Last year, several U.S. banks threatened to leave the Glasgow Financial Alliance for Net Zero – a group led by former Bank of England governor Mark Carney, aimed at facilitating the energy transition.
The reason those banks threatened to leave was that commitments related to the transition process were becoming increasingly aggressive, and they worried that those commitments might end up getting them sued.
Those litigation-nervous banks included three heavyweights of Wall Street: JP Morgan, Morgan Stanley, and Bank of America. Later the same year, the world’s top asset manager, Vanguard, joined the skeptic ranks by quitting the Net Zero Asset managers initiative.
The asset manager claimed it wanted to be independent in its decisions and clarify its views on responsible investments for its clients. Meanwhile, Republican state governments were tightening an investigative noose around the neck of the asset management industry to see if they were deliberately avoiding investments in oil and gas and what the effect of the ESG movement was on the investment world.
This may have suggested a certain backlash against the whole emission-reporting, climate commitment disclosure wave of activity that the business world in the West has witnessed recently. In fact, the financial world appears to be deeply divided on all things transition.
This week, yet another net-zero financial institutions’ organization went the opposite way of JP Morgan, Morgan Stanley, BofA, and Vanguard. The Net Zero Asset Owner Alliance, whose members manage a combined $11 trillion in assets, issued guidance for investments in oil and gas by its members. That guidance essentially said they shouldn’t do it.
The guidance focuses on “new upstream infrastructure investments in new oil and gas fields,” and its aim is to advance the alignment of members’ investment strategies and the 1.5-degree scenario of the Paris Agreement. According to the alliance, making sure this scenario plays out is vital.
The guidance is the latest sign that the financial industry is genuinely and deeply concerned about its future returns, but as the developments above suggest, it is not as united as all those alliances might want to make it look.
Sure, every single bank worth its salt has net-zero commitments on paper; some of them might even have them in everyday operations, and for many, these commitments include a promise to stop financing oil and gas projects at some point. For others, it’s a promise that they will no longer invest in new oil and gas developments—but they stick to the ones they are already investing in.
Emission commitments are flexible in the banking and asset-managing world, as evidenced by this study by BloombergNEF. It found that most of the members of the Net Zero Banking Alliance—different from the GFANZ and the Net Zero Asset Owner Alliance—were investing more in oil and gas than renewables despite the respective commitments.
One might argue that the BloombergNEF study was being petty: the Net Zero Banking Alliance members were investing $0.92 in renewables for every dollar they invested in oil and gas. But the fact remains they are still investing in oil and gas. This means the industry is not being strangled anywhere near fast enough.
To accelerate the process, asset managers are issuing these threats of suspending investment. Some, such as HSBC, are directly declaring an end to investments in, for example, coal. With exceptions, of course, because the fossil fuel business still makes pretty good money to just quit cold turkey.
The pressure will continue growing as governments in Europe and the U.S. remain committed to the transition as a top priority. Increasingly stricter emission reporting standards; stringent climate risk disclosure requirements; net-zero targets and progress reports.
This is what oil and gas producers—and every business in every industry—will face in the coming years if it wants to draw the gracious attention of these environmentally responsible asset management firms and lenders.
By Irina Slav for Oilprice.com
