By Imogen Rose-Smith
At its annual shareholder meeting in May New York based bank JP Morgan Chase faced down challenges from environmental activists who want the bank to do more to combat climate change. While the shareholder resolutions were defeated, banks should brace for more scrutiny concerning their activities and climate change. In particular, there is a growing movement by activists to encourage large financial institutions, such as endowments and pension plans, to stop doing business with banks that lend money to fossil fuel companies.
The first JP Morgan 2020 climate resolution was submitted by Boston based investment firm Trillium Asset Management on behalf of one of its clients. It requested that the J.P. Morgan’s board of directors issue a report “describing how JPMorgan Chase plans to respond to rising reputational risks for the Company and questions about its role in society related to involvement in Canadian oil sands production, oil sands pipeline companies, and Arctic oil and gas exploration and production.“
Climate activists also objected to the nomination of Lee Raymond, former CEO of the fossil fuel company Exxonmobil, as the company’s lead independent director. Raymond has been a Chase board member for 33 years.
In an open letter to the CEO’s of the world’s three largest investment management firms, BlackRock, The Vanguard Group, and State Street Corp., environmental activist group the Rainforest Action Network encouraged these executives to have their companies vote their poxes against the re nomination of Raymond. The Coalition called Raymond “an arch climate-denier.” Someone who “cannot be trusted to lead the bank at a time when it must take climate change seriously and start to phase out its carbon footprint.”
Raymond, 81, was re-elected to the board at the annual meeting. The bank, however, has said it plans to announce an independent director to replace him later this summer.
A second climate related shareholder resolution was filed by the Berkeley, Californian based shareholder activist group As You Sow. It requested that JP Morgan issue a report detailing how it intends to reduce the greenhouse gas emissions associated with its lending practices in alignment with the Paris Climate Agreement goals of keeping global temperature rise below 1.5 degrees Celsius. The Paris Climate Agreement was struck at the December 2015 United Nations Convention on Climate Change, it layout a framework for greenhouse gas emissions in order to combat climate change.
In response, JP Morgan staunchly defended its environmental record. “Climate change presents global challenges and risks, and businesses must play a leadership role in creating solutions that protect the environment and drive inclusive economic growth,” the company said in its proxy statement. “JPMorgan Chase’s objective is to support companies that are working to strategically transition to a lower carbon economy and that are managing environmental and social risks in a responsible manner.” In February the company announced that it was allocating $200 billion in financing to sustainable development. It has also increased its lending restrictions regarding coal companies, including saying it will no longer finance new oil and gas drilling in the arctic.
The As You Sow request for a Climate Change Risk Report received 48.65 percent “yes” votes, close to the majority vote which would have forced the bank to comply. Similar strategies have been used effectively to force fossil fuel companies to disclose their plans to lower carbon emissions. The Trillium proxy ballot initiative received a far lower vote, with only 14.88 percent of shareholders voting “yes.” By way of contract, a resolution to split the board chair and CEO role (considered corporate governance best practice, but something banks have resisted) received 41.7 percent “yes” votes.
While JP Morgan is keen to tout its green financing initiatives, and stress its policy changes toward fossil fuel companies, research from a not-for-profit coalition that includes the Rainforest Action Network and the Sierra Club, shows that the New York based bank is still the largest overall lender to the fossil fuel sector.
The report “Banking on Climate Change: Fossil Fuel Finance Report 2020”, published in March 2018, found that JP Morgan Chase continues to be the largest lender to the fossil fuel industry, followed by Wells Fargo. In 2018 Bank of America Merrill Lynch was the third largest lender, replacing Citigroup which dropped to third. JP Morgan lent $65 billion to the fossil fuel sector in 2019.
Just how important banking in the carbon energy sector continues to be for the financial services industry was evident earlier this year, when banks lined up to get a part of the Saudi Aramco’s Initial Public Offering. JPMorgan, Morgan Stanley, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, HSBC, NCB, Capital and Samba Financial Group made up the coalition of nine international banks picked by the Saudi government for the IPO of the state owned energy company. Even if the fees for what was the world’s largest IPO were lower than some expected, the company still remains an important relationship for the banks and other service providers.
A number of financial services companies, including JP Morgan, have issued policy statements saying they will restrict their fossil fuel lending activities in certain sectors. Coal in particular has seen a steep decline. But the amount of money still available in banking to the oil and gas industries makes it hard, if not impossible, for banks to step away. This, however, is increasingly putting banks at odds with pressures from clients and stakeholders who want to see banks do more to combat climate change.