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morgan stanley
Analysis Details How Wall Street Underwriting Quietly Funnels Billions Into Fossil Fuels
"Underwriting is a huge missing piece of net-zero transition plans, allowing big U.S. banks to continue to help fossil fuel companies raise billions of dollars with limited scrutiny," said one campaigner.
Jul 24, 2023
A report out Monday sheds light on how big U.S. banks' underwriting of bonds and equities for polluting corporations constitutes a "hidden pipeline" for fossil fuel financing.
It's no secret that financial institutions play a leading role in driving the climate emergency. Since 2016, the year the Paris agreement took effect, the world's 60 largest private banks have provided more than $5.5 trillion in financing to the fossil fuel industry, flouting their pledges to put themselves and their clients on a path to net-zero greenhouse gas emissions as the window to avert the worst consequences of the intensifying climate crisis rapidly closes.
But banks' underwriting activities receive far less attention than their direct lending practices, even though both are instrumental in enabling fossil fuel expansion and must be reformed to rein in the industry most responsible for imperiling the planet's livability.
That's the key takeaway from a new analysis of Wall Street's participation in capital markets published by the Sierra Club's Fossil-Free Finance campaign.
"By only focusing on emissions reduction targets for their lending activities, banks are conveniently excluding half of their fossil fuel financing from their climate commitments."
"Banks play a vital role in capital markets," the report explains. "Acting as underwriters, they are the gatekeepers of fossil fuel companies: they advise companies issuing bonds and equities, hold the vital information on the issuer, and help market the instruments to investors disclosing only the necessary risk."
Since 2016, the six largest U.S. banks—JPMorgan Chase, Citi, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs—have provided more than $433 billion in lending and underwriting to 30 of the companies doing the most to increase fossil fuel extraction and combustion worldwide, the report notes. More than three-fifths (61%) of that financing comes from underwriting, with those half-dozen banking giants issuing $266 billion in new bonds and equities for the world's top 30 fossil fuel expansion firms.
Climate justice advocates have long criticized the concept of "net-zero" because, they argue, allowing planet-heating pollution to be "canceled out" via dubious carbon offset programs or risky carbon removal technologies is an accounting trick that doesn't guarantee the significant emissions cuts needed to avoid the climate emergency's most destructive impacts.
But even if one accepts the premise of net-zero, big U.S. banks' policies on the topic are misleading.
"Despite the importance of capital markets activities in helping fossil fuel companies secure new funding, banks focus primarily on lending, while downplaying the importance of underwriting, when setting their emissions reduction targets," the report says. "Banks are performing sleight of hand, distracting investors and regulators with net-zero transition plans that are half-finished, while continuing to funnel money to fossil fuel companies via capital markets with limited scrutiny."
In a statement, Adele Shraiman, senior campaign strategist with the Sierra Club's Fossil-Free Finance campaign, said that "without banks, fossil fuel companies cannot raise money through capital markets."
"By downplaying their role in capital markets and refusing to include facilitated emissions in their climate targets, big U.S. banks are intentionally sidestepping a major source of real-world emissions and making it impossible to meet their own net-zero commitments," said Shraiman.
According to the report: "Only three of the six major Wall Street banks include bond and equity underwriting in their sectoral emissions reduction targets—JPMorgan Chase, Goldman Sachs, and Wells Fargo. The remaining three banks have so far chosen to only apply emissions reduction targets to lending activities."
However, "even among those who have set emissions reduction targets that include underwriting, insufficient disclosures and lack of standardization make it difficult to understand how robust banks' facilitated emissions accounting methodologies are, and what progress they are making toward achieving their emissions reduction targets," the report adds.
In a blog post, Shraiman wrote that "banks don't want us to know all of the ways they help fossil fuel companies raise funds to continue building the pipelines, oil rigs, fracking wells, and coal mines that are destroying the climate and hurting communities."
"But investors, regulators, and customers around the world see through their duplicity," she continued. "We are demanding complete, robust, and transparent net-zero plans that cover all types of financing activities and will lead to real-world emissions reductions in line with our global climate goals."
"Banks don't want us to know all of the ways they help fossil fuel companies raise funds to continue building the pipelines, oil rigs, fracking wells, and coal mines that are destroying the climate."
Monday's report comes at a key moment in the fight to stop Wall Street from continuing to fund climate chaos.
