Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Earlier this year, representatives from some of the world's most
Speaker 2: powerful banking institutions met with regulators in a closed door meeting.
Speaker 2: It was February in central Tokyo. The meeting was billed
Speaker 2: as a check in for regulators to see if banks
Speaker 2: were living up to their promise to reach a net
Speaker 2: zero emissions goal they'd set years before. They asked the
Speaker 2: bank's questions, how are you actually changing the way your
Speaker 2: banks operate based on your climate goals? How are you
Speaker 2: ensuring those commitments remain when new CEOs come in? Lots
Speaker 2: of wonky questions, all met with boilerplate corporate responses. It
Speaker 2: was all pretty boring and standard until Judson Burkie, a
Speaker 2: veteran American banker, chimed in and he.
Speaker 1: Said, basically, you regulators are being totally unrealistic about what
Speaker 1: is the role of a bank in the energy transition.
Speaker 1: A bank could get to net zero, they could align
Speaker 1: itself with one point five, but the only way logically
Speaker 1: that you can do that is to get rid of
Speaker 1: most of your clients, and which point you have no business,
Speaker 1: so you know it doesn't really work at this point.
Speaker 2: That's my colleague Alistair Marsh who covers esg and climate change,
Speaker 2: and he told me that Burkeie was essentially saying the
Speaker 2: quiet part out loud, that the banks considered these goals
Speaker 2: impractical in a world that is already on track to
Speaker 2: blow through the best case scenario climate goals. And Burkie
Speaker 2: isn't alone in his sentiment. Over the past couple of years,
Speaker 2: the world's biggest banks have been quietly reeling in their
Speaker 2: climate ambitions. So what went wrong.
Speaker 1: Today?
Speaker 2: On the show? Almost a decade after the landmark Paris Agreement,
Speaker 2: the Final World isn't holding up its end of the bargain.
Speaker 2: Were those promises just lip service? This is the big
Speaker 2: cake from Bloomberg News. I'm Sarah Holder. In twenty fifteen,
Speaker 2: the starting gun on the global race to cut carbon
Speaker 2: emissions was fired in Paris. The vast majority of the
Speaker 2: countries in the world agreed to limit global warming to
Speaker 2: well below two degrees celsius and ideally below one point five.
Speaker 2: This consensus is known as the Paris Agreement.
Speaker 1: This is now essentially become the kind of the north Star,
Speaker 1: the ultimate thing that we're aiming for, and so the
Speaker 1: vast majority of corporate financial and government sort of net
Speaker 1: zero ambitions are all around this one point five degrees.
Speaker 2: The Paris Agreement was a critical moment when world leaders
Speaker 2: came together and made commitments to limit warming. But reaching
Speaker 2: those goals also requires buy in from the private sector. Alistair.
Speaker 2: What is a financial firm's role in fighting climate change?
Speaker 1: They're a critical player in fighting climate change, and they
Speaker 1: are also a big contributor to climate change. What we
Speaker 1: talk about with banks is something called financed emissions.
Speaker 2: Sure, banks light up their office buildings and fly their
Speaker 2: staff around the world, but the biggest contribution they make
Speaker 2: to climate change is through their lending and underwriting.
Speaker 1: You through their financing activities. When you lend to an
Speaker 1: exomobile or a shell, when you finance a new mind
Speaker 1: or a new pipeline, the emissions that are locked in
Speaker 1: are enabled by that project. Well, those are financed emissions,
Speaker 1: and that's a big contributor to global warming. And without
Speaker 1: banks providing the money, those emissions wouldn't necessarily be there,
Speaker 1: got it.
Speaker 2: So if the banks cut off the money spigot, then
Speaker 2: maybe the oil will stop flowing too.
Speaker 1: Exactly. The money spigot is often called the money pipeline.
Speaker 1: There's the oil pipeline. There's the money pipeline.
Speaker 2: For a long time, climate activists were not really paying
Speaker 2: attention to the money pipeline, and we're more focused on
Speaker 2: the oil pipeline. Think Exon Mobil or Saudi a Ramco.
Speaker 2: But a couple of years ago, major Western banks came
Speaker 2: under huge pressure when climate consciousness burst onto the financial
Speaker 2: stage at the COP twenty sixth summit in Glasgow. There
Speaker 2: the banks responded by saying, okay, let's do it. We
Speaker 2: will commit to net zero. And it was a huge promise.
Speaker 1: Yes, because financial firms are not just banks with combined
Speaker 1: assets of one hundred and thirty trillion were committed to
Speaker 1: net zero. Essentially, they said that there's enough money here,
Speaker 1: we have it, We're ready, let's go. You know. They
Speaker 1: sent a big signal there.
