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Earlier this year, representatives from some of the world's most powerful banking institutions met with regulators in a closed door meeting. It was February in central Tokyo. The meeting was billed as a check in for regulators to see if banks were living up to their promise to reach a net zero emissions goal they'd set years before. They asked the bank's questions, how are you actually changing the way your banks operate based on your climate goals? How are you
ensuring those commitments remain when new CEOs come in? Lots of wonky questions, all met with boilerplate corporate responses. It was all pretty boring and standard until Judson Burkie, a veteran American banker, chimed in and he.
Said, basically, you regulators are being totally unrealistic about what is the role of a bank in the energy transition. A bank could get to net zero, they could align itself with one point five, but the only way logically that you can do that is to get rid of most of your clients, and which point you have no business, so you know it doesn't really work at this point.
That's my colleague Alistair Marsh who covers esg and climate change, and he told me that Burkeie was essentially saying the quiet part out loud, that the banks considered these goals impractical in a world that is already on track to blow through the best case scenario climate goals. And Burkie isn't alone in his sentiment. Over the past couple of years, the world's biggest banks have been quietly reeling in their climate ambitions. So what went wrong.
Today?
On the show? Almost a decade after the landmark Paris Agreement, the Final World isn't holding up its end of the bargain. Were those promises just lip service? This is the big cake from Bloomberg News. I'm Sarah Holder. In twenty fifteen, the starting gun on the global race to cut carbon emissions was fired in Paris. The vast majority of the countries in the world agreed to limit global warming to well below two degrees celsius and ideally below one point five.
This consensus is known as the Paris Agreement.
This is now essentially become the kind of the north Star, the ultimate thing that we're aiming for, and so the vast majority of corporate financial and government sort of net zero ambitions are all around this one point five degrees.
The Paris Agreement was a critical moment when world leaders came together and made commitments to limit warming. But reaching those goals also requires buy in from the private sector. Alistair. What is a financial firm's role in fighting climate change?
They're a critical player in fighting climate change, and they are also a big contributor to climate change. What we talk about with banks is something called financed emissions.
Sure, banks light up their office buildings and fly their staff around the world, but the biggest contribution they make to climate change is through their lending and underwriting.
You through their financing activities. When you lend to an exomobile or a shell, when you finance a new mind or a new pipeline, the emissions that are locked in are enabled by that project. Well, those are financed emissions, and that's a big contributor to global warming. And without banks providing the money, those emissions wouldn't necessarily be there, got it.
So if the banks cut off the money spigot, then maybe the oil will stop flowing too.
Exactly. The money spigot is often called the money pipeline. There's the oil pipeline. There's the money pipeline.
For a long time, climate activists were not really paying attention to the money pipeline, and we're more focused on the oil pipeline. Think Exon Mobil or Saudi a Ramco. But a couple of years ago, major Western banks came under huge pressure when climate consciousness burst onto the financial stage at the COP twenty sixth summit in Glasgow. There the banks responded by saying, okay, let's do it. We will commit to net zero. And it was a huge promise.
Yes, because financial firms are not just banks with combined assets of one hundred and thirty trillion were committed to net zero. Essentially, they said that there's enough money here, we have it, We're ready, let's go. You know. They sent a big signal there.
This signal brought a moment of hope. In twenty twenty one, multiple groups of alliances for net zero were established, a mission reduction targets were made, the strategies were laid out, and then the banks went home, rolled up their sleeves and did the math alistair. What did they find?
They found that it was very easy to make a press release and put out some sort of marketing with the green bow around it, but it's very difficult to ed you deliver in practice.
In part that's because lots of industries and many companies have a climate impact that's way beyond the bank's net zero goals. And one way to measure a company's predicted impact on warming is a metric called implied temperature rise.
It essentially measures the alignment of a company with a temperature outcome by which I mean the ambition of Paris is one point five, as we discussed, and then you can calculate is this is company X aligned with one point five or is it aligned with three degrees? Is it aligned with six degrees? And actually, if you look through a lot of companies, you'll find that, oh my gosh, the number that are aligned with one point five is minuscule.
And it's not just the exxons and shells of the world. Tons of companies that banks are entangled with, from chip makers to skincare brands, have large carbon footprints, and severing ties with all of them is easier said than done.
For example, Glorial has an implied temperature rise of about six degrees I mean six degrees. That's like, well, that's the end of the world kind of thing. And then there are plenty of other companies that are not digging oil or coal out of the ground. Let them make a large high carbon contribution, and that would skew the metrics of a bank.
This is a major point Judson Burkey made, the director from UBS who spoke passionately at the check and meeting in Tokyo. He pointed out that banks simply can't align themselves with a one point five degree goal when the rest of the world is on course for a much higher temperature rise. And even if one bank is willing to turn away a client to get to net zero, there are always other banks that are ready to take the deal.