As the Sierra Club observed, "Banks currently point to a lack of industry standards on underwriting to justify why they do not disclose or set targets for facilitated emissions." However, the industry-led Partnership for Carbon Accounting Financials is expected to release its updated methodology on accounting for and reducing facilitated emissions in the near future.
"Underwriting is a huge missing piece of net-zero transition plans, allowing big U.S. banks to continue to help fossil fuel companies raise billions of dollars with limited scrutiny," Shraiman said. "By only focusing on emissions reduction targets for their lending activities, banks are conveniently excluding half of their fossil fuel financing from their climate commitments."
"It's time," she added, "for the major Wall Street banks to adopt a robust and consistent methodology for accounting facilitated emissions, and take full responsibility for the climate impacts of their underwriting decisions."
The International Energy Agency has stated unequivocally that there is "no need for investment in new fossil fuel supply in our net-zero pathway."
After the Intergovernmental Panel on Climate Change released its latest assessment in March, United Nations Secretary-General António Guterres said that limiting temperature rise to 1.5°C is possible, "but it will take a quantum leap in climate action," including a ban on approving and financing new coal, oil, and gas projects as well as a phaseout of existing fossil fuel production.
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Climate Coalition Targets Big Banks and Insurance Giants With New Shareholder Campaign
"The planet is running out of time and the banks are running out of excuses," said climate leader Bill McKibben.
Mar 01, 2023
A coalition of more than 240 advocacy groups on Wednesday launched a "Shareholder Showdown" campaign in support of shareholder resolutions urging climate action and respect for Indigenous rights at major U.S. and Canadian banks and insurance companies.
According to campaign coordinator Stop the Money Pipeline, the resolutions—which were filed by investors including the New York City and state pension funds, Sierra Club Foundation, and others—would require banks and insurance companies to "phase out their financing of companies engaged in fossil fuel expansion, report on projects that could violate Indigenous rights, use absolute emissions rather than emissions intensity targets, disclose 2030 transition plans, and hold directors accountable at banks that are not aligned with 1.5°C pathways."
The resolutions were timed to precede the companies' annual general meetings.
"This campaign is called Shareholder Showdown because we're in for a real fight—we're up against some globally powerful institutions," Arielle Swernoff, Stop the Money Pipeline's U.S. banks campaign manager, explained in an opinion piece published Wednesday by Common Dreams. "But organized people can achieve anything, and together we will stop the flow of money to fossil fuels and climate destruction."
\u201cToday we\u2019re launching our new campaign: #ShareholderShowdown! \n\nThis spring: banks + insurers will have their annual shareholder meetings, where they'll vote on resolutions needed to keep global warming below 1.5\u00b0C\u2026or decide to keep business as usual. \ud83d\udcb0\ud83d\udd25\n#StoptheMoneyPipeline\u201d— Stop the Money Pipeline (@Stop the Money Pipeline) 1677684715
Bill McKibben, co-founder of the climate group 350.org, said in a statement that "the planet is running out of time and the banks are running out of excuses—everyone from the pope to the secretary-general of the [United Nations] have called on them finally to act with clarity and conviction to help with the planet's greatest crisis, and shareholders should demand no less."
Among the resolutions filed are:
- An Indigenous rights reporting requirement filed by Sisters of St. Joseph for Peace at Citigroup;
- An absolute emissions target disclosure mandate filed by New York City Comptroller Brad Lander and three city pension systems at Bank of America, Goldman Sachs, JPMorgan Chase, and Royal Bank of Canada; and
- Measures filed by As You Sow requiring JP Morgan Chase, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley to publicly disclose their 2030 plans for transitioning lending and investment portfolios away from fossil fuels.
"Climate change is an existential crisis that can overwhelm a person in scale and size, impossible to address," said Tara Houska of the Giniw Collective, an Indigenous women and two-spirit-led frontline resistance group fighting fossil fuel projects like Line 3 in Minnesota.
"Big bank shareholders possess an enormous amount of influence on the world's emissions," Houska added. "A roomful of people can impact the disastrous course we are currently on. No more lip service or empty greenwashing—we need action, now."
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Shareholder Showdown: The Most Important Climate Votes You’ve Never Heard Of
Without Wall Street cash, the world's most polluting companies wouldn't get the capital they need to finance their toxic expansion.