Speaker 2: This signal brought a moment of hope. In twenty twenty one,
Speaker 2: multiple groups of alliances for net zero were established, a
Speaker 2: mission reduction targets were made, the strategies were laid out,
Speaker 2: and then the banks went home, rolled up their sleeves
Speaker 2: and did the math alistair. What did they find?
Speaker 1: They found that it was very easy to make a
Speaker 1: press release and put out some sort of marketing with
Speaker 1: the green bow around it, but it's very difficult to
Speaker 1: ed you deliver in practice.
Speaker 2: In part that's because lots of industries and many companies
Speaker 2: have a climate impact that's way beyond the bank's net
Speaker 2: zero goals. And one way to measure a company's predicted
Speaker 2: impact on warming is a metric called implied temperature rise.
Speaker 1: It essentially measures the alignment of a company with a
Speaker 1: temperature outcome by which I mean the ambition of Paris
Speaker 1: is one point five, as we discussed, and then you
Speaker 1: can calculate is this is company X aligned with one
Speaker 1: point five or is it aligned with three degrees? Is
Speaker 1: it aligned with six degrees? And actually, if you look
Speaker 1: through a lot of companies, you'll find that, oh my gosh,
Speaker 1: the number that are aligned with one point five is minuscule.
Speaker 2: And it's not just the exxons and shells of the world.
Speaker 2: Tons of companies that banks are entangled with, from chip
Speaker 2: makers to skincare brands, have large carbon footprints, and severing
Speaker 2: ties with all of them is easier said than done.
Speaker 1: For example, Glorial has an implied temperature rise of about
Speaker 1: six degrees I mean six degrees. That's like, well, that's
Speaker 1: the end of the world kind of thing. And then
Speaker 1: there are plenty of other companies that are not digging
Speaker 1: oil or coal out of the ground. Let them make
Speaker 1: a large high carbon contribution, and that would skew the
Speaker 1: metrics of a bank.
Speaker 2: This is a major point Judson Burkey made, the director
Speaker 2: from UBS who spoke passionately at the check and meeting
Speaker 2: in Tokyo. He pointed out that banks simply can't align
Speaker 2: themselves with a one point five degree goal when the
Speaker 2: rest of the world is on course for a much
Speaker 2: higher temperature rise. And even if one bank is willing
Speaker 2: to turn away a client to get to net zero,
Speaker 2: there are always other banks that are ready to take
Speaker 2: the deal.
Speaker 1: If big banks were to pull back from the likes
Speaker 1: of an Exon or a Shell or just some other
Speaker 1: fossil fuel producers. There are a lot of banks in
Speaker 1: India and China that have very different views on coal
Speaker 1: and oil. And then we have plenty of sovereign wealth
Speaker 1: money and from the Middle East, which obviously also has
Speaker 1: different views on oil and gas. There's always that competitive
Speaker 1: thing with banks where I don't want to lose business
Speaker 1: to my competitor. I want to keep my market share,
Speaker 1: and so they've not been very good at making this
Speaker 1: commercially viable.
Speaker 2: The world has also gone through a lot of tumults
Speaker 2: since twenty twenty one, which made banks second guess their promises.
Speaker 1: Just a few months after the Glasgow Summit, Putin's troops
Speaker 1: invaded Ukraine that led to a massive energy crisis. The
Speaker 1: fossil fuel businesses that they had been exiting or planning
Speaker 1: to exit suddenly were much more profitable. You know, do
Speaker 1: you really want to stop lending or stop fighting? And
Speaker 1: it's in Excellonomobile or Shell when they're making bumper profits,
Speaker 1: I mean clearly not really, And so there's been a
Speaker 1: real recalibration of what is the role of a bank
Speaker 1: and how should it operate in this environment. Is the
Speaker 1: bank's role to simply be a kind of passive taker
Speaker 1: of the economy as it is and just the funnel
Speaker 1: money to whoever needs it and to find a way
Speaker 1: to make good returns for shareholders, or should they be
Speaker 1: using their weight, the influence, their capital to push something
Speaker 1: that's good for humanity?
Speaker 2: Are banks supposed to be making the world a better place?
Speaker 2: Or do they exist just to move money around? Can
Speaker 2: they realistically do both? Let's discuss after the break. It's
Speaker 2: been almost a decade since the Paris Agreement and three
Speaker 2: years since the COP twenty sixth summit, and the world's
Speaker 2: largest banks have been struggling to meet goals to limit
Speaker 2: emissions and prevent more harm from climate change. To be clear,
Speaker 2: no bank has dropped out of their COP twenty six
Speaker 2: agreements so far. On paper, everybody says that they remain
Speaker 2: committed to net zero goals. But my colleague Alistair says
Speaker 2: banks have been quiet quitting their commitments.
