Why Wall Street firms are flip-flopping on climate
A climate protest in Washington, D.C., last March. Alex Brandon/Associated Press
Many of the world’s biggest financial firms spent the past several years pledging to use their financial muscle to fight climate change.
by David Gelles
Now, Wall Street has flip-flopped.
In recent days, giants of the financial world, including JPMorgan, State Street and Pimco, have pulled out of a group called Climate Action 100+, an international coalition of money managers that was pushing big companies to address climate issues.
Wall Street’s retreat from earlier environmental pledges has been on a slow, steady path for months, particularly with Republicans beginning withering political attacks, saying the investment firms were engaging in “woke capitalism.”
But in the past few weeks, things have accelerated significantly. BlackRock, the world’s largest asset manager, scaled back its involvement in the group. Bank of America reneged on a commitment to stop financing new coal mines, coal-burning power plants and Arctic drilling projects. And Republican politicians, sensing momentum, called on other firms to follow suit.
Legal risks
The reasons behind the burst of activity reveal how difficult it is proving to be for the business world to make good on its promises to become more environmentally responsible. While many companies say they are committed to combating climate change, the devil is in the details.
“This was always cosmetic,” said Shivaram Rajgopal, a professor at Columbia Business School. “If signing a piece of paper was getting these companies into trouble, it’s no surprise they’re getting the hell out.”
American asset managers have a fiduciary duty to act in the best interest of their clients, and the financial firms were worried that a new strategy by Climate Action 100+ could expose them to legal risks.
Since its founding in 2017, the group had focused on getting publicly traded companies to increase how much information they shared about their emissions and to identify climate-related risks to their businesses.
But last year, Climate Action 100+ said it would shift its focus toward getting companies to reduce emissions with what it called Phase 2 of its strategy. The new plan called on asset-management firms to begin pressuring companies like Exxon Mobil and Walmart to adopt policies that could entail, for example, using fewer fossil fuels.
In addition to the risk that some clients might disapprove, and potentially sue, there were other concerns. Among them: that acting in concert to shape the behaviors of other companies could fall afoul of antitrust regulations.
“In our judgment, making this new commitment across our assets under management would raise legal considerations, particularly in the U.S.,” a BlackRock spokesman said in a statement.
A win for Republicans
The fracturing of Climate Action 100+ was a victory for Representative Jim Jordan, Republican of Ohio, who has led a campaign against companies pursuing E.S.G. goals, shorthand for environmental, social and governance factors.
Embracing E.S.G. principles and speaking up on climate issues has become commonplace across corporate America in recent years. Chief executives have warned about the dangers of climate change. Banks and asset managers have formed alliances to phase out fossil fuels. Trillions of dollars have been allocated for sustainable investing.
At the same time, a backlash has grown, with Republicans claiming that banks and asset mangers were supporting progressive politics with their climate commitments.
Some states, including Texas and West Virginia, barred banks from doing business with them if the firms were distancing themselves from fossil fuel companies. And late in 2022, Mr. Jordan began an antitrust investigation into Climate Action 100+, calling it a “climate-obsessed corporate ‘cartel.’”
On Thursday, he said in a post on X that the news represented “big wins for freedom and the American economy, and we hope more financial institutions follow suit in abandoning collusive ESG actions.”
But several of the firms that backed out of Climate Action 100+ said they remained committed to the issue. Aron Cramer, chief executive for BSR, a sustainable-business consultancy, said the Wall Street firms were responding to political pressure, but not abandoning their climate commitments altogether.
“The political cost has heightened, the legal risk has heightened,” he said, adding: “That said, these corporations are not doing U-turns. They continue to consider climate. That’s not going away. It’s adapting to the current environment.”
Wall Street dabbles in the idea of putting a market value on nature. Tristan Spinski for The New York Times
Nature has value. Could we invest in it?
Picture this: You own a few hundred acres near a growing town, and your family has been farming that land for generations. Making a profit has gotten harder, and none of your children want to take over the farm. You don’t want to sell the land — you love the open space, the flora and fauna it hosts. But offers from developers who would turn it into subdivisions or strip malls seem increasingly tempting.
One day, a land broker mentions an idea. How about granting a long-term lease to a company that values your property for the same reasons you do: long walks through tall grass, the calls of migrating birds, the way it keeps the air and water clean?
It sounds like a scam. Or maybe some kind of charity. In fact, it’s an approach backed by hardheaded investors who think nature has an intrinsic value that can provide them with a return down the road — and in the meantime, they will be happy to hold shares of the new company on their balance sheets.
Such a company doesn’t yet exist. But the idea has gained traction among environmentalists, money managers and philanthropists who believe that nature won’t be adequately protected unless it is assigned a value in the market, whether or not that asset is somehow generating money — actual revenue — through what it’s being used for in the moment.
The concept almost hit the big time when the Securities and Exchange Commission was considering a proposal from the New York Stock Exchange to list these “natural asset companies” for public trading. But after a wave of fierce opposition from right-wing groups and Republican politicians, and even from conservationists wary of Wall Street, the exchange pulled the plug in mid-January.
That doesn’t mean natural asset companies are going away. Their proponents are working on prototypes in the private markets to build out the model. And even if this concept doesn’t take off, it’s part of a larger movement motivated by the belief that if natural riches are to be preserved, they must have a price. — Lydia DePillis Read the full article here.