A trade association that lobbies on behalf of the largest banks in the United States told regulators that their members’ pledges to reduce investments in carbon-emitting industries are “aspirational,” implying that they shouldn’t be taken seriously by authorities.
The Bank Policy Institute made the remarks in public comments on guidelines proposed earlier this year by federal bank regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), on climate-related risk management. Specifically, the lobbying group rejected the notion floated by the agencies that regulations should ensure banks’ greenhouse gas commitments to the public “are consistent with their internal strategies and risk appetite statements.”
“The final guidance with respect to public communications should recognize the aspirational nature of external commitments and the fact that these commitments and plans will need to adapt over time as data and methodologies improve and external circumstances change,” the organization said.
The institute urged regulators to “establish realistic expectations with respect to public statements” and said the government “should calibrate its expectations as to the granularity between external statements and internal risk appetite statements accordingly.”
The remarks contrast with public comments on the same subject matter submitted by other trade associations, which plainly said that rulemaking on banks’ public commitments could prohibit lying and misleading statements.
The proposed guidelines were drafted and unveiled separately by the OCC and FDIC, but are almost identical in wording. The draft rules would only apply to the largest banks in the country — firms with more than $100 billion in assets under management. The Bank Policy Institute was founded in 2018 by the largest of such institutions to lobby on behalf of financial industry behemoths as the Trump administration pursued a deregulatory agenda. The four biggest banks in the country — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are the only firms to hold permanent seats on the Bank Policy Institute’s rotating board of directors.
All four banks have pledged to achieve “net-zero” carbon emissions by 2050, though they refuse to stop fossil fuel financing now, as they confirmed during recent congressional testimony in September during questioning from Rep. Rashida Tlaib (D-Michigan). International scientific organizations, including the Intergovernmental Panel on Climate Change and the International Energy Agency, have called for an immediate end to fossil fuel extraction to maximize the possibility of people around the world avoiding the worst effects of global warming: namely, rising sea levels and more intense and frequent natural disasters.
The Bank Policy Institute has especially close ties to JPMorgan Chase, which has been the most prolific financier of fossil fuel enterprises since governments around the world agreed to the Paris climate accords in 2015, according to the environmentalist organization Oil Change International. The chair of the Bank Policy Institute’s board of directors is JPMorgan Chase CEO Jamie Dimon, and its chief lobbyist, Kate Childress, had previously spent 10 years as a lobbyist at JPMorgan Chase, ushering the bank through the aftermath of the financial crisis and the passage of Dodd-Frank financial reform. Childress was Dimon’s “point person at the Business Roundtable,” another corporate lobbying group, according to trade publication pymnts.com.
Dimon routinely attracts media attention for scolding those who call for carbon-intensive energy industries to be downsized without delay. In August, he accused critics of the oil and gas industries of having “thick skulls” and in September, told Representative Tlaib that withdrawing credit from dirty energy industries “would be the road to hell for America.”
The Bank Policy Institute did not respond to a request for comment on whether it expects banks’ public commitments on climate change to be taken seriously. Representative Tlaib said the remarks show big banks attempting “to avoid necessary oversight of their climate pledges.”
“When big banks make pledges to tackle the very climate change they’ve helped finance — their word isn’t worth the paper it’s written on,” Tlaib told Truthout. She added that large financial institutions “must not only be held accountable for their past actions, but also be forced to divest from fossil fuels today and stop feeding the flames of the climate crisis. Congress and the federal government must continue unflinching oversight as we move towards the clean energy revolution and a green economy. We will not be bullied into relinquishing our future.”
The public commitment language drafted by the OCC and the FDIC is arguably the strongest part of the proposed guidelines. The agencies aren’t seeking to force banks to divest from carbon-emitting energy sources like oil, gas and coal, and even supporters of a stringent banking regulatory framework on climate risk concede that regulators lack the authority to order firms to wean themselves off of certain types of energy investments, even if they wanted to. But with clear rulemaking on public commitments, banks can, at least, pay the price for misleading the public with promises to reduce their carbon footprints.
“Although the FDIC cannot legally mandate that institutions make specific public commitments regarding their loan portfolios, it should require that when institutions articulate measurable targets that they also take the steps necessary to adhere to those targets,” the Center for American Progress said in its comments.
“As financed [greenhouse gas] emissions are a critical driver of both micro- and macroprudential climate-related risk, the FDIC should make clear that having a credible transition plan and reporting on progress is a crucial part of a bank’s risk management system,” said the watchdog group Americans for Financial Reform.
At the heart of the issue are the methods used by banks to move toward “net-zero” carbon emissions in their asset portfolio: investments in “carbon sink” credits or offsets based on the preservation of forests, and carbon capture technology. The promise of the latter has been exaggerated by boosters and the promise of the former hasn’t been proven, according to comments made to regulators by Public Citizen.
