The Guardian
‘Reading what is written on the wall’: why Wall Street is acting on the climate crisis
The industry has supported polluters for decades. Now, amid mounting pressure, Wall Street says it is turning green. Forest fires burned nearly 10.4 million acres in the United States last year. The most expensive storm in the history of the United States caused $ 7.5 billion in damage in Illinois, Iowa, Nebraska and South Dakota. As the climate crisis swept the globe on a biblical scale, it left in its wake a number billion-dollar disaster record. And yet, out of these ashes emerged an unlikely savior: Wall Street. After decades of supporting polluters and opposing legislation to control them, the financial sector says it is turning green. A steady growth trend in investment was fully dominant in 2020, when a record number of corporations pledged to go “net zero” and move to cancel the carbon emissions they produce to halt a catastrophic rise in global temperatures. The corporate tectonic shift is being led by a strategic diversion by some of the world’s largest investors. It used to be the protesters outside Davos and the annual shareholder meetings that talked about greenhouse gases and rising sea levels. Now it’s bankers. And when money talks, companies listen. But can Wall Street really save the planet? There are at least positive signs that they are trying. Joseph Stiglitz, a Nobel laureate and professor of economics at Columbia University, doesn’t think Wall Street has a choice. “People used to use the analogy that climate change was like boiling a frog and we wouldn’t notice it until it was too late,” said Stiglitz. “Well, we were boiled. We are trying to jump out of this. ”Countries like the UK, France, Denmark and New Zealand have pledged to reach zero by 2050, and the EU and Canada are working on their own plans. The financial calculation is obvious. As the climate crisis continues, the risk of doing nothing increases and money is moving. In 2013, Exxon was the largest company in the world, last year it left the Dow Jones index, the blue chip index that is synonymous with “stock market” for many investors. Last year, it lost $ 22 billion and the company, which for decades denied that the climate crisis was real and actively lobbied for change, was forced to elect climate activist investors to its board. We are not where we need to be. But sitting where I am, I see a big change Edward Mason In September of last year, more than 800 cities, 100 regions and 1,500 companies had committed to decarbonize their societies and economies, according to the research group Data-Driven EnviroLab and the NewClimate Institute. Among them, these companies have a combined revenue of more than $ 11.4 trillion and are responsible for 3.5 gigatonnes in greenhouse gas emissions, an amount greater than India’s annual emissions. More than 1,000 companies have signed the Science Based Targets Initiative, an initiative to help corporations set measurable emission standards managed by the non-profit organization CDP (formerly the Carbon Disclosure Project), the United Nations and others. An analysis of 338 of these companies – including Mastercard, the Italian energy company Enel and the UK supermarket chain Tesco – found that they have reduced their emissions by 25% since 2015, a difference of 302 million tonnes of CO2 equivalent, the same as the annual emissions of 78 coal-fired power plants. With the planet still warming at an alarming rate, an economic crisis is approaching, said Stiglitz. And the longer we delay, the greater the “transition shock”. “By delaying stocks, we are exacerbating the magnitude of the adjustment that the economy will have to go through,” he said. Some ethical investors have been pushing for climate action for decades, but now the top money managers are also on board. Larry Fink, BlackRock’s founder and chief executive, announced that environmental sustainability was now a central goal of his company, which manages $ 7 trillion in investments. Other big money managers, including Fidelity and Vanguard, are also on board. But this is not a damascene conversion. Wall Street is not exchanging its bench-top wing tips for Birkenstocks. BlackRock still has huge investments in coal and other fossil fuels, but the change in attitude should not be underestimated and wherever it goes, others will follow, driven by huge financial opportunities. Doing nothing will be bad for business, with 58% of the US experiencing an economic decline by 2060-2080 if nothing is done. There is also the transfer of generational wealth from baby boomers to generation X and millennial investors who – as a recent report by BlackRock suggested – have a “greater awareness of sustainability”. Graph on wealth transfer over the generations. But, make no mistake, it is about money. Sustainability is “a new source of return across all asset classes,” according to Jean Boivin, head of the BlackRock Investment Institute. BlackRock’s new green agreement is not so much about excluding bad actors or managing the risk of climate change, but about “catching a wave that should be a source of return in itself”. With Joe Biden in power after ousting Donald Trump, the chief climate denier, trillions of dollars of investment could soon be earmarked for sustainable solutions. One of Fink’s initiatives is the promise to publish a “temperature alignment metric” for BlackRock funds – an increasingly popular way for companies and investment funds to measure whether their carbon footprint complies with the 2015 Paris Agreement treaty. to combat climate change, well limiting global warming below 2 degrees Celsius. It is also a move advocated by Generation Investment, the investment firm co-founded by former US vice president Al Gore and Goldman Sachs asset management director David Blood. For Edward Mason, engagement director at Generation Investment Management, the change is part of an encouraging social change in how companies are responding to the climate crisis and how investors are helping to drive that change. “The pace is just huge and is in the right direction,” said Mason. “The challenge is also enormous. I am not being Panglossian about this, we are not where we need to be. But sitting where I am, I see a big change. ”Meanwhile, worrying trends continue. Unless measures are taken soon, the energy industry’s carbon emissions will soon surpass pre-pandemic levels as economies begin to recover from Covid-19 restrictions, according to the International Energy Agency. Graph showing emission levels from the pre-pandemic to the present. But even long-standing environmentalists and activists are – cautiously – optimistic about the direction the investor community is taking. After years of campaigning against corporate damage, they see significant signs of progress, albeit with reservations. “I think there are reasons to be optimistic, but also to be extremely cautious. It is both going in the right direction and green washing, ”said Josh Axelrod, the main defender of the Natural Resources Defense Council. Axelrod focuses on energy and oil and gas issues and notes that BP and Shell have committed to net zero by 2050. “Well, what does this really mean? Are they really going to cut emissions or rely on compensation or technology that hasn’t really demonstrated that it can do what it says it will do? The answer, especially for Shell, is unfortunately the latter. ”A large part of Shell’s initiative is a promise to offset 120 million tonnes a year of its emissions by 2030 using“ nature-based solutions ”- projects that will“ protect, transform or restore the land ”. Axelrod doubts that it is enough. “In the end of the day [for oil and gas production] the only way to deal with your emissions is to stop, ”he said. They are being pressured by the client, by science, by the general public. Father Seamus Finn Father Seamus Finn, of the Interfaith Center on Corporate Responsibility, has been a long-time activist in corporate responsibility and has often had large institutional investors holding back the progressive shareholder resolutions he has championed. “We tend to be somewhat ambivalent and perhaps overly critical of the BlackRocks, Fidelitys and Vanguards of this world simply because they have long voted against our resolutions at annual meetings,” he said. “But little by little I think they have changed and, let’s be clear, they are doing it because they are reading the writing on the wall. People who put money in their funds want to know how they voted for the resolutions. They are being pressured by the client, by science, by the general public. ”Stiglitz recently joined a new committee of economic policy thinkers, the Regenerative Crisis Response Committee, which aims to recommend ways to use fiscal and monetary policy and financial regulation to address financial risks related to climate and other risks . The data on climate change seems bleak, he admits, but he feels “qualified optimism”. “There is a general consensus – not unanimity – that we have to do more,” he said. The obstacles remain, especially the “nightmare” of a US political system that sucked the climate crisis into the divisive cultural wars of American politics. “The main thing that can go wrong is our policy,” said Stiglitz. “Everything points in the right direction, technology, global consensus. What is not is climate change, which is advancing at a pace and with really depressing manifestations, ”he said. But even that is “really speeding up our willingness to deal with it.”