Whether it’s a crime show, valuation strategy or political corruption, the basic admonition is always the same: “Follow the money.” If extracting fossil fuels and running businesses that emit greenhouse gas or down and very dirty pollution weren’t so profitable, you can bet corporate American would not do it. But from savvy investors to risk-averse lenders, betting on these climate change killers has generally been good business. Sure, there is a trend towards “green” with those embracing ESG (environment, social and governance) styled stocks, but as oil and gas prices skyrocketed by reason of the sanctions and realities of the Russian invasion of Ukraine, the financial world slorped at the resulting trough.
After all, under virtually all state and federal US corporate regulations and statutes, unless there is a governmental regulation or law to the contrary, corporate boards of directors and officers have one simple primary fiduciary duty: to shareholder values. Even when public companies are charitable or embrace positive social values, the underlying justification is that such efforts paint the company in a more favorable light, making dealing with buyers and clients easier and more productive.
While laws in other developed nations often create a statutory duty to other stakeholders – like local communities, national social policy, and employees – the United States has no such requirements. Anywhere. In those specific foreign venues that have such stakeholders beyond shareholders, that is often manifest in the composition of the boards of directors and in reporting and disclosure obligations under law. Indeed, where US regulations do apply, such reporting and disclosure obligations might apply, but statutory attempts to force public company board membership are seldom enforced (except to the extent “independent” board members may be required). Even California’s attempt to require a proportionate number of women board members on public companies in that state was successfully challenged in court.
We watch as GOP-controlled oil and gas states, even red states that do not have a significant fossil fuel base (like Florida), are forcing state agencies with investment strategies to curtail doing business with major funds that have adopted ESG policies. That’s viewed as part of the culture war against “woke” corporations who are not willing to play the red state game of marginalizing or even dismissing the ravages of climate change, a reality that will continue cost this country trillions of hard dollars over the near-term, foreseeable future.
But many of us, even simple depositors into bank accounts, may not be aware that the aggregation of such deposits is very frequently used as the basis for mega-loans to some of the biggest corporate contributors to greenhouse gas emissions. As Kat Taylor, board chair, co-founder and former CEO of Beneficial State Bank, and Bill McKibben, organizer of a planned March bank protest, writing for the January 18th Los Angeles Times/Associated Press, explain: “As the world warms, expect a lot more heat aimed at global banks, in particular at the biggest American ones. That’s because they’ve allowed themselves to become the ultimate and most powerful enablers of the fossil fuel industry — and because, in recent weeks, some of their peers in the rest of the world have begun to move in the right direction.
“It’s easy to see that Exxon has been on the wrong side of the climate equation, but you have to dig deeper to see why JP Morgan Chase or Bank of America or Wells Fargo or Citi share a similar responsibility. Basically, it’s because the money in their charge — your money if you’re a customer — is lent to the oil and gas industry, and because these banks, with assets of about $10 trillion, use their underwriting capabilities to issue corporate debt to these companies.
“Sustainability and energy-finance scholars in the United Kingdom and Ireland calculate that 90% of new capital for fossil fuel companies derives from debt finance — bank loans and bond issuances… And banks have that money to lend thanks in part to the support of our government — of all of us. All banks rely on the Federal Deposit Insurance Corp., for instance, a guarantee backed by the American taxpayer that their depositors’ money is safe up to $250,000.
“But here’s where the carbon math gets interesting. Crunching numbers from a 2021 report calculating bank-financed emissions, it works out that $62,500 in one of the big American banks could produce as much carbon (about 8 tons) as all the heating, driving, flying, cooling and cooking an average American does in six months.
“Your bank account — because it’s used to expand pipelines, frack wells and the like — could represent the heaviest part of your climate footprint. And of course, it’s not just individuals: American corporations with billions in their corporate coffers deposit and invest those monies in ways that finance emissions and add to their carbon footprint.” With Federal Reserve being the backstop of federally insured big banks and given the uniform “shareholder as the primary stakeholder” statutory reality, our government is the great enabler, supplier of liquidity, that makes it so easy for our financial institutions to step in where foreign banks cut back their toxic lending practices. It doesn’t have to be that way for US banks.
“There are many financial service providers that behave responsibly: local banks, credit unions and the like that are focused close to home, not off in the oil fields of the Siberian Arctic. Money, liquidity, credit — these can be forces for good empowering people to avoid existential peril and to realize important dreams.
“But even the banks focused on making money globally could easily get out of the climate destruction business. Environmentalists aren’t asking for much: only that banks stop lending for the expansion of the fossil fuel industry. In December, Europe’s biggest bank — HSBC, with $3 trillion in assets — pledged to do that, announcing it would cease lending for the development of new oil and gas fields, in line with the recommendations of the International Energy Agency and the Intergovernmental Panel on Climate Change. The French banking giant Credit Agricole took similar steps earlier in the year.
“If these European banking giants can do it, so can Chase and Citi, Wells Fargo and BofA. Remember, these are the very same banks that enjoy the prerogatives the American people bestow on them by insuring their deposits. And these money center banks — having grown ‘too big to fail’ because they present a risk to the whole banking system if they do — get especially cheap money from the Federal Reserve…
“And this year we’ve seen that the biggest banks, because of their fossil fuel investments, are deeply entwined with Putin’s Russia. According to LINGO, the Leave It In the Ground Initiative, they provide nearly half the capital for the massive Russian oil and gas projects that climate scientists call ‘carbon bombs,’ projects whose revenue pays for the real bombs falling on Kyiv.” LA Times. Why should the United States de facto support these major lenders, with statutes and Federal liquidity, when those loans create death and destruction, accelerating climate devastating change?
I’m Peter Dekom, and turning a blind eye to the easily controlled but toxic capitalism is a bad habit that needs to end.
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