“This world’s a fiction and made up of contradiction,” said poet William Blake. He could have been describing the world of social and environmental finance recently.
The first contradiction concerns Bill McGlashan, managing partner of the TPG Rise Fund, which focuses on raising money (some $2 billion for the first fund) for impact investing and which counts U2’s Bono among its high-profile investors.
McGlashan was charged in connection with a very public US college admissions scandal – a Federal case that charges several parents among the corporate and Hollywood elite in an alleged $25 million scam to help their children get into top universities. The US press has had a field-day pointing out the hypocrisy of preaching impact investing while using one’s wealth to gain access to Ivy League universities.
The second contradiction, involving Norway, is more positive but a contradiction nonetheless. In March the country’s $1 trillion sovereign wealth fund announced it would be divesting from 150 oil and gas companies, selling about $7.5 billion in stocks. This is the fund that built up its vast wealth over two decades from oil and gas revenue.
By the by, Norway also uses large chunks of income from its offshore fields each year to pay for its generous welfare state. To add more confusion, the fund won’t be divesting from Royal Dutch Shell and Exxon Mobil because of “their increased investments in renewables.”
There are some other contradictions that continue to come to light courtesy of data from the Rainforest Action Network (RAN and BankTrack). Its banking and fossil fuel score card covering 2018 was released at the end of March and is a reminder of how we need to keep a closer eye on the reality of banks’ financing versus banks’ sustainable financing efforts.
Take JPMorgan. According to the data from RAN, JPMorgan has been the largest financer of fossil fuels globally over the last three years. While last year’s total financing was $5 billion less than in 2017, it was still higher than that of 2016. In total over the three years, the report claims the bank has financed $195.6 billion in fossil fuel deals.
Yet, it has also fostered relationships, such as that with the Nature Conservancy, and has placed investments in environmental projects. Indeed, its team is highly regarded in terms of leading conversation around conservation finance.
Wells Fargo – who one would think would be avoiding any sort of negative press – almost doubled its fossil fuel financing in 2018 from 2016. It’s the second biggest offender on RAN and BankTrack’s list and last year its fossil fuel financing totalled $61 billion.
As sustainable financiers, we need to be bolder in addressing the blatant contradictions within our own industry
– Sasja Beslik, Nordea
The only non-contradictory bank it seems is Goldman Sachs. It has been at the forefront of some very important sustainable finance deals and does a large amount of financing in solar and alternative energy, including innovative financings to projects that transform methane emissions into natural gas. Goldman has a great sustainable finance team and has done much for green infrastructure and, in particular, the development of coral reef protection financing (which was ultimately not adopted in Australia).
According to RAN’s Banking on Climate Change report the bank has slowly reduced its fossil fuel financing over the last three years – down to $17.3 billion last year.
But the contradictions run wider than environmental issues. Wells Fargo joined JPMorgan in March in announcing it would cut financing to private prisons and immigrant detention centres in the US. Private prisons profit from increased levels of incarceration and have been seen to use finance to lobby for harsher sentencing terms – a clear conflict of interest that is of no benefit to society.
So, do we take it Wells Fargo and JPMorgan care about society? Well yes. But at the same time these large banks have pricing policies that often prevent low- to middle-income consumers from accessing checking or savings accounts.
How can banks have a consistent view, strategy and policy around benefiting society and the environment? There are examples, such as Triodos Bank and Aspiration Bank, but in general there needs to be a greater commitment to addressing the inconsistencies.
In Norway, Sasja Beslik, head of group sustainable finance at Nordea, captured the hypocrisies at play right now in sustainable finance and called for the finance sector to try harder on sustainable projects and companies.
In an opinion piece for World Finance, Beslik observes: “It is impossible for the energy-intensive sectors of yesteryear to maintain their dominance without acquiring the right financing. Unfortunately, the sustainable finance sector is complicit in providing access to this financing. Not directly, perhaps, but the financial sector as a whole – to which sustainable finance firms inextricably belong – has helped to keep the lights on in these fossil-fuel-burning industries.
“As sustainable financiers, we need to be bolder in addressing the blatant contradictions within our own industry,” he continues. “For too long, the financial sector has been helping the climate with one hand while damaging it with the other. This counterproductive use of capital won’t stop until those within the industry speak up.”
He is right. The contradictions won’t stop until bankers, impact investors and all those who are part of the burgeoning sustainable finance movement start to speak up and speak clearly.