Speaker 1: There is definitely plenty of signs of walking it back,
Speaker 1: being more lenient with the types of dirty businesses that
Speaker 1: you find in and just think about it, the emissions
Speaker 1: in the real world have not gone down since banks
Speaker 1: made these commitments. In fact, they've gone up, and there
Speaker 1: they continue to finance fossil fuel companies, and those dirty
Speaker 1: clients have not decarbonized hardly at all.
Speaker 2: In February, around the same time those banks and regulators
Speaker 2: met in Tokyo to review their climate strategies, a string
Speaker 2: of financial heavyweights, including JP Morgan, Asset Management, Specific Investment,
Speaker 2: and State Street Glow Advisors withdrew from Climate Action one
Speaker 2: hundred plus the world's largest investor group form to fight
Speaker 2: global warming. All of this raises a broader question, how
Speaker 2: much can we really expect from banks when it comes
Speaker 2: to curbing the climate crisis. Yeah, I mean it seems
Speaker 2: like banks are saying, birds fly, fish swim. Banks need
Speaker 2: to make money. We can't help it. It's it's just
Speaker 2: in our nature. Is that how you're reading this all?
Speaker 1: Yeah, bank's going to bank. That's basically what it is. Now.
Speaker 1: Let's be honest. This was never going to be easy,
Speaker 1: and I think that the statements in Glasgow were naive
Speaker 1: and they were kind of illusory. Really, they gave the
Speaker 1: impression for getting Yeah, there was a lot of marketing
Speaker 1: and there is the idea that hey, we're going to
Speaker 1: kind of we're going to do this, we're going to
Speaker 1: tackle it. We got we got this, guys. That wasn't
Speaker 1: true at all. And that's partly because, yeah, banks that
Speaker 1: don't control everything. We need governments to do a lot
Speaker 1: of things too, and.
Speaker 2: We're seeing some of those governments downgrading their own ambitions
Speaker 2: around climate change.
Speaker 1: So banks can do a lot, but without the sort
Speaker 1: of supportive policies, without the regulatory environments, there's only so
Speaker 1: much Banks can do.
Speaker 2: Still, banks command enormous amounts of capital, meaning they're in
Speaker 2: some ways uniquely positioned to take this huge expensive task on.
Speaker 1: Well, the energy transition. The sort of price tag is
Speaker 1: like one hundred trillion dollars give or take. It might
Speaker 1: be a bit more, it might be a bit less,
Speaker 1: but some you know, huge sum of money like that,
Speaker 1: and most of that will need to come from private capital, ie,
Speaker 1: from banks and investors. Governments do need to cough up,
Speaker 1: they do need to contribute, but they don't have the
Speaker 1: resources off the big banks, and you know, the private
Speaker 1: sector broadly needs to lead to the financing of the transition.
Speaker 1: That's kind of just how it has to happen. The
Speaker 1: new message from banks is not that we've abandoned that
Speaker 1: zero it's not that we've given up on our climate goals,
Speaker 1: but that we're only willing to finance transition if it
Speaker 1: makes economic financial sense. I if we can make returns
Speaker 1: from it, we'll do it. But if not, we won't. Remember,
Speaker 1: we're bankers, we're not philanthropists.
Speaker 2: Alistair, what would happen if the finance sector doesn't act?
Speaker 1: There's this great quote from Antonio Gutarra's the head of
Speaker 1: the UN. He says, we need to do everything everywhere,
Speaker 1: all at once, and we probably everyone needs to do
Speaker 1: everything everywhere, all at once. If we have any chance
Speaker 1: of limiting warming from callastrophic heights. That's not up to
Speaker 1: the banks to fix that, of course not, but banks
Speaker 1: can play a big role. So if they are continuing
Speaker 1: to finance dirly projects, or they're not pushing companies to
Speaker 1: think about how and make a plan for how they
Speaker 1: will be carbonized, then that's an opportunity missed and we
Speaker 1: will all pay the price for that.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 2: This episode was produced by Young Young and Jessica Beck.
Speaker 2: It was edited by Aaron Edwards and Caitlin Kenney. It
Speaker 2: was mixed by Young Young and Veronica Rodriguez. It was
Speaker 2: fact checked by Thomas lu Additional reporting from Natasha White,
Speaker 2: Nicole Beamster. Bor is our executive producer, and Sage Bauman
Speaker 2: is Bloomberg's head of Podcasts. Thanks for listening to the
Speaker 2: Big Take. We'll be back tomorrow.