“Given these challenges, financial institutions relying on these technologies in their net zero plans should have to demonstrate specific, committed projects that are fully proven to reduce carbon safely and permanently at scale, and appropriately incorporate the cost of both funding and adequately monitoring those commitments into their profitability forecasts,” Public Citizen said. “No projects currently meet these criteria, and there may be none for decades, if ever.”
In one case of carbon credits not living up to their promises, JPMorgan Chase “paid almost $1 million to preserve forestland in eastern Pennsylvania” that “was never threatened; the trees were already part of well-preserved forests,” according to a report published in December 2020 by Bloomberg. Since then, the bank has increased its exposure to the carbon credit market. Last July, for example, Dimon said that “Timber assets is [sic] going to be a great thing for asset management,” referring to a lumber company named Campbell that JPMorgan Chase purchased weeks earlier. The bank acquired Campbell “to gain a foothold in the growing market for forest-carbon offsets,” according to Markets Insider.
Despite indifference from top bankers in response to urgent calls to divest from fossil fuels, the frequency and cost of weather-related natural disasters have increased over the past four decades due, in part, to climate change, according to the National Oceanic and Atmospheric Administration. Data gleaned from bank regulators also show evidence of climate change having a growing impact on the finance industry. Agencies grant regulatory relief when banks have branches in areas hit by disasters, citing the difficulty faced by people in disaster areas staying current on their bills in the aftermath. An analysis by Truthout shows that the number of those regulatory relief orders issued annually by the FDIC after weather-related disasters going back to 1995 has increased significantly in the past two decades. A five-year moving average of annual weather-related relief orders issued by the FDIC increased about 5.1 times between 2001 and 2021, with similar measures of tornado-related orders and flood-related orders in the same time frame up by 10.5 and 9 times respectively. The last year without a tornado-related disaster relief order was 2009 and the last year without a disaster relief order that singled out flooding was 2006. The five-year moving average of fire-related relief orders hasn’t decreased since 2010 and was up from 0 to 1.4 between 2001 and 2021.
Moving averages are the mean of a subset of data and are designed to smooth out short-term fluctuations to highlight longer term trends. A spokesperson for the FDIC explained that the agency’s discretion has nothing to do with the increase in relief orders, which are based on disaster declarations by the Federal Emergency Management Agency.
Although critics are calling for financial regulators to do more, powerful conservatives are furious that the agencies are doing anything at all. Republicans on the Senate Banking Committee urged the Federal Reserve last year “to refrain from taking any additional actions with respect to climate-related risks.” The top Republican on the committee, Pat Toomey (R-Pennsylvania), is fond of asserting that no financial institutions have failed in the last 50 years because of extreme weather events, and uses a reactionary dogwhistle to malign regulators interested in addressing climate risk, calling them “woke.”
Not only is Toomey’s assertion about bank failures incredibly vacuous — it’s built on the assumption that what has happened with weather events will happen again in the future, despite rising sea levels and higher global temperatures causing the intensity and frequency of such events to increase. Toomey’s claim also obscures damage that climate-related catastrophes have already done. In 2005, for example, a Louisiana-based bank named Hibernia lost $197.7 million due to the damage caused by hurricanes Katrina and Rita. Moreover, the threat isn’t limited to banks located primarily in areas prone to natural disasters.
“[T]wo-thirds of banks’ physical risk comes from the indirect economic impacts of climate change, such as supply chain disruptions and lower productivity, with coastal flooding (driven by sea level rise and stronger storms) representing the largest source of direct risk,” non-profit Ceres said in a report published in September 2021.
When asked to respond to Toomey’s remarks on bank failures and weather-related events, a spokesperson for the FDIC pointed to a statement made on October 3 by agency Chair Martin Gruenberg at a speech on climate change to the American Bankers Association.
“These [climate] trends challenge the future resiliency of the financial system and, in some circumstances, may pose safety and soundness risks to individual banks. It is the goal of our work on climate-related financial risk to ensure that the financial system continues to remain resilient despite these rising risks,” Gruenberg said.
The FDIC spokesperson also said that it was too early in the rulemaking process to comment on the proposed language on banks’ public commitments. But if the Bank Policy Institute gets its way, the provisions — and regulators’ best shot at addressing the harm done by destructive fossil fuel industries — could fall by the wayside, and those who don’t profit from the destruction will bear the burden.
“Similar to financial institution action during the subprime mortgage crisis, financial institutions supporting fossil fuel-related activities are creating risks that other entities are left to deal with,” as Public Citizen noted.
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