Mar 01, 2023
Today, a coalition of over 240 organizations across North America announced a new campaign on big banks and insurance companies: Shareholder Showdown. This spring, we’re calling for shareholders to step up and push major corporations to start taking the climate crisis seriously.
Every year, shareholder season runs from April to June. It’s the time of year when the country’s biggest corporations hold their annual general meetings, where shareholders vote on all sorts of proposals: how companies should be governed, who should be in charge, and how they should relate to climate, racial, and economic justice.
Shareholder activism has been a tried and true technique of progressive movement organizations for years. Labor unions, environmental activists, and human rights campaigners have won big change by combining filing shareholder resolutions with public pressure and grassroots campaigns.
This year, the climate movement is hoping to turn off the flow of Wall Street money to destructive fossil fuels. Investors have filed shareholder resolutions at the largest North American banks and insurance companies calling on the firms to phase out their financing of fossil fuel expansion, protect Indigenous rights, and stop greenwashing.
This campaign is called shareholder showdown because we’re in for a real fight – we’re up against some globally powerful institutions.
These resolutions are just one part of a multi-faceted campaign to stop the flow of money to oil, gas, and coal. Shareholder season is the time when all eyes are on Wall Street, and an opportunity for activists to call out big banks and insurance companies for their greenwashing, denialism, and continued support of climate destruction.
Wall Street matters in the climate fight because fossil fuel companies simply don’t have the cash on hand to build new coal mines, oil fields, refineries, or pipelines whenever they want. Like other businesses, they need to go to the bank for financing, often in the billions of dollars. Despite pledges to align their business models with the goals of the Paris Agreement, the six largest American banks – JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, Morgan Stanley, and Goldman Sachs – have provided nearly $500 billion in lending and underwriting to the 100 corporations most aggressively expanding fossil fuel operations since 2016.
That’s billions to fossil fuel companies such as ExxonMobil, BP and Gazprom, the Russian state-owned oil company which is helping to finance the murderous invasion of Ukraine. It’s money to companies like Energy Transfer Partners, the operator of the Dakota Access Pipeline, Enbrige, the owner of Line 3 and Line 5, and GeoPark, which is drilling for oil on Indigenous lands in the Amazon.
Fossil fuel expansion isn’t just bad for our carbon budget – although according to the International Energy Agency, in order to have a fifty percent chance of limiting global warming to 1.5°C, we have to stop fossil fuel expansion now – it’s devastating to Black, Indigenous, and communities of color on the frontlines. Polluting fossil fuel infrastructure is disproportionately likely to be sited in communities of color, causing negative impacts such as heart disease, asthma, and cancer, poisoning land, air, and water, and disrupting community cohesion.
Without Wall Street cash, these companies wouldn’t get the capital they need to finance their toxic expansion.
That’s why this spring, climate activists are campaigning hard to get major investors such as pension funds, asset managers, and universities to vote yes on these climate and Indigenous rights resolutions. This vote isn’t like a regular election – they don’t need to pass with more than fifty percent to become policy. Even results in the teens and twenties send a strong signal to companies that people are ready for change. After all, what company would ignore the demands of one in five of its shareholders?
Activists are especially focused on pushing public pension funds, which are large, long-term investors, to vote yes, and it’s already paying off. After coming out publicly in favor of a series “no fossil fuel expansion” resolutions last year, New York City Comptroller Brad Lander filed resolutions at Bank of America, Goldman Sachs, JPMorgan Chase, and Royal Bank of Canada calling on the banks to use absolute targets to track their emissions, rather than the emissions intensity targets that allow them to put out greenwashing statements while insidiously increasing their investment in fossil fuels.
New Yorkers should be proud of their city for this leadership, but those of us in the Big Apple needn’t have all the fun – anyone who lives in a state or city with a public pension can get involved by calling or writing to their Treasurer’s office demanding they support these critical resolutions. People who have public pensions or are public sector employees, including educators, nurses, bus drivers, and administrators can reach out to their pension fund directly and demand that their retirement not be used to uphold Wall Street’s greenwashing and lies.
This campaign is called shareholder showdown because we’re in for a real fight – we’re up against some globally powerful institutions. But organized people can achieve anything, and together we will stop the flow of money to fossil fuels and climate destruction.Keep ReadingShow Less
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