the average bank guarantee travels around 425kms, and the need to make amendments can double or even triple this figure. 

Many organisations store guarantees in secure storage facilities rather than their main headquarters, which means these guarantees will always need to travel a reasonable distance to reach their final destination.

There is also the step of returning them once they are no longer needed or are required for a demand.

With some major Australian organisations distributing thousands of these instruments annually, the environmental footprint of each organisation's paper bank guarantee process is substantial.

The emissions associated with these deliveries include volatile organic compounds, Dioxin, significant water usage and megajoules of energy usage.

The switch to digital

The switch to digital bank guarantees means this is no longer the only option.

With organisations around the world looking for more sustainable solutions to their business practices, moving away from paper bank guarantees is a quick win for finance and operations teams looking to improve their processes to be more environmentally friendly.

There is also a growing demand for organisations to offset their carbon output.

Bank guarantees are viewed as ‘scope 3' emissions, meaning organisations that are aiming for scope 1, 2 and 3 carbon neutrality certifications will be required to offset the bank guarantee process at a cost to the business.

In response to this, Lygon will soon be launching an environmental calculator for organisations to obtain a personalised report based on the emissions from their bank guarantee process.

From this report, companies will also be able to compare the environmental output of paper bank guarantees to the output from a digitised process using our platform.

Conclusion

Our platform is a solution to many issues organisations face internationally - and eliminating the environmental outputs from the production and distribution of paper instruments is one problem we are proud to solve at Lygon.

A display photo of Nicholas

Nicholas Farley

Marketing Manager

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