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Big Take: Big Banks Quietly Rein In Climate Ambitions (Podcast)
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The Big Take
Big Banks are “Quiet Quitting” Their Climate Promises
On today’s Big Take podcast: Big banks made big promises to fight climate change. But as the world warms, institutions are quietly cooling on those plans.
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Big banks made big promises to help fight climate change. But as the world warms, those institutions are quietly cooling on their plans.
On today’s Big Take podcast, Bloomberg reporter Alastair Marsh joins host Sarah Holder to break down why banks are rethinking their commitments, and what that could mean for the climate crisis.
Read more: UBS Banker’s Frustration Exposes Cracks in World of Climate Finance
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Here is a lightly edited transcript of the conversation:
Sarah Holder: Earlier this year, representatives from some of the world’s most powerful banking institutions met with regulators in a closed-door meeting. It was February. In central Tokyo. The meeting was billed as a “check-in” for regulators to see if banks were living up to their promise to reach a net-zero emissions goal they’d set years before. They asked the banks questions: How are you actually changing the way your banks operate based on your climate goals? How are you ensuring these commitments remain when new CEOs come in? Lots of wonky questions — all met with boilerplate, corporate responses. It was all pretty boring and standard. Until Judson Berkey, a veteran American banker, chimed in.
Alastair Marsh: And he said, basically, you regulators are being totally unrealistic about what is the role of a bank in the energy transition. A bank could get to net zero, it could align itself with 1.5. But the only way logically that you can do that is to get rid of most of your clients. At which point it has no business. So, you know, doesn't really work at this point.
Holder: That’s my colleague Alastair Marsh, who covers ESG and climate change. And he told me that Berkey was essentially saying the quiet part out loud: that the banks considered these goals impractical in a world that is already on track to blow through the best case scenario climate goals. And Berkey isn’t alone in his sentiment. Over the past couple of years, over the past couple years -- the world's biggest banks have been quietly reeling in their climate ambitions. So — what went wrong? Today on the show… Almost a decade after the landmark Paris Agreement, the finance world isn’t holding up its end of the bargain. Were those promises just lip service? This is the Big Take, from Bloomberg News. I’m Sarah Holder.
Holder: In 2015, the starting gun on the global race to cut carbon emissions was fired in Paris. The vast majority of the countries in the world agreed to limit global warming to well below two degrees Celsius, and ideally below 1.5. This consensus is known as the Paris Agreement.
Marsh: It's now essentially become the kind of the North Star, the ultimate thing that we're aiming for. And so the vast majority of corporate, financial and government, sort of net zero ambitions are all around this 1.5 degrees.
Holder: The Paris Agreement was a critical moment when world leaders came together and made commitments to limit warming. But reaching those goals also requires buy-in from the private sector.
Holder: Alastair, what is a financial firm’s role in fighting climate change?
Marsh: They are a critical player in fighting climate change. And they're also a big contributor to climate change. What we talk about with banks is something called financed emissions.
Holder: Sure, banks light up their office buildings and fly their staff around the world — but the biggest contribution they make to climate change is through their lending and underwriting
Marsh: ...i.e. through their financing activities. When you lend to an Exxon Mobil or a Shell, when you finance the, you know, a new mine or a new pipeline, the emissions that are locked in or enabled by that project. Well, those are financed emissions, and that's a big contributor to global warming. And without banks providing that money, those emissions wouldn't necessarily be there.
Holder: Got it. So if the banks cut off the money spigot, then maybe the oil will stop flowing, too.
Marsh: Exactly, the money spigot is often called the money pipeline. You know, there's the oil pipeline, and there's the money pipeline.
Holder: For a long time, climate activists were not really paying attention to the money pipeline and were more focused on the oil pipeline …— think Exxon Mobil or Saudi Aramco. But a couple of years ago, major Western banks came under huge pressure when climate consciousness burst onto the financial stage at the COP26 summit in Glasgow. There, the banks responded by saying: Okay, let’s do it. We will commit to net zero. And it was a huge promise.
Marsh: Yes, because financial firms and not just banks, with combined assets of $130 trillion were committed to net zero. Essentially they said that there's enough money here. We have it. We're ready. Let's go. You know, they sent a big signal there.
Holder: This signal brought a moment of hope in 2021. Multiple groups of alliances for net zero were established, emission reduction targets were made, the strategies were laid out. And then — the banks went home, rolled up their sleeves and did the math.
Holder: Alastair, what did they find?
Marsh: Right. They found that it was very easy to make a press release and put out some sort of marketing with a green bow around it. But it's very difficult to actually deliver in practice.
Holder: In part, that’s because lots of industries — and many companies — have a climate impact that’s way beyond the banks’ net zero goals. And one way to measure a company's predicted impact on warming — is a metric called implied temperature rise.
Marsh: It essentially measures the alignment of a company with a temperature outcome, by which I mean, the ambition of Paris is 1.5, as we discussed, and then you can calculate, is company X aligned with 1.5? Or is it aligned with three degrees? Is it aligned with 6 degrees? And actually, if you look through a lot of companies, you'll find, oh my gosh, the number that are aligned with 1.5 is, you know, minuscule.
Holder: And it's not just the Exxons and Shells of the world. Tons of companies that banks are entangled with — from chip makers to skin care brands — have large carbon footprints. And severing ties with all of them is easier said than done.
