Many of the world’s largest financial firms have spent recent years burnishing their environmental image by pledging to use their financial muscle to fight climate change.
Now, Wall Street has turned around.
In recent days, giants of the financial world, including JPMorgan, State Street and Pimco, have withdrawn from a group called Climate Action 100+, an international coalition of money managers that was pressuring big companies to address climate issues.
Wall Street’s retreat from its previous environmental promises has been moving slowly and steadily for months, particularly as Republicans began to bite back at political attacks, saying investment firms were engaging in “woke capitalism.”
But in recent weeks, things have accelerated significantly. BlackRock, the world’s largest asset manager, reduced its stake in the group. Bank of America reneged on its commitment to stop financing new coal mines, coal-burning power plants and Arctic drilling projects. And Republican politicians, feeling the urge, called on other companies to do the same.
The reasons behind the burst of activity reveal how difficult it is for the business world to deliver on its promises to be more environmentally responsible. While many companies say they are committed to fighting climate change, the devil is in the details.
“This was always cosmetic,” said Shivaram Rajgopal, a professor at Columbia Business School. “If signing a document was getting these companies in trouble, it’s no wonder they’re running away.”
US asset managers have a fiduciary duty to act in the best interests of their clients, and financial firms were concerned that a new Climate Action 100+ strategy could expose them to legal risks.
Since its founding in 2017, the group has focused on getting publicly traded companies to increase the amount of information they share about their emissions and identify climate-related risks to their businesses.
But last year, Climate Action 100+ said it would shift its focus toward getting companies to reduce emissions with what it called phase two of its strategy. The new plan called on asset management firms to start pressuring companies like Exxon Mobil and Walmart to adopt policies that could involve, for example, using fewer fossil fuels.
Besides the risk that some customers might disapprove and potentially sue, there were other concerns. Among them: that acting in concert to shape the behavior of other companies could conflict with antitrust regulations.
“In our view, making this new commitment across all of our assets under management would raise legal considerations, particularly in the United States,” a BlackRock spokesperson said in a statement.
BlackRock also said that one of its subsidiaries, BlackRock International, would continue to participate in the group, a tacit acknowledgment of the different regulatory environment in Europe. BlackRock also said it was launching new features that would allow clients to choose whether they wanted to pressure companies to reduce their emissions.
A State Street spokesperson said the company also saw potential legal risks and that the firm determined the new approach “will not be consistent with our independent approach to proxy voting” and to interacting with the companies in which it invests.
JPMorgan said it was leaving the group in recognition of the fact that, in recent years, the company had developed its own framework to address climate risk.
On Friday, a day after JPMorgan, BlackRock and State Street pulled out, Pimco, another large asset manager, followed suit. “We have concluded that our participation in Climate Action 100+ is no longer aligned with PIMCO’s approach to sustainability,” a company spokesperson said in a statement.
A spokesman for Goldman Sachs Asset Management, another member, declined to comment Saturday when asked if it planned to remain in the group.
The splitting of Climate Action 100+ was a victory for Rep. Jim Jordan, R-Ohio, who has led a campaign against companies pursuing ESG goals, short for environmental, social and governance factors.
Embracing ESG principles and talking about climate issues has become commonplace across American companies in recent years. Chief executives warned of the dangers of climate change. Banks and asset managers formed alliances to phase out fossil fuels. Trillions of dollars were allocated to sustainable investments.
At the same time, backlash grew, with Republicans claiming that banks and asset managers were supporting progressive policy with their climate commitments.
Some states, including Texas and West Virginia, banned banks from doing business with the state if the companies distanced themselves from fossil fuel companies. And at the end of 2022, Mr. Jordan began an antitrust investigation into the groupcalling it a “climate-obsessed corporate ‘cartel’.”
On Thursday, the said in a post on X that the news represented “big victories for freedom and the American economy, and we hope that more financial institutions will follow suit and abandon collusive ESG actions.”
Mindy Lubber, CEO of Ceres and a member of the Climate Action 100+ steering committee, disputed the idea that the new strategy represented a shift in focus toward greater disclosure.
“The second phase is not that different,” he said. “It’s basically investors working with companies and saying, ‘Okay, you’ve disclosed the risk.’ We just want to know how you’re going to deal with it.’ Because that’s what investors want. How are you dealing with risk?
Ms Lubber said she was disappointed that big asset managers had withdrawn from Climate Action 100+ but hoped they would continue their efforts to reduce the risks posed by the heatwaves, floods, fires and storms that are being made worse by man. . -realized global warming. “You cannot formulate a new theory that climate risk is no longer a material financial risk” she said.
Several of the companies that withdrew from Climate Action 100+ said they remained committed to the issue. JPMorgan said it had a team of 40 people working on sustainable investments and that it believed “climate change continues to present significant economic risks and opportunities for our clients.”
Aron Cramer, chief executive of BSR, a sustainable business consultancy, said Wall Street companies were responding to political pressure but not completely abandoning their climate commitments.
“The political cost has increased, the legal risk has increased,” he said. “That said, these corporations are not making any U-turns,” she added. “They continue to consider the climate. That’s not going to go away. “It’s about adapting to the current environment.”
