BlackRock, the world’s largest investment firm, has indicated that those that don’t tackle climate change will lose money in 5 years. Some financial institutions have made multi-trillion commitments from now to 2030 to invest in the green economy while still focusing the majority of investments in fossil fuels. Canadian banks are among the global top fossil fuel investors.
by Will Dubitsky
This year, 2021, through to May, has brought a startling reversal in the financial community sources of revenue. A Bloomberg review of 140 financial institutions revealed that 2021 green bond sales and loans, US$203 billion, exceeded fossil fuel business activity, US$189 billion, for the first time since the Paris Agreement.
This is a sharp departure from past trends. Since the Paris Agreement, financial institutions invested US$3.6 trillion in fossil fuels, nearly three times the US$1.3 trillion in support for green initiatives. During this period, banks have amassed US$16.6 billion from energy sector bonds and loans, compared to US$7.4 billion from green bonds and loans.
Is 2021 a pivotal year or an anomaly?
The importance of the financial community and public sector support for a transition to a green economy cannot be underestimated. A 2019 report by the International Energy Agency estimated that investment in low carbon options will have to increase by 2.5 times from the 2019 level of US$620 billion/year by 2030 to comply with the Paris Agreement.
BlackRock, the world’s largest investment company, with US$8.7 trillion in assets, embraces action on climate change as a must. In February 2021, the BlackRock Investment Institute (BII) issued a Capital Markets Assumptions whitepaper which clearly stated that a green transition offers historic investment possibilities. The flip-side is avoiding tackling climate change comes with a net loss within the next 5 years. The BII report indicates that a business-as-usual approach could reduce economic output by 25 percent over the next 20 years.
BlackRock has since become an “climate activist” at each 2021 annual general meeting (AGM) of the oil and gas majors. BlackRock has made it clear that it wanted Big Oil to create climate targets and disclose its results on targets, or BlackRock would vote against the board. BlackRock is on record to back shareholder resolutions favouring climate action.
BlackRock backed the ExxonMobil May 26, 2021 AGM approval of three new board members from the pro-climate hedge fund, Engine No. 1. As well, BlackRock was part of the AGM majority vote for non-binding requirements for ExxonMobil to divulge political- and climate-related lobbying. This is a revolution of sorts since ExxonMobil to-date has stood apart from the rest of the oil and gas industry, hanging on to a denial narrative that there isn’t a consensus on climate change.
In May 2021, BlackRock supported a BP shareholders vote, led by the group, Follow This, calling for the company to accelerate climate action. The Follow This resolution was defeated, but got 20 percent support, a signal to BP it would have to do more on climate change.
BlackRock was included in the 90 percent shareholders’ 2021 AGM vote for France’s Total green transition plan under which the company rebranded itself as TotalEnergies.
At Norway’s Equinor 2021 AGM, BlackRock was behind proposals, in opposition to management advice, for the oil and gas company to set short- and medium-term greenhouse gas reduction targets.
BlackRock itself previously had to deal with fossil-fuel related heavy losses, 75 percent of which was associated with investments in ExxonMobil, Chevron, Royal Dutch Shell and BP.
BlackRock’s analyses for the period January 2020 to November 2020 has mutual funds and exchange traded funds investments in sustainable assets, reaching US$8 billion, a 96 percent increase over 2019.
In 2020, global investments in clean tech start-ups reached US$17 billion.
Yet, much of the global financial community continues to believe that growth lies the fossil fuel sectors. The 60 largest banks in the world poured US$3.8 trillion into fossil fuels from 2016 to 2020.
A DeSmog analysis may explain some of the reasons for this distortion. This analysis revealed that 65 percent of directors of 39 banks had 940 connections, past and present, with firms contributing to worsening climate change.
Most dismaying for Canadians concerned about climate change, the DeSmog investigation has Canadian banks ranking highest in revolving doors between the banking and fossil fuel sector directors, with a particular focus on the Alberta tar sands.
In Canada, most notably the Royal Bank of Canada (RBC), the TD Bank and Scotiabank, are among the world’s top ten investors in fossil fuels. RBC topped the list for investments in the tar sands and the TD Bank is not far behind.
The U.S. banking sector is more diversified. U.S. bank directors’ affiliations with fossil fuel sectors are considerably lower than Canada, at 20 percent.
