Bankers Aren't Brave

Courage is for suckers

Image courtesy of Grok

Another large bank just announced that it is dropping its commitment to net-zero and limiting its disclosure about greenhouse gas emissions.

Apparently, in our current economic model, it is just too hard to not destroy the world and maximize profits at the same time. In the lead-up to the Trump inauguration, six big US banks announced plans to leave their net-zero commitments. The largest asset manager in the world, BlackRock, also set aside their net-zero goals earlier this year.

They've figured out that profit maximization and limiting the fallout of collapsing earth systems are mutually exclusive things and concluded that the thing they should stop worrying about is collapse.

(Full disclosure, I stole this phrasing from Dan Gray from Mishcon de Reya LLP in London, who commented on something I wrote last week. I told him I was going to steal it and he said it was cool).

That is the leadership we have - as in not a whole hell of a lot … from the financial and business world at least.

ESG and sustainability were tolerated when they could be spun as profit centers for consulting firms and investment firms promising green products. But now that the bloom is off the sustainability rose, financial institutions are dropping the pretense of caring about your future. They are transparently showing us that all that matters, is their present.

Is there hope?

The banking industry may get its act together on lending to oil and gas firms, but only because all the low hanging fruit is gone, not because they care about living on a planet that can support life.

The 15th annual Banking on Climate Chaos Report (2024) report is a good indicator to look at to see how bold banks are or are not being. Let’s take a look at the 2024 report

Fossil fuel financing from the world’s 60 largest banks has reached nearly $6.9 trillion in the eight years since the adoption of the Paris Agreement, with $705 billion in 2023 alone.

Source: Banking on Climate Chaos 2024.

The above graphic shows the lending and underwriting to the oil and gas from the world's biggest banks for a given year. In case the graphic is a little hard to read, in 2016 the total was $891.2 billion and by 2023 it had shrunk to $705.8 billion. The 2024 report came out in May of last year, so it will be interesting to see if that trend holds. I suspect it will - but I’ll talk about it if I’m wrong. For one, oil and gas firms are finding it harder to get oil out of the ground. Just look at the increase in buybacks and dividends from oil companies. I’ll spare you an essay on share buybacks, but companies tend to increase share buybacks when they don’t have a better idea to return money to shareholders. That better idea is supposed to be better products and services, or more of that product if the product is a commodity. The decline in funding for oil and gas companies and increase in stock buybacks shows that the big oil and gas companies know the game is winding down.

The banks know this too. Expect them to take credit for decreased funding of oil and gas projects in the future. This isn’t due to concern for humanity. It is simply the case that there are less and less lucrative projects to fund.

These banks did get out ahead of their skis on net-zero though, and made promises they couldn’t keep. This is also known as “greenwishing”: someone or an organization hoping that green promises pan out without any real plan to make that happen.

Who wants a net-zero anyway?

Net zero (net zero GHG emissions by 2050) is a nice goal, but to think that it could ever be achieved through voluntary pledges by businesses that are required by law to maximize profit is laughable.

Here is a thought exercise. Say this sentence out loud and tell me if you believe what you just heard:

“This business, which is required by law to maximize profits, will fix this environmental problem through voluntary pledges from this business and its competitors.”

The environmental problem can be climate change, saving the spotted owl, or anything you like. Maximizing profits means MAXIMIZING profits. Clean water, clean air, a temperate climate, intact biodiversity, and any other things we enjoy from the natural world stands in the way of that maximization.

After my last essay there was some discussion in the notes about B corporations, credit unions and other ways to organize businesses and financial institutions that can better safeguard our natural world. Yes, these things exist and they are a positive step, but they are still a drop in the ocean compared to the companies and banks who are required by their charters and bylaws to maximize profits at any cost.

Ultimately, that cost is you.