Responsible finance: The research note that could be a tipping point

Climate angst surely went up a few notches in February when Extinction Rebellion spokesman Rupert Read sent a copy of a January JPMorgan client research note to members of the UK press.

The report looked at the impact of climate change on the economy and stated in apocalyptic tones that “something will have to change at some point if the human race is going to survive.”

Why this research note received more traction – and outrage – than others put out by banks is not entirely clear. Perhaps because it refers directly to human extinction, rather than only the dislocation of certain demographics in developing countries?

In which case, perhaps human extinction should be mentioned more often so consumers in the west understand that climate change is not someone else’s problem.

Perhaps it is also because JPMorgan is known to be a large fossil fuel financier. Or perhaps it is just that Read insinuated the report was secret and that he was ‘leaking it’, rather than it being simply a research note.

Climate primer

But there are certainly many other research notes from financial institutions such as Bank of America, UBS, HSBC, Morgan Stanley and Goldman Sachs that highlight the enormity of the climate challenges in no uncertain terms.

At the end of January, for example, Bank of America Global Securities put out its Global Climate Change Primer, highlighting that 1.8 billion people are forecast to live in absolute water scarcity within just five years, while 100 million will be pushed into poverty and 800 million will be at risk from rising sea levels.

It added: “Climate migration could reach 143 million from LatAm, sub-Sahara and southeast Asia, driven by extreme weather.”

If that didn’t get a client’s attention, Bank of America pointed out that economic damage could equate to a loss of more than 3% of GDP every year by 2030, growing to $69 trillion by 2100, while some 5% of global equity stock market value ($2.3 trillion) could be permanently wiped out by climate policy re-pricing. It’s a powerful report.

WWF added to the research pool in February with its Global Futures Report. It claims that the loss of nature – from climate change, as well as pollution and exploitation of resources – would wipe out some countries’ GDP growth entirely.

Fiduciary duty

There’s a lot of depressing research out there, so it seems surprising when people are surprised, but I understand why these notes coming of banks might frustrate people and generate Twitter noise.

On one side, there is comfort that banks are informing their clients – some of whom may still have their heads in the sand about what is coming. The hope is that such clients will reconsider their investments, making it easier for banks to alter their own course.

It’s also a bank’s fiduciary duty to tell its clients about risks to their portfolios, so it is good they are telling them what they know.

But there is something uncomfortable about this parallel track of warning clients of impending doom while financing the causes of the aforementioned impending doom.

For one, it highlights where banks have not been warning clients.

If warning clients about climate-change impact is fiduciary duty, then financing your clients’ potential destruction should surely be considered within the assessment of fiduciary duty too 

We all know the tobacco industry is aware that tobacco kills people, yet it continues to make cigarettes and the financial sector continues to support it with funding. It’s the same with pesticides and opioids.

Have banks been putting research notes out on the fact that a billion people will die this century from smoking-caused diseases? I have not seen them. And are we as a society marching in the streets to prevent the financing of those deaths? Certainly not in