What's Behind Wall Street's Flip-Flop on Climate?

Many of the world's largest financial companies have burnished their environmental images in recent years by promising to use their financial muscle to fight climate change.

Now Wall Street has gone bankrupt.

In recent days, financial world giants including JPMorgan, State Street and Pimco have withdrawn from a group called Climate Action 100+, an international coalition of money managers that pushed major companies to tackle climate problems.

Wall Street's retreat from previous environmental pledges has been slow and steady for months, especially as Republicans begin to quash political attacks and say the investment firms are engaging in “woke capitalism.”

But in recent weeks, things have accelerated considerably. BlackRock, the world's largest asset manager, has scaled back its involvement in the group. Bank of America backtracked on its commitment to stop financing new coal mines, coal-fired power stations and drilling projects in the Arctic. And Republican politicians, sensing the momentum, called on other companies to follow suit.

Legal risks

The reasons behind the burst of activity show how difficult it is proving to be for the business world to deliver on its promises to become more environmentally friendly. While many companies say they are committed to fighting climate change, the devil is in the details.

“This was always cosmetic,” says Shivaram Rajgopal, a professor at Columbia Business School. “If signing a piece of paper would get these companies in trouble, it's no surprise they get the hell out of it.”

U.S. asset managers have a fiduciary duty to act in the best interests of their clients, and financial firms worried that a new strategy from Climate Action 100+ could expose them to legal risks.

Since its founding in 2017, the group has focused on getting listed companies to share more information about their emissions and identify climate-related risks to their businesses.

But last year Climate Action 100+ said it would shift its focus to pushing companies to reduce emissions with what it called Phase 2 of its strategy. The new plan called for asset managers to pressure companies like Exxon Mobil and Walmart to adopt policies that could include using fewer fossil fuels.

Besides the risk that some clients would disapprove and possibly file a lawsuit, there were other concerns. One is that acting jointly to shape the behavior of other companies could violate antitrust rules.

“In our view, making this new commitment across all of our assets under management would raise legal considerations, particularly in the US,” a BlackRock spokesperson said in a statement.

A victory for the Republicans

The breakup of Climate Action 100+ was a victory for Rep. Jim Jordan, Republican of Ohio, who has led a campaign against companies pursuing ESG goals, short for environmental, social and governance factors.

Embracing ESG principles and speaking out on climate issues has become commonplace in corporate America in recent years. Chief executives have warned of the dangers of climate change. Banks and asset managers have formed alliances to phase out fossil fuels. Trillions of dollars have been allocated to sustainable investing.

At the same time, opposition has grown, with Republicans claiming that banks and asset managers supported progressive politics with their climate commitments.

Some states, including Texas and West Virginia, banned banks from doing business with them if the companies distanced themselves from fossil fuel companies. And at the end of 2022, Mr. Jordan began an antitrust investigation into Climate Action 100+and called it a “climate-obsessed corporate cartel.”

He has Thursday said in a post on X that the news represented “major victories for freedom and the American economy, and we hope more financial institutions will follow suit and refrain from stealthy ESG actions.”

But several companies that withdrew from Climate Action 100+ said they remained committed to the issue. Aron Cramer, CEO of BSR, a corporate sustainability consultancy, said Wall Street firms were responding to political pressure but not completely abandoning their climate commitments.

“The political costs have increased, the legal risk has increased,” he said, adding: “That said, these companies are not turning around. They continue to think about the climate. That won't go away. It is adapting to the current environment.”

Nature has value. Can we invest in that?

Picture this: You own a few hundred acres near a growing city, and your family has been farming that land for generations. Making a profit has become more difficult 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 houses. But offers from developers who would turn them into subdivisions or shopping centers appear increasingly tempting.

One day a land agent comes up with 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 migratory 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 supported by stubborn investors who think nature has an intrinsic value that can deliver them returns over time – and in the meantime, they'll be happy to keep shares of the new company on their balance sheet.

Such a company does not yet exist. But the idea has gained traction among environmentalists, money managers and philanthropists who believe that nature will not be adequately protected unless it is valued in the marketplace, regardless of whether that asset somehow generates money – actual income – through what it is. used for currently.

The concept almost became a success when the Securities and Exchange Commission considered a proposal from the New York Stock Exchange to list these “natural asset companies” on the stock exchange. But after a wave of fierce opposition from right-wing groups and Republican politicians, and even from conservationists wary of Wall Street, the stock exchange pulled the plug in mid-January.

That doesn't mean natural resource companies are disappearing. Their advocates are working on prototypes on the private market to expand the model. And even if this concept doesn't catch on, it's part of a larger movement motivated by the belief that if natural resources are to be preserved, they must come at a price. — Lydia DePillis

Read the full article here.