Wall Street executives signaled Thursday that they will resist growing pressure to end financial support for fossil fuel producers and other carbon-intensive industries, setting up a clash with climate advocates pressing the Biden administration to crack down on the lending.
Senior leaders from Bank of America, BlackRock and other financial firms outlined their views at an event framed around new sustainability recommendations that a coalition of prominent industry groups released in a bid to shape the administration’s climate policy.
The key message from industry executives is that society will have to rely on the power of markets to finance tens of trillions of dollars of investments to establish a more sustainable economy and that governments don’t have the capacity to go it alone. They warned that the transition should avoid destabilizing carbon-intensive industries and inflaming economic inequality.
“We have to have a balanced, fair transition across the globe and realize it’s going to take time and investment and innovation,” Bank of America CEO Brian Moynihan said at the virtual event hosted by the Institute of International Finance. “And that’s what capitalism brings.”
The comments were a preview of the tensions in play as the administration accelerates U.S. efforts to fight climate change. A major focus for administration officials and Democratic lawmakers will be on how to harness the finance industry in the effort and impose safeguards to protect the financial system against climate risks.
Moira Birss, a leader of the Stop the Money Pipeline coalition, which is calling on lenders and insurers to stop supporting fossil fuel production, said “if we leave climate policy up to Wall Street firms, we won’t get the rapid decarbonization necessary for a livable planet.”
“Since Wall Street is unwilling to shift capital from the very industries causing this planetary crisis, the Biden administration must use its supervisory and regulatory power to force them to do so, for the good of the financial system and the planet,” she said.
The coalition of banks, insurers and Wall Street trading firms making up the so-called U.S. Climate Finance Working Group say they back the international goals of the Paris Climate Agreement but that officials should resist growing pressure to use banking regulation to restrict financing to certain industries.
“Transitioning to a low-carbon and ultimately net-zero economy will require policies that aim to reduce [greenhouse gas] emissions while promoting economic growth, green energy generation and job creation,” they said.
BlackRock CEO Larry Fink, one of finance’s most outspoken advocates for using markets to address climate risk, warned against “a full divestiture of hydrocarbons,” which he called “greenwashing.”
“It doesn’t change the net-zero of the world,” he said. “If a public company sells off a lot of their hydrocarbon business to a private entity, the world doesn’t change.”
Brian Duperreault, CEO of insurer American International Group, said making proclamations about cutting off certain industries was “unsatisfying.” Duperreault said his firm was instead incorporating environmental and sustainability questions into its criteria for businesses it underwrites for insurance.
“We needed to frame what we will do,” he said. “If you say, ‘We’re not going to cover any new coal-fired utilities’ … That’s fine,” he said. “But what about the ones that are still in existence? What are you doing there? How do you frame an approach in a transition?”
Financial regulators who spoke at the same event Thursday also suggested a gradual approach to policing climate risk, which they are just beginning to pursue in the U.S.
The officials made clear that developing climate risk disclosure requirements would be a top priority in the months ahead.
Federal Reserve Governor Lael Brainard said mandatory disclosure requirements would be better than voluntary efforts, which are preferred by industry, but she said “are prone to variable quality, incompleteness and a lack of actionable data.”
“Ultimately, moving toward standardized, reliable and mandatory disclosures could provide better access to the data required to appropriately manage risks,” she said.
The disclosure rules are expected to be a priority for the SEC. President Joe Biden’s nominee to chair the regulator, Gary Gensler, has not yet weighed in on the matter, but the agency’s acting director of corporation finance, John Coates, said the SEC “can and should help.”
Coates said it didn’t mean that the approach would be “rigid,” and he cautioned it would take time to come together.
“Getting that kind of system in place is not simple,” he said. “It’s not going to be quick or easy. There are some real and challenging questions to answer.”
Brainard stressed that while there would be benefits to “standardization” in areas like climate data, she said it wasn’t clear whether a “highly prescriptive approach” would be the most effective way to ensure financial institutions are well-prepared for the impacts of climate change.
“Ultimately, the outcomes are likely to be more robust if we innovate and experiment and leverage a range of complementary approaches being developed in both the private and the public sectors,” she said. “In considering the trade-off here, we should strive for an appropriate balance that allows for innovation and learning across the public and private sectors, iterating in the most effective way possible.”