ESG Frustration And Backlash In The Banking Sector Continues

“Facts that don’t align with ill-informed prejudice are often infuriating. That doesn’t make them wrong. Someone needs to tell the truth about what it’s going to take to get to a net-zero future,” Emily Mir, a spokeswoman for Exxon, said earlier this month.

And that’s exactly what Judson Berkey at UBS has done, the focus of a new Bloomberg report. Berkey let loose on a recent conference call with regulators about how unrealistic climate goals were for banks trying to integrate them into their respective economies.

The report covering Berkey’s outburst simply concluded that the “world’s biggest banks can’t live up to the green regulatory ideal unless they start dumping huge numbers of clients worldwide at a reckless pace and also roil economies in large swathes of the globe that primarily rely on dirty fuels.”

Berkey was on a “check-in” call where regulators query market participants about regulations, the report says, when he expressed his frustration, interjecting: “Banks are living and lending on planet earth, not planet NGFS [Network for Greening the Financial System]”.

The outburst is a microcosm of “cracks” emerging in the banking sector after being draped with regulations about sustainability, the report says. Bridgewater Associates founder Ray Dalio famously said last year about ESG: “You have to make it profitable.”

Its indicative of new-world climate regulation going head to head with old world capitalism, the report says. 

Adair Turner, chair of the Energy Transitions Commission in Britain said: Climate change is “an economic externality, and you can’t expect a free market to deal with it voluntarily.”

Banks reevaluating their net zero commitments are facing challenges as they confront the practical implications of these pledges, which include limitations on operating in coal-reliant regions like South Africa, Poland, and Indonesia. These commitments also complicate relationships with clients across various sectors, from commodities firms to companies with less obvious carbon impacts. 

Jonathan Hackett, head of sustainable finance at Bank of Montreal, added: “Our net zero commitments are about being our clients’ lead partner and are consciously taken around the idea that we need to be there with our clients and our clients need to succeed, not that we need to hyper select clients in order to get to net zero somehow faster or better.”

A recent sustainability report from UBS highlighted a “notable shift in emphasis” in climate change discussions, moving from net zero pledges to recognizing the need for a transition phase. The Swiss bank noted that high inflation and input costs will be crucial factors for clients as they develop decarbonization strategies.

James Vaccaro, Chief Catalyst at Climate Safe Lending Network, added: “For banks with substantial capital markets businesses, like those competing with the JPMorgans of the world, it’s fee income that’s on the line here. Ditching clients off track from 1.5C means losing major lines of revenue.”

In sum, the financial industry’s initial rush to commit to net zero carbon footprints at the 2021 COP26 summit in Glasgow has hit a reality check. Banks that pledged to reduce financed emissions and invest billions in green and sustainable deals are reevaluating these commitments after facing the complex realities of implementing such drastic changes.

It should be no surprise to our readers: we have been pointed out the collapse of ESG for more than a year now. Earlier in March we wrote how Exxon’s CEO had all but declared victory over the “woke” ESG lobby. 

In February, we noted that CEOs were ditching ESG lingo on conference calls. For some context, peak ESG and related synonyms, such as “climate change” and “clean energy” and green energy” and net zero,” among other terms, peaked at 28,000 mentions in the first quarter of 2022. Ever since, the number of mentions has rapidly plunged. Halfway through the first quarter earnings season, mentions are around 4,800. 

Andy Wiechmann, the Chief Financial Officer of MSCI, mentioned during his earnings call that “Clients are taking a more measured approach to how they integrate ESG.”

On a Jan. 12 earnings call, BlackRock CEO Larry Fink explained how his firm plans to purchase private equity firm Global Infrastructure Partners without mentioning ESG. This makes sense since BlackRock dropped the ESG term after blowback last summer. 

Recall, we also wrote last year about the dying off of ESG and “green” investment products. At the end of 2023, Goldman Sachs shuttered its ActiveBeta Paris-Aligned Climate U.S. Large Cap Equity ETF. 

Bloomberg ETF analyst Eric Balchunas pointed out in late 2023 that “there was just way too much supply for the demand” with the ETF and that “it’s going to get worse too”. Balchunas says the ETF only took in $7 million over the course of 2 years. 

We also wrote about Jeff Ubben late last year, who shuttered his sustainability fund – calling traditional climate summitry an “echo chamber” of diplomats. Less than a week before that we noted that $30 billion had been shaved off the value of clean energy stocks over the preceding 6 months. 

Finally, we pointed out last year how the ESG grift was reaching endgame after Markus Müller, chief investment officer ESG at Deutsche Bank’s Private Bank stated that sustainability funds should include traditional energy stocks, arguing that not doing so deprives investors of a prime opportunity to invest in the transition to renewable energy.