Many of the world’s largest financial companies have refreshed their environmental image in recent years by pledging to use their financial muscle to combat climate change.
Now Wall Street is reeling.
In recent days, giants of the financial world, including JPMorgan, State Street and Pimco, have all withdrawn from a group called Climate Action 100+, an international coalition of asset managers that pushed big companies to address climate issues.
Wall Street’s retreat from previous environmental promises has been slow but steady for months, particularly as Republicans began fending off political attacks, saying investment firms were engaging in “woke capitalism.”
But in the last few weeks the situation has accelerated significantly. BlackRock, the world’s largest asset manager, reduced its stake in the group. Bank of America has broken its commitment to stop financing new coal mines, coal-fired power plants and drilling projects in the Arctic. And Republican politicians, sensing the momentum, urged other companies to follow suit.
The reasons for the surge in activity highlight how difficult it is for the business community to deliver on its promises to become more environmentally conscious. While many companies claim they are committed to fighting climate change, the devil is in the details.
“It was always cosmetic,” said Shivaram Rajgopal, a professor at Columbia Business School. “If signing a paper gets these companies in trouble, it’s no surprise they get the hell out of there.”
American asset managers have a fiduciary duty to act in the best interests of their clients, and financial firms feared 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 identifying climate-related risks to their businesses.
But last year Climate Action 100+ said it would shift its focus to getting companies to reduce their emissions in what it called phase two of its strategy. The new plan called for asset management firms to begin pressuring companies like Exxon Mobil and Walmart to adopt policies that could, for example, include using less fossil fuels.
In addition to the risk that some customers might disapprove and possibly sue, there were other concerns. Among them: that joint action to shape the behavior of other companies could violate antitrust regulations.
“In our assessment, assuming this new obligation across all of our assets under management would raise legal concerns, particularly in the U.S.,” a BlackRock spokesperson said in a statement.
BlackRock also said that one of its subsidiaries, BlackRock International, would continue to participate in the group – a tacit recognition of the different regulatory frameworks in Europe. BlackRock also said it was initiating new features that would give customers the choice of whether they wanted to pressure companies to reduce their emissions.
A State Street spokesman said the company also sees potential legal risks and that the company has concluded that the new approach is “inconsistent with our independent approach to proxy voting” and collaboration with the companies in which it invests , is compatible.
JPMorgan said it is withdrawing from the group because the company has developed its own framework for addressing climate risks in recent years.
On Friday, a day after JPMorgan, BlackRock and State Street retreated, Pimco, another major asset manager, followed suit. “We have concluded that our participation in Climate Action 100+ is no longer consistent with PIMCO’s approach to sustainability,” a company spokesperson said in a statement.
A spokesman for Goldman Sachs Asset Management, another member, declined to comment on Saturday when asked whether the company planned to remain in the group.
The splintering of Climate Action 100+ was a victory for Representative Jim Jordan, Republican of Ohio, who has campaigned against companies that pursue ESG goals, which stands for environmental, social and governance factors.
Adopting ESG principles and speaking out on climate issues has become commonplace across American companies in recent years. Business leaders warned about the dangers of climate change. Banks and asset managers banded together to phase out fossil fuels. Trillions of dollars have been committed to sustainable investments.
At the same time, the backlash grew as Republicans claimed that banks and asset managers were supporting progressive policies with their climate commitments.
Some states, including Texas and West Virginia, have banned banks from doing business with the state if the firms distance themselves from fossil fuel companies. And in late 2022, Mr. Jordan launched an antitrust investigation into the group, calling it a “climate-obsessed corporate cartel.”
On Thursday he said in a post
Mindy Lubber, chief executive of Ceres and a member of the Climate Action 100+ steering committee, disputed the notion that the new strategy represents a shift away from the focus on increased disclosure.
“Phase two is not that different,” she said. “Basically, it’s investors working with companies and saying, ‘Okay, you’ve disclosed the risk.’ “We just want to know how you’re going to handle it.” Because that’s what investors want. How do you deal with risk?”
Ms Lubber said she was disappointed that major asset managers had pulled out of Climate Action 100+, but hoped they would continue to make efforts to reduce the risks posed by human-made heatwaves, floods, fires and storms emerge-made global warming. “You cannot create a new theory that climate risk is no longer a material financial risk,” she said.
Several of the companies that withdrew from Climate Action 100+ said they remained committed to the issue. JPMorgan said it has a 40-person team working on sustainable investments and that it believes “climate change continues to create significant economic risks and opportunities for our clients.”
Aron Cramer, chief executive of BSR, a sustainable business 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. “Yet these companies are not turning around,” he added. “They continue to think about the climate. This won’t go away. It adapts to the current environment.”
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2024-02-19 10:05:39
www.nytimes.com
