Good analogy to start off this piece.
Above, Fed Chair Jerome Powell tells Minnesota Senator Tina Smith “..fast forward 10 or 15 years, there will be areas of the country where you can’t get a mortgage, there won’t be ATMS..” due to climate risks.
Mark Gongloff in Bloomberg:
If you come home early from vacation and find robbers ransacking your house, you could call the police and try to stop the crime. But the true alpha move would be to help the robbers load your valuables onto the truck and then tell them which of your neighbors are also on vacation in exchange for a cut of the profits.
Banks are choosing the alpha option, basically abetting theft from themselves by backing new projects to extract and burn fossil fuels, thus stoking the planetary heating that stunts economic growth and their own insurance and mortgage businesses. Of course, these financial companies do get a cut of the short-term profits from this environmental sabotage. And by abandoning the pretense of siding with the climate, they avoid political blowback from a US government that has declared war on it. But the long-term result will be a global economy trillions of dollars poorer and far less stable, impoverishing just about everyone, including the banks.
The world’s 65 biggest banks delivered $869.4 billion in financing to fossil-fuel companies last year, up $162.5 billion from 2023, according to a new report by the Rainforest Action Network, the Sierra Club, and several other nonprofit groups. Banks have funneled $7.9 trillion in loans and underwriting to these polluting industries since the Paris climate accords took effect in 2016, by the report’s measure. This doesn’t include any investments by banks’ asset-management units, which amount to hundreds of billions of dollars more.
Last year’s financing surge reversed two years of declines and coincided with a turn of political sentiment against “woke” environmental, social and governance considerations in business. Climate actions drew some of the harshest attacks, with President Donald Trump and other conservatives blaming them for rising energy prices. Such claims helped Trump win a second term. On his first day in office, he declared that his predecessor’s foolish concern for the climate had created a “national energy emergency” that hurt Americans’ finances. His prescription has been to attack any public or private activity meant to slow the burning of fossil fuels.
Banks saw the direction that the wind was blowing and quickly changed tack. The biggest immediately quit the Net Zero Banking Alliance, a group that vows to help eliminate greenhouse-gas emissions by 2050. They claim to still have their own goals for curbing emissions, but they’ve apparently given up trying to make their actions match their words.
To meet the Paris Agreement’s rapidly fading stretch goal of holding global heating to 1.5 degrees Celsius above preindustrial averages, energy financing should favor green projects over fossil fuels by a 4-to-1 ratio, according to BloombergNEF. In 2023, the latest data available, the ratio was just 0.89-to-1. Boosting fossil-fuel financing last year probably didn’t move that ratio in the right direction.
Meanwhile, the economic damage caused by a heating planet keeps mounting. Global climate-related costs — including insured and uninsured losses, government relief spending and higher insurance premiums — have topped $18.5 trillion since January 2000, Bloomberg Intelligence estimated recently. The US alone accounted for $7.7 trillion of the damage, or 36% of its growth in gross domestic product over that stretch. In just the 12 months through April, US climate-related costs totaled nearly $1 trillion, BI said, roughly matching bank financing for fossil fuels during that time.
Wall Street Journal September 25, 2024:
A deep divide is emerging among insurers over their investments in fossil fuels. The overall industry has significantly cut its exposure, but two huge players have made multibillion-dollar bets on major oil companies.
The buying by State Farm and Berkshire Hathaway’s BRK.B -0.21%decrease; red down pointing triangle insurance companies was so big that it helped offset a decline in the rest of the industry, according to an analysis by The Wall Street Journal of data from the National Association of Insurance Commissioners, a group of state regulators.
Property-and-casualty insurers overall reduced the proportion of their portfolios dedicated to fossil fuels to a median 1.8% last year from 3.4% in 2014, according to the Journal’s analysis. The increases from State Farm and Berkshire drove the industry’s overall exposure to fossil fuels higher, pushing it to 4.4% of their portfolios from 3.8%, the analysis found. The energy sector accounts for 3.5% of the S&P 500’s market capitalization.
The value of fossil-fuel holdings by the property-and-casualty industry rose to $84.6 billion last year from $57 billion in 2014, driven by market appreciation and the buying by the two insurers.
The insurance industry plays an outsize role in addressing climate change. Insurers are already pricing in the risks of storms, wildfires and the like and passing the costs on to their customers.
State Farm, the nation’s biggest home and auto insurer, has stopped selling new home insurance in California and aggressively raised rates after big losses. Insurers owned by Berkshire, including Geico and General Reinsurance, an industry giant, have also raised rates.
State Farm invested nearly $4.8 billion in stocks and bonds of companies such as Chevron, Diamondback Energy and Exxon Mobil. The insurer increased the share of fossil-fuel companies in its $142.7 billion portfolio to 3.6%, up from 2.6% a decade earlier, according to the Journal’s analysis.
Investment advisors are averse to socially responsible investing that avoids the profitable Slavery Textiles, Inc. or Toxic Sludge Corporation because maximizing returns is how everyone in their industry (and social circles) keeps score.
There is the long-held sentiment for investor advisors who don’t like to deal with anything but returns on investment and shareholder value: Rather than avoiding buying stock in XYZ because of some ethical issue, just use that income to donate to charities that address that problem.