News : Wall Street's climate conundrum

Tuesday, February 20, 2024

Wall Street's climate conundrum

Feb 20, 2024

THE BIG IDEA

BlackRock headquarters stands in Manhattan.

Large Wall Street firms are rolling back their participation in the Climate Action 100+ initiative. | Spencer Platt/Getty Images

GLOBAL COOLING — The world’s biggest financial firms are beginning to show how far is too far when it comes to aligning corporate policies to fight climate change.

Wall Street had already begun retrenching after a period in which its leaders seemed willing to address the roles their firms play in global warming, highlighted by BlackRock Chair and CEO Larry Fink's 2020 declaration that climate risk is investment risk. Financial giants set net-zero targets and many joined U.N.-backed groups designed to get investors and financial institutions to push themselves and the companies they invest in to do more on climate.

But that was then.

Just last week, JP Morgan’s asset management division and State Street announced they would withdraw from Climate Action 100+, the largest investor-led climate initiative. And BlackRock has shifted its membership from the top corporate level to an international unit, citing “legal considerations” in the U.S., according to a note from the company.

It turns out that Climate Action’s Phase 2 strategy was a bridge too far for the firms. While up until now Climate Action participants have pushed companies to develop net-zero commitments and improve disclosure, signatories are being asked starting in June to actually start implementing climate transition plans, cut emissions across their supply chains and deliver on targets.

While the moves are a symbolic blow for climate activists, it’s not clear whether the departing firms are dimming their own ambitions or addressing concerns around their legal ability to execute on climate pledges in coordination with their competitors and in alignment with their business obligation to serve the best interests of their clients.

Plus, BlackRock and State Street remain members of the Net-Zero Asset Managers initiative, they each said in statements, and JP Morgan continues to be part of the Net-Zero Banking Alliance.

“I am extremely disappointed at what they’ve done,” Rep. Sean Casten (D-Ill.), co-chair of the Congressional Sustainable Investment Caucus, said in an interview. “And at the same time, it doesn't really matter.”

The departures from Climate Action 100+ highlight the huge challenges for constructing an effective mechanism to get big financial players aligned in the fight against global warming. No U.S. insurer has joined the Net-Zero Insurance Alliance. And the Glasgow Financial Alliance for Net Zero was forced to dial back its requirement in 2022 that its members, which include JP Morgan, Bank of America, Citigroup and Morgan Stanley, phase out all unabated fossil fuels.

Still, if part of the reason Wall Street got into clean energy, green start-ups and climate transition firms in the first place was for the boatloads of money that could be made, why walk away from a global warming-fighting group now?

The shifting political winds are glaring. Wall Street has come under intense scrutiny from the right over its consideration of climate risk and other environmental, social and governance factors in business decisions. It’s been large firms’ involvement in Climate Action 100+ in particular that’s fueled allegations of anti-trust violations and some sort of industry-wide collusive boycott against the fossil fuel industry. Republicans have zeroed in on Climate Action in congressional letters to BlackRock from Judiciary Chair Jim Jordan and in an ESG probe by GOP attorneys general.

Of course, none of the big firms are boycotting fossil fuels — the fact that they’re not is in itself the reason for much of the pushback from green groups. But the mad dash for the Climate Action exit signs is still chalked up to a win for the anti-ESG forces that have raised legal questions.

“We should take a victory lap because of what we've been able to achieve without legislation,” Rep. Andy Barr (R-Ky.), a member of the House Financial Services Committee gunning for the committee’s chairmanship and a leading anti-ESG lawmaker in Congress, told our Eleanor Mueller about the GOP-led pressure campaign against financial firms’ climate efforts.

For longtime environmentalist Bill McKibben, the move shows that the companies are “amoral at best.”

“Can you think of any other explanation?” McKibben, who co-founded the fossil fuel divestment organization 350.org, said of the role anti-ESG politics played in the Climate Action moves. “It’s a demonstration that they were absolutely shameless and had no intention of doing much in the first place.”

EXTREMES

ESG ATTITUDES — A new public opinion poll surveying 1,000 registered voters nationwide attempts to lay out a framework for “how to go on offense” in the battle over environmental, social and governance investing policies.

The poll, conducted last month by Global Strategy Group and Unlocking America’s Future, a nonprofit running an eight-figure campaign to defend “responsible investing,” specifically took aim at Republican efforts to ban ESG.

A majority of respondents, including most independents and conservatives, expressed opposition to banning such policies. Swing voters were most likely to label billionaire donors, “self-serving politicians” and corporate CEOs as both most responsible for pushing bans and having the most to gain from them.

Previous polls have found that voters generally appear unswayed by the ESG backlash that has seen red states like Texas and West Virginia blacklist Wall Street that they accuse of boycotting fossil fuels. Still, even deep red states like North Dakota and Mississippi have defeated some of the more far-reaching anti-ESG measures, and lawmakers in New Hampshire rejected a proposal to criminalize ESG considerations earlier this month.

WASHINGTON WATCH

INCHING CLOSER — The U.S. Securities and Exchange Commission could be weeks away from adopting a final climate-risk disclosure rule nearly two years after issuing the highly controversial proposal.

Draft copies of the final rule have begun to circulate among the SEC's five commissioners, said two people familiar with the matter who were granted anonymity to discuss private information. One of the people said the agency is aiming to have the rule adopted by the end of March, Declan Harty reports.

The details are not yet known, but the final rule is expected to require public companies to disclose information about their own greenhouse gas emissions as well as how climate change is impacting their bottom line.

Environmental groups and political conservatives have pushed the SEC to finalize a strong version of the rule, while business groups and conservatives have threatened legal action since the release of the initial proposal. We previously reported that the U.S. Chamber of Commerce sued California over its own climate disclosure laws last month.

RULEMAKING ON OVERDRIVE — The Biden administration is scrambling to finish key rulemakings, aiming to protect its environmental legacy against the potential ravages of a second Trump administration.

The Environmental Protection Agency, Interior Department and Energy Department are keeping an eye on the calendar as they seek to install new rules around tailpipe emissions, chemicals, coal ash, conservation, fossil fuel drilling on public lands and more.

“I am acutely aware of the calendar, and I’m checking on status regularly,” said Paul Billings, the national senior vice president for public policy at the American Lung Association. “In a month, my hair may be on fire.”

In an interview with POLITICO’s E&E News last year, EPA Administrator Michael Regan said the agency was “on track” to finish its climate rules. Many of the rules are due out this spring, Robin Bravender, Kevin Bogardus and Michael Doyle report for E&E.

YOU TELL US

GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. Join us every Tuesday as we keep you in the loop on the world of sustainability.

Team Sustainability is editor Greg Mott and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, jwolman@politico.com and aprang@politico.com.

WHAT WE'RE CLICKING

— Small entrepreneurs are meeting resistance from states and cities as they try to market green products, Bloomberg reports.

— The Biden administration is weighing a delay in imposing tailpipe emission limits to give automakers more time to boost EV sales, according to the Washington Post.

— California is pushing ahead with efforts to turn food waste into compost or biogas, even though its programs are running behind schedule, the Associated Press reports.

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