Six of America’s biggest banks have embraced net-zero commitments to fight against climate change. But the devil lies in the details.
While Bank of America, Morgan Stanley, and JPMorgan Chase went public with their net-zero goals in the past six months, Goldman Sachs, Citigroup, and Wells Fargo aligned operations with the Paris Agreement target earlier this March, within a week of each other. This sudden wave of environment-friendly initiatives is indicative that Wall Street is bracing to combat the risks of climate change. Policy experts also view these announcements as a response to changing public and political discourse around the need to effectively combat climate change.
Watch: How Banks are fueling the climate crisis?
Net-Zero Commitments of US Banks tackle Scope 3 Emissions
When it comes to financial institutions, ‘net zero’ is not so much about establishing carbon-neutral operations of their own – also known as Scope 1 and 2 emissions – but ensuring that the businesses financed by them are also carbon neutral. The recent net-zero commitment announcements made by these leading American banks focus on Scope 3 emissions. This means that these banks are pledging to finance more and more businesses with environment-friendly policies, as well as in due course, aim to let go of clients who don’t.
Wells Fargo, for instance, pledged an additional $500 billion for financing ‘sustainable’ businesses by the year 2030. The bank’s Social Impact and Sustainability head Nate Hurst said that the institution believed that net-zero ambitions across the economy could be met more effectively through engagement instead of divestment.
These announcements coming in quick succession have posed a pertinent question – why now? The answer lies in the tectonic shift in America’s politics and governance. President Joe Biden is pushing for an ‘all of government’ approach to counter global warming. He is rolling out programs that tackle climate change risks through economic policies.
The banking giants’ rush to align operations with climate goals is a direct result of a shift in standards for operations of financial agencies vis-à-vis the environment. The Biden administration’s emphasis on climate change can also be seen trickling down different levels of the executive as well as independent regulators and agencies.
Janet Yellen, the Treasury Secretary, for instance, has been voicing concerns about the impact of rising global temperatures on the economy. Likewise, bodies such as the Federal Reserve and Securities and Exchange Commission – both traditionally seen as steering clear of environment-centric issues – have appointed experts on senior positions to focus on the issue of global warming. These bodies have also rolled out other initiatives. They include a ramped-up task force dedicated to studying how changing climate can pose a threat to the markets and the economy.
All of these are suggestive of a major regulator overhaul in America’s economic policy. With that backdrop, the big 6 from its banking sector taking on a greener trajectory is not just understandable but also predictable.
The Devil Lies in the Details
Making such pledges for a greener, sustainable future is more than just the easy part of the transition. It also makes for great press. However, how these banks would get their existing clients to toe the environment-friendly line remains unclear. Critics have also shone the spotlight on the fact that all of these lofty announcements remain hazy on the details.
Biggest American Banks are committing to go Green, but their previous track record doesn’t inspire confidence.
Citigroup’s March 2 announcement aiming for net-zero emissions by 2025 lacked concrete details of how it planned to get there. Two days later, Goldman Sachs committed that it’d accomplish net-zero emission in its supply chain by 2030. The bank aims to accomplish the same with its financing operations by 2050.
However, Goldman Sachs recent investments stand in sharp contrast to this announcement. The bank has poured $20 billion annually into industries reliant on fossil fuel since the signing of the Paris Agreement in 2015. There is currently no data or information on the bank’s business-related climate targets. It is expected to release interim targets by year-end.
As part of its net-zero 2050 pledge, Bank of America pledged to institutionalize “interim science-based emissions targets for high-emitting portfolios” covering power and energy investments. However, there is no clarity on when these targets are likely to be released.
JPMorgan made similar announcements in October 2020, promising to start communicating about its effort in detail in 2021. Its climate-related financial disclosures report, formulated by a specialized task force, is yet to be made public. The expected timeline of release was spring 2021.
Likewise, in September 2020, Morgan Stanley assured a full disclosure on the emission generated by industries it finances. That report too remains conspicuous by its absence. This was before Morgan Stanley committed to meeting net-zero emissions by 2050
Fossil fuel industries yield billions in returns for banking institutions. Hence, weaning off carbon can present a curious conflict of interest. Unless the transition to low-carbon economies can be made profitable, these policy announcements cannot translate into concrete, sustainable efforts. In that scenario, these are likely to remain what they have for so long – soft soaps that make good headlines.