Big Wall Street banks, facing the prospect that Democrats will impose new rules to force lenders to deal with natural disasters and rising sea levels, are positioning themselves as eager allies with a Joe Biden administration in fighting climate change.
Banks are accelerating efforts to get ahead of the issue and make clear to Biden’s team that they want a place at the table when decisions are made. JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs are among the firms that have committed to hundreds of billions of dollars’ in investments that they say will reduce carbon emissions. The head of the Institute of International Finance, which represents global financial firms, pledged to Biden economic adviser Jared Bernstein that the industry would be “a willing and active partner” on climate.
But Biden’s win would expose U.S. banks to intense scrutiny for their role in providing billions of dollars of financing each year to fossil fuel production that contributes to climate change. Leading Democrats want to go even further by forcing lenders to abide by disclosure rules and stress tests to make sure they aren’t the source of a new crisis. The fear is that destructive climate events – as well as a costly transition to a lower-carbon economy – will wreak havoc on the banks’ portfolios and destabilize the financial system.
“Their customers shouldn’t bear the burden of risky loans made to yesterday’s technologies and power sources,” Sen. Sherrod Brown of Ohio, the top Democrat on the Banking Committee, told POLITICO. “The market can’t fix this. Congress must step up and work to combat our climate crisis.”
How to approach this issue will be one of the new administration’s most consequential decisions affecting both Wall Street and the broader fight to slow man-made climate change. Trump administration regulators have not addressed the problem in a significant way, allowing officials in Europe and other jurisdictions to take the lead in setting global standards. It’s also an area where Biden regulators can force big changes without help from Congress.
“Joe Biden of course doesn’t support a Green New Deal, and he’s not opposed to fracking except on federal lands,” Rep.Chuy Garcia (D-Ill.) said in an interview. “But there will be a deeper dive into the systemic risk aspects as well as the overall impact of fossil fuels on our economy.”
Industry representatives say the largest international banks are prepared for the moment after years of pressure from environmental activists and growing interest among foreign regulators. The banks are also confronting growing demand from customers seeking sustainable investments.
Bankers see an opportunity in potentially helping Biden’s goal of investing $2 trillion in clean energy projects as president.
“There are opportunities for us to work with a Biden administration,” Tim Adams, president and CEO of the Institute of International Finance, said in an interview. “We have shared interests.”
“We’re talking about trillions that need to be intermediated because of government spending or because of private interest and private demands,” Adams said. “We can be a part of that solution as that capital is being put to use for environmental purposes.”
JPMorgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs have started to voluntarily document climate-related activities based on recommendations from the Michael Bloomberg-led Task Force on Climate-Related Financial Disclosures. Canada’s Toronto-Dominion Bank on Monday was the latest big lender to join the cause, announcing that it planned to achieve net-zero greenhouse gas emissions in its operations and financing activities by 2050 and will stop offering new services to Arctic Circle drilling projects.
Some of the moves have created political headaches in the U.S. for the banks. White House economic adviser Larry Kudlow has criticized what he called discrimination in lending to fossil fuel companies. The blowback from the right underscores the dilemma that bankers face as they try to incorporate moral judgments into their lending activities.
“You really start to see a terrific amount of discomfort in bank board rooms,” said Federal Financial Analytics managing partner Karen Petrou, who advises bank executives on policy issues.
But many Democrats and climate activists are looking skeptically at the pledges coming from Wall Street, arguing that they’re too little, too late. According to the Rainforest Action Network, 35 banks alone provided $735.6 billion in fossil fuel financing last year. Advocates want lenders to take more dramatic steps to divest from activities that contribute to climate change.
Rainforest Action Network climate and energy senior campaigner Jason Opeña Disterhoft said, “U.S. banks have only taken baby steps, when they have an urgent responsibility to sprint.”
Sen. Brian Schatz (D-Hawaii) is calling on the companies to “align your organizations’ lobbying and advocacy efforts with your official web page on climate.”
“Whether that is through the American Bankers Association, whether that is through the Chamber of Commerce, we need to see a stronger presence from the business community,” Schatz said recently. “Not just checking a box and saying, yeah, we’re for climate action, but saying that one of the best and most important strategies for an economic recovery is climate action.”
Among those who will likely pressure Biden’s regulators to act is Brown, who says he plans to make climate change a high priority in the new Congress. He says banks must start focusing on climate impact as they make loans and investments. Brown would chair the Senate Banking Committee if Democrats win two Georgia Senate runoff elections in January.
The big banks aren’t supporting mandatory climate regulations but Biden appointees to federal agencies could quickly lay plans to implement new rules, even if climate legislation is out of reach because of a Republican-controlled Senate.
Democrats see the Treasury Department playing an important role coordinating the effort and keeping regulatory agencies focused on climate. The Securities and Exchange Commission under a Biden administration could impose new climate disclosure requirements on corporations. Bank regulators may consider climate-related stress tests for lenders.
Rep. Sean Casten (D-Ill.) said he appreciates “those who are taking action on their own” but that the moment requires “uniform and comparable” climate-related financial risk disclosures from publicly traded companies. Casten, a member of the House Financial Services Committee, said the Federal Reserve needs to evaluate systemic risks tied to climate, including stress testing bank balance sheets.
Advocates plan to ramp up the pressure even more.
"Even some Democratic regulators who do acknowledge climate change is real and action is needed are unfortunately at this point proposing baby steps, like disclosure," said Moira Birss, climate and finance director at Amazon Watch and a leader of the Stop the Money Pipeline coalition. "The goal should be phasing out the financial support for the things that are causing this planetary crisis.”
Some of the work is beginning even before Biden takes office. Fed Chair Jerome Powell last week said the central bank has a responsibility to shield the financial system from climate risks and that Fed officials were in the early stages of figuring out how to do it.
"These tend to be longer-term risks," Powell said. "But of course the longer-term does arrive over time."
View original post