The “shocking” side concerts of the bank managers

Greetings from New York. I just got back from Boston, where the mighty Harvard University hosted its inaugural Climate Action Week in recent days. As Jeremy Grantham, the investment luminary who has long shouted (or thundered) about the risks of climate change, observed in a panel I moderated, Harvard has been woefully slow to embrace these issues. But the Salata family, hugely successful in private capital, has now financed the creation of a brand new climate center, and a number of other big and wealthy Harvard alumni, such as investor John Fisher, have also contributed. .

The creation of the interdepartmental department of the university Climate Action Week no mean feat, given that Harvard is so prone to tribalism among departmental silos. And the institution is such a huge brand that the event highlights a more important point in the current zeitgeist in corporate America: regardless of the right-wing backlash against environmental, social and governance issues, incumbent companies, start-ups and investors are increasingly focused on climate today. This is especially true since the introduction of the Inflation Reduction Act which is creating rich green energy opportunities.

A report below, by investment bank Lazard, echoes this point: Climate disclosures in the US are also on the rise, even as company directors are now engaging in “green silence” (i.e. avoiding talking about ESG for fear of political risks). However, the picture is patchy – check out our report below on the conflicts some business executives are quietly juggling in this regard. And, as always, let us know what you think. (Gillian Tett)

Bank managers with ‘red flag’ jobs in fossil fuels

As investors at shareholder meetings in recent weeks have scrutinized bank managers’ abilities to manage risk and deliver returns, one surprising fact may have gone unnoticed.

Non-executive directors of some of the world’s largest financial institutions also have leading roles in oil and gas or energy companies, according to data compiled by investigative website DeSmog and analyzed by Moral Money.

Take the Bank of America. Denise L Ramos, director of its sustainability committee, has a surprising supporting role: chair of the public policy and sustainability committee at the Phillips 66 Texan oil refinery. The refinery has been among the 20 most obstructive companies on climate change last year, according to InfluenceMap’s analysis of lobbying records. The bank declined to comment.

A few other examples stand out. Adebayo Ogunlesi, chairman of Goldman Sachs’ governance committee, which helps manage the bank’s exposure to climate change, was also head of the committee that oversees pay at Kosmos Energy, a Texas-based deepwater oil exploration company. His colleague Jessica Uhl, a director of the audit, risk and governance committees of Goldman Sachshe worked at Shell for nearly two decades, including as chief financial officer, before joining the bank last year.

Director of Wells Fargo So is Theodore F Craver Jr, former head of utility Edison International chairman of the governance committee of the US electric company Duke Energy, which says it generates more than a quarter of its energy from coal. Morgan Stanley has boardroom ties to the oil and gas industry as well; director Rayford Wilkins Jr is a board member of the Texas-based oil refining company Valero Energy.

Tom Sanzillo, director of financial analysis at the Institute for Energy Economics and Financial Analysis, told Moral Money that banks commonly hire industry directors to deepen customer relationships and improve their understanding of the space.

But having a number of directors with interests in highly polluting companies could be a “red flag,” Sanzillo said. Administrators could “push banks into being pro-fossil fuels at a time when there shouldn’t be big financial interests” and “undermine” policies that shift money into competing industries like wind, solar and electric cars.

On average, about one in seven directors of Bank of America, Goldman Sachs, Wells Fargo, Morgan Stanley and JPMorgan has ties to a company identified by Climate Action 100+ as a top global polluter, such as in the aviation, steel and coal mining or oil and gas. This includes working as a director, chief executive officer or investment manager.

The higher a bank’s board position, the more it’s about crossover, Sanzillo added.

“It is an ethical question. All in all, you have to test it with your gut.

Bank directors who serve on the board of unrelated industrial companies are not “inherently wrong” and can bring “beneficial insights to both parties,” said Roger Barker, director of policy and governance at the Institute of Directors of the United Kingdom.

But to mitigate reputational risk, administrators in such a position should “adopt an independent perspective and work hard to positively impact a polluter’s sustainability profile,” added Barker.

Bank of America, Goldman Sachs, Wells Fargo, Morgan Stanley and JPMorgan have all committed to reducing emissions from their loan and investment portfolios to zero by 2050 through membership of the Net Zero Banking Alliance.

And second data by the Rainforest Action Network, these banks reduced lending and underwriting of debt and equity issues to oil, gas and coal companies by nearly a third in just one year; they extended a total of $133.1 billion last year, up from $196.4 billion in 2021.

JPMorgan said in response to these figures that it provides financing across the energy sector, “supporting energy security, helping customers accelerate their low-carbon transition, and increasing clean energy financing with a goal of $1 trillion dollars for green initiatives by 2030”.

The relationship between banks and the energy sector is shrinking but remains broad, making the directors’ second jobs “shocking” but “unsurprising,” said Caleb Schwartz, a researcher and policy analyst at the RAN.

The practice is also common in Europe. The head of Barclays’ compensation committee, Brian Gilvary, was previously chief financial officer of BP and now serves as non-executive chairman of Ineos Energy, which She said earlier this year it was acquiring thousands of Texan oil wells. Amanda Blanc, chief executive of insurer Aviva, is a non-executive director of BP. Blanc has no oversight of the investment decisions of group asset manager Aviva Investors.

And DeSmog’s survey also raises concerns about biodiversity risk. JPMorgan’s Virginia M Rometty, a member of the bank’s governance committee, sits on the board of Cargill, the agribusiness giant facing a legal complaint for deforestation in the Amazon. The bank has participated in an estimated $7.3 billion worth of Cargill bonds and loans over the past decade, according to supply chain transparency group Trase.

Barclays said: “Our non-executive directors are chosen for the experience and insight they are able to bring to their roles”, including overseeing the bank’s goal to “be net zero by 2050”.

Wells Fargo said its board members are “highly qualified individuals from diverse backgrounds who have the leadership, executive management, finance, industry and other expertise to act in the best interests of our company and its shareholders.”

Bank of America, Morgan Stanley, Goldman Sachs and Aviva declined to comment. JPMorgan declined to comment on its directors.

The administrators did not respond to requests for comment through the banks and through Ineos Energy. (Kenza Bryan)

Investors show a preference for companies that disclose issues

Whether or not they are sustainable investors, according to Wall Street firm Lazard, shareholders appear to be increasingly wary of companies that don’t disclose their carbon emissions.

In a new report, Lazard found that companies in the Russell 3000 Index that report issues tended to have lower price-earnings ratios than peers who don’t. Only about one-sixth of the Russell 3000 companies are voluntarily disclosing their emissions.

The research found no similar correlation between company valuations and pledges of emissions cuts. This suggests that companies will be rewarded for being more transparent, even if they report negative emissions figures.

“We’ve found that information matters, but commitments don’t,” Peter Orszag, head of financial advice at Lazard, told me. Orszag was previously director of the US Office of Management and Budget under the Obama administration.

“Without disclosure, investors assume the worst and could put an even greater discount” to the stock price, he said. “The general mood is one that investors will be looking into [pledges to cut emissions] as largely rhetorical.

There was a particularly strong link between carbon emissions disclosure and stock valuation at industrial and utility companies, according to the research.

Ultimately, corporate laggards to carbon emissions disclosures will be dug up by the Securities and Exchange Commission when the agency adopts the climate disclosures at some point this year.

The rules would require companies to disclose scope 1 and 2 emissions, as well as scope 3 emissions in some high-polluting industries.

But until then, investors remain in the dark about corporate issues and their risks. Investors are likely to continue to price in risks they cannot see. (Patrick Temple West)

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