The top 6 U.S. banks are now trying to improve their climate profile though they have infused US$1.1 trillion into fossil fuels during 2016-2020. Many have made impressive financial commitments for action on climate change by 2030, while their fossil fuel investments continue to outstrip their respective climate portfolios. This may be viewed as an improvement, even if there are questions surrounding incomplete disclosure, unclear terminology and offset greenwashing.
This may explain the US$2.5 trillion commitment made by JPMorgan Chase to tackle climate change and support sustainable development over the coming decade. Of this amount, US$1 trillion will go to green energy and clean tech. The bank will also allot funds for developing countries that foster economic inclusion.
In 2020 alone, the JPMorgan Chase participated in US$220 billion climate change and sustainable development initiatives, including more than US$55 billion dedicated to green engagements.
However, the DNA of the JPMorgan Chase remains that of the world’s largest investor in fossil fuels, not surprising since 100 percent of its directors have ties with polluting sectors. Between 2016 and 2020, the bank provided US$317 billion in fossil fuel financing. And it’s greenhouse gas reduction goal for corporate-wide financing isn’t convincing, a 15 percent reduction in end-use oil and gas carbon intensity per unit of production, not absolute emission reductions, by 2030. In part, this will be achieved by helping the oil and gas industry reduce methane emissions and financing electric vehicle (EV) manufacturing. But government legislation will be the driving forces of such changes. Consequently, total carbon emissions associated with the bank’s total portfolio may actually go up by 2030.
Citi Bank has taken a similar path having set a goal to a US$1 trillion goal for sustainable finance by 2030, half for environmental activities and the other half for social inclusion. The bank’s plan to reach net zero emissions by 2050 will be revealed later in 2021. Notwithstanding the bank’s diversification, it invested US$237 billion in fossil fuels over the 2016 to 2020 period.
Other U.S. banks, Bank of America and Morgan Stanley have similar green investments by 2030 goals at US$1 trillion each. Like the other big U.S. banks, the green commitments of the Bank of America and Morgan Stanley too are overshowed with heavy investments in fossil fuels from 2016 to 2020 totaling $US198 billion and US$111 billion, respectively.
Goldman Sachs claimed it would invest US$750 billion in clean tech investments over the current decade which is in addition to the US$115 billion invested during the last 15 years. But its investments in fossil fuels in the last 5 years are in the order of US$100 billion.
But the laudable targets of U.S. banks are not entirely motivated by preoccupations on the green economy. Data from 2020 indicates a massive reduction in the corporate tax rate associated with financing environmental and social governance projects. This may change under President Biden’s agenda.
Outside North America, HSBC intends to dedicate US$1 trillion by 2030 in green finance and investment to reach a net zero emissions goal by 2050.
JPMorgan’s Jamie Dion suggests real change will come when there are more low carbon investment opportunities available before the banks can reduce the proportion of investments in fossil fuels. Testifying before a U.S. House and Senate committees, May 25-27, 2021, Dion said “abandoning fossil fuels is not an option right now.”
Does Jamie Dion not know that 80 percent of all new global electrical generation capacity added in 2020 was represented by renewables?
Does Jamie Dion not know that the impact of vehicle legislation in the European Union and China has had a global domino global impact on the vehicle sector to the effect that a massive rapid transition to electric vehicles (EVs) is underway, with several hundred billions invested by global automakers in EVs and battery initiatives? The impact of these EV developments on the oil market will be colossal since 60 percent of global oil consumption is represented by road transportation?
Does Jamie Dion not know that more climate action by governments, in particular the European Union, China and the Biden administration legislation and policies, are to come?
Unfortunately, Canadian federal action on climate change remains incoherent, uncoordinated, plus predicated on U.S. leadership and Liberal region-specific vote re-election potential, rather than looking at the EU and China for inspiration.
The good news is Canada will be caught up in the global green transition by default, that is, by the global green economy entrainment/momentum.
This includes world-wide impacts on the Canadian resource-based economy, Canada’s migration to clean technologies and our financial institutions.
However, Canadian financial organizations not only have resource economy fetishes, but are also overwhelmingly laggards on new energy, economic, transportation and other related paradigms.
At present, indications are that the Canadian migration to clean technologies will mostly occur with foreign-based technologies.