If big banks were to pull back from the likes of an Exon or a Shell or just some other fossil fuel producers. There are a lot of banks in India and China that have very different views on coal and oil. And then we have plenty of sovereign wealth money and from the Middle East, which obviously also has different views on oil and gas. There's always that competitive thing with banks where I don't want to lose business
to my competitor. I want to keep my market share, and so they've not been very good at making this commercially viable.
The world has also gone through a lot of tumults since twenty twenty one, which made banks second guess their promises.
Just a few months after the Glasgow Summit, Putin's troops invaded Ukraine that led to a massive energy crisis. The fossil fuel businesses that they had been exiting or planning to exit suddenly were much more profitable. You know, do you really want to stop lending or stop fighting? And it's in Excellonomobile or Shell when they're making bumper profits, I mean clearly not really, And so there's been a real recalibration of what is the role of a bank
and how should it operate in this environment. Is the bank's role to simply be a kind of passive taker of the economy as it is and just the funnel money to whoever needs it and to find a way to make good returns for shareholders, or should they be using their weight, the influence, their capital to push something that's good for humanity?
Are banks supposed to be making the world a better place? Or do they exist just to move money around? Can they realistically do both? Let's discuss after the break. It's been almost a decade since the Paris Agreement and three years since the COP twenty sixth summit, and the world's largest banks have been struggling to meet goals to limit emissions and prevent more harm from climate change. To be clear, no bank has dropped out of their COP twenty six
agreements so far. On paper, everybody says that they remain committed to net zero goals. But my colleague Alistair says banks have been quiet quitting their commitments.
There is definitely plenty of signs of walking it back, being more lenient with the types of dirty businesses that you find in and just think about it, the emissions in the real world have not gone down since banks made these commitments. In fact, they've gone up, and there they continue to finance fossil fuel companies, and those dirty clients have not decarbonized hardly at all.
In February, around the same time those banks and regulators met in Tokyo to review their climate strategies, a string of financial heavyweights, including JP Morgan, Asset Management, Specific Investment, and State Street Glow Advisors withdrew from Climate Action one hundred plus the world's largest investor group form to fight global warming. All of this raises a broader question, how much can we really expect from banks when it comes to curbing the climate crisis. Yeah, I mean it seems
like banks are saying, birds fly, fish swim. Banks need to make money. We can't help it. It's it's just in our nature. Is that how you're reading this all?
Yeah, bank's going to bank. That's basically what it is. Now. Let's be honest. This was never going to be easy, and I think that the statements in Glasgow were naive and they were kind of illusory. Really, they gave the impression for getting Yeah, there was a lot of marketing and there is the idea that hey, we're going to kind of we're going to do this, we're going to tackle it. We got we got this, guys. That wasn't true at all. And that's partly because, yeah, banks that
don't control everything. We need governments to do a lot of things too, and.
We're seeing some of those governments downgrading their own ambitions around climate change.
So banks can do a lot, but without the sort of supportive policies, without the regulatory environments, there's only so much Banks can do.
Still, banks command enormous amounts of capital, meaning they're in some ways uniquely positioned to take this huge expensive task on.
Well, the energy transition. The sort of price tag is like one hundred trillion dollars give or take. It might be a bit more, it might be a bit less, but some you know, huge sum of money like that, and most of that will need to come from private capital, ie, from banks and investors. Governments do need to cough up, they do need to contribute, but they don't have the resources off the big banks, and you know, the private sector broadly needs to lead to the financing of the transition.
That's kind of just how it has to happen. The new message from banks is not that we've abandoned that zero it's not that we've given up on our climate goals, but that we're only willing to finance transition if it makes economic financial sense. I if we can make returns from it, we'll do it. But if not, we won't. Remember, we're bankers, we're not philanthropists.
Alistair, what would happen if the finance sector doesn't act?
There's this great quote from Antonio Gutarra's the head of the UN. He says, we need to do everything everywhere, all at once, and we probably everyone needs to do everything everywhere, all at once. If we have any chance of limiting warming from callastrophic heights. That's not up to the banks to fix that, of course not, but banks
can play a big role. So if they are continuing to finance dirly projects, or they're not pushing companies to think about how and make a plan for how they will be carbonized, then that's an opportunity missed and we will all pay the price for that.
This is the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Young Young and Jessica Beck. It was edited by Aaron Edwards and Caitlin Kenney. It was mixed by Young Young and Veronica Rodriguez. It was fact checked by Thomas lu Additional reporting from Natasha White, Nicole Beamster. Bor is our executive producer, and Sage Bauman is Bloomberg's head of Podcasts. Thanks for listening to the Big Take. We'll be back tomorrow.