Wall Street holds fast to fossil fuels as climate pressure grows

[NEW YORK CITY] With the ink hardly dry on a landmark pledge by the finance industry to fight climate change, the world's biggest banks are making clear they plan to stand by their fossil-fuel clients.

Take JPMorgan Chase & Co, the leading arranger of bonds for oil, gas and coal companies. In the weeks since the bank in October joined Mark Carney's global alliance to achieve net-zero emissions from finance, it has underwritten some US$2.5 billion in bond deals for companies like Gazprom PJSC and Continental Resources Inc, equivalent to the same period in previous years.

Wells Fargo, which Bloomberg data shows as lending the most of any bank to fossil-fuel companies, is on track to double the amount of credit it has granted to the sector this year. In total, global banks led by the Wall Street titans have helped fossil-fuel companies issue almost US$250 billion in bonds so far in 2021, a figure that also broadly matches average annual fundraising for the industry since 2016.

And while the International Energy Agency argues that funding for new oil and gas needs to stop now to avoid catastrophic climate change, bankers counter that polluters need help to transition to new sources of energy.

Marisa Buchanan, global head of sustainability at JPMorgan in New York, for example, said: "You can't just walk away, because the world is still heavily reliant on fossil fuels for the vast majority of our energy demand. It is really important that our clients take steps to innovate and decarbonise, but we also need to bring capital to the table for the commercialisation of those solutions."

It is an argument repeated across the financial industry. Most agree it is necessary to fight rising temperatures, yet hardly any of the major global banks are willing to shun profitable fossil-fuel clients.

Moody's Investors Service estimates that banks, insurers and asset managers in the world's 20 biggest economies still have about US$22 trillion exposed to carbon-intensive industries. The rating company also says it is a business model that puts banks at risk of losses as global warming progresses.

How quickly lenders pull off a transition to finance a lower-carbon economy will play a major role in determining the planet's chances of avoiding a cataclysmic degree of overheating. And scientists have calculated that the current decade is the last chance humans have to prevent more than 1.5 deg C of warming.

So far, executives are stressing that they do not intend to ditch any clients soon if they can help it. "The most important thing is to help our customers on the journey that they're going to go on as they retool their industrial base from old technology, carbon-heavy, to new technology, carbon-light or carbon neutral," HSBC Holdings chief executive officer Noel Quinn said in an interview on Bloomberg Television.

For a lot of banks, pressure to re-orient lending and underwriting without losing business is feeding tensions in the boardroom. Executives at several major global banks, speaking on condition of anonymity, revealed that sustainability executives and commercial bankers are frequently at loggerheads over how to strike a balance between revenue and climate goals. Often, sustainability staff lose the argument, the people said.

In the end, much of the financial sector has pledged to decarbonise balance sheets, but money from polluting industries is still flowing in. Bankers say civil society needs to be patient.

"Society needs to understand that we accompany transitions," said Cornelius Riese, the co-CEO of Germany's DZ Bank. "Our entire economy and ecology will have a problem if our industry is forced over 12 or 18 months to throw all the companies out of our portfolio that aren't pure green."

BLOOMBERG