Marsh: For example, L'Oreal has an implied temperature rise of about six degrees, I mean, six degrees, that's like, well, that's the end of the world kind of thing. And then, there are plenty of other companies that are not digging oil or coal out of the ground, that make a large high carbon contribution. And that would skew the metrics of a bank.
Holder: This is a major point Judson Berkey made — the director from UBS who spoke passionately at the check-in meeting in Tokyo. He pointed out that banks simply can’t align themselves with a 1.5 degree goal when the rest of the world is on course for a much higher temperature rise. And even if one bank is willing to turn away a client to get to net zero, there are always other banks that are ready to take the deal.
Marsh: If big banks were to pull back from the likes of an Exxon or a Shell or just some other fossil fuel producers, there are a lot of banks in India and China that have very different views on coal and oil. And then we have plenty of sovereign wealth money from the Middle East, which obviously also has different views on oil and gas. And there's always that competitive thing with banks where I don't want to lose business to my competitor, I want to keep my market share. And so they've not been very good at making this commercially viable.
Holder: The world has also gone through a lot of tumult since 2021, which made banks second guess their promises.
Marsh: Just a few months after the Glasgow Summit, Putin’s troops invaded Ukraine, that led to a massive energy crisis, the fossil fuel businesses that they had been exiting or planning to exit, suddenly were much more profitable. You know, do you really want to stop lending or stop financing Exxon Mobil or Shell, when they're making bumper profits? I mean, clearly, not really.
And so the there's been a real recalibration of what is the role of a bank and how should it operate in this environment? Is the bank's role to simply be a kind of passive, taker of the economy as it is, and just to funnel money? To whoever needs it, and to find a way to make good returns for shareholders? Or should they be using their their weight that influence their capital to push something that's good for humanity?
Holder: Are banks supposed to be making the world a better place? Or do they exist just to move money around? Can they realistically do both? Let's discuss — after the break.
Holder: It’s been almost a decade since the Paris Agreement and 3 years since the COP26 summit — and the world’s largest banks have been struggling to meet goals to limit emissions and prevent more harm from climate change. To be clear, no bank has dropped out of their COP26 agreements so far. On paper, everybody says that they remain committed to net zero goals. But my colleague Alastair says banks have been “quiet quitting” their commitments.
Marsh: There is definitely plenty of signs of walking it back being more lenient with the types of dirty businesses that you finance. And just, just think about it, the emissions in the real world have not gone down since banks made these commitments. In fact, they've gone up. And they continue to finance fossil fuel companies. And those dirty clients have not decarbonized hardly at all.
Holder: In February, around the same time those banks and regulators met in Tokyo to review their climate strategies, a string of financial heavyweights including JPMorgan Asset Management, Pacific Investment, and State Street Global Advisors withdrew from Climate Action 100 plus — the world’s largest investor group formed to fight global warming. All of this raises a broader question. How much can we really expect from banks when it comes to curbing the climate crisis?
Holder: Yeah, I mean, it seems like banks are saying, birds fly, fish swim. Banks need to make money. We can't help it. It's just in our nature. Is that how you're you're reading this all?
Marsh: Yeah, banks gonna bank. That's basically what it is
Now, let's be honest, this was never going to be easy. And I think that the statements in Glasgow were naive, and they were kind of illusory, really, they gave the impression that —
Holder: — marketing
Marsh: Yeah, there was a lot of marketing and there was the idea that, hey, we're gonna kind of we're gonna do this, we're gonna tackle it; we got this guys. Now wasn't true at all. And it's partly because the banks, they don't control everything. We need governments to do a lot of things, too.
Holder: And we’re seeing some of those governments downgrading their own ambitions around climate change.
Marsh: So banks can do a lot but without the sort of supportive policies without the regulatory environments, there's only so much banks can do.
Holder: Still, banks command enormous amounts of capital, meaning they're in some ways uniquely positioned to take this huge, expensive task on.
Marsh: Well, the energy transition, the, the sort of price tag is like a hundred trillion dollars, give or take. It might be a bit more, it might be a bit less, but some, you know, huge sum of money like that. And most of that will need to come from private capital, i. e. from banks and investors. Governments do need to cough up, they do need to contribute, but they don't have the resources of the big banks. And, you know, the private sector broadly needs to lead the financing of the transition. That's kind of just how it has to happen.
The new message from banks is not that we've abandoned net zero. It's not that we've given up on our climate goals, but that we're only willing to finance the transition if it makes economic financial sense, i. e. if we can make returns from it, we'll do it. But if not, we won't. Remember, we're bankers, we're not philanthropists.
Holder: Alastair, what would happen if the finance sector doesn’t act?
Marsh: There's this great quote from António Guterres, from the head of the UN, he says, we need to do everything, everywhere, all at once. And we probably — everyone needs to do everything everywhere, all at once if we have any chance of limiting warming from catastrophic heights.
That’s not up to the banks to fix that. Of course not, but banks can play a big role. So if they are continuing to finance dirty projects, or they're not pushing companies to think about how and make a plan for how they will decarbonize, then that's an opportunity missed, and we will all pay the price for that.
This episode was produced by: Yang Yang and Jessica Beck; Editors: Aaron Edwards and Caitlin Kenney; Executive Producer: Nicole Beemsterboer; Sound Design/Engineer: Yang Yang and Veronica Rodriguez; Fact-checker: Thomas Lu
