U.S. President-elect Donald Trump speaks after a meeting with Republicans in Congress at the U.S. Capitol building in Washington on Jan. 8.Jeenah Moon/Reuters
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
Wall Street has been accused of many things, but having a conscience isn’t one of them.
That’s because money-making blows with the prevailing wind. That wind changed with the U.S. presidential election in November and as a result so did the big banks’ strategic approach to climate issues.
This past week, JPMorgan JPM-N, the largest U.S. bank in terms of assets, joined its major peers by announcing it is leaving the financial services industry’s largest climate-finance group, the United Nations-backed Net-Zero Banking Alliance, known as NZBA. Following that, the heads of Royal Bank of Canada RY-T and Bank of Montreal BMO-T separately signalled that they no longer believe the NZBA to be the most effective tool for its purposes.
These moves cap a mass exodus of major U.S. financial institutions from NZBA in the past few weeks – Goldman Sachs GS-N, Citigroup C-N, Bank of America BAC-N, Wells Fargo WFC-N and Morgan Stanley MS-N have said they are leaving the alliance.
The change in posture in the banking industry comes at the same time as Meta’s announcement this week that it plans to eliminate its fact-checking process and open its platform to more free speech, including political discourse, which has been a lightning rod for criticism from both the left and the right. In its place, Meta founder Mark Zuckerberg said the company would use a community-notes model similar to X’s as a way to monitor and moderate content.
These shifts will anger some and delight others. Whatever the sentiment, they reflect the enormously powerful cudgel the president-elect is wielding on companies and their business models even before he takes office.
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Like JPMorgan, U.S. banks leaving NZBA say they aren’t abandoning their commitment to fighting the effects of climate change but will pursue initiatives independently and with vigour. Uh-huh.
There is nothing emotional – or even surprising – about the move by JPMorgan and the other banks to separate themselves from NZBA. It is very practical, even mercenary.
After ramping up participation in global climate groups such as Net-Zero and promoting environmental, social and governance (ESG) investing to align its posture with the Biden administration’s green agenda, Wall Street is now shifting its priorities to prepare for an incoming Trump administration that promises to be less climate-focused and a growing campaign by Republicans more broadly to quash what they refer to as “woke capitalism.”
The moves also recognize a much more litigious culture around the way businesses approach climate issues. In 2023, for example, legal pressure from Republican groups prompted mass defections from a similar net-zero group created for insurance companies. Some investment companies have also felt heat for their ESG strategies, with critics calling out chronically weak fund performance because of what they say are the shortcomings of letting a social conscience, not market reality, drive investment decisions.
For its part, NZBA says it will continue to offer guidance on climate issues to financial services companies whether or not they are members of the alliance. The latest defections leave the alliance with only three U.S. banks as members, compared with 80 European institutions.
In a statement announcing its decision to leave NZBA, JPMorgan reiterated the company’s commitment to climate-change issues, saying it will focus on “pragmatic solutions to help further low-carbon technologies while advancing energy security.’”
The company also said it would continue to work with the Glasgow Financial Alliance for Net Zero, co-chaired by former Bank of Canada governor Mark Carney.
As with most every Wall Street story, there is a dirty secret here. That is, the defections probably won’t make much of a material difference, since Bloomberg data show banks have collectively increased financing of the fossil-fuel industry since the NZBA was formed in 2021.
According to the news service, JPMorgan was the top-ranked banker for oil, gas and coal deals, and among the top five providers of green bonds and loans. Talk about hedging.
Private-equity types love to say never fall in love with your business. It’s a brutally practical warning that any emotional attachment to an asset will cloud judgment and cause you to invest in it too heavily or hang onto it too long – all of which risk reducing its value.
For Wall Street banks, the equivalent in this case is never fall in love with your strategy. Marching to the climate drumbeat was expedient for a while, but now, not so much. Times change, leaders change and political sensitivities change. The best strategy to make money is always a mercenary one.
This post was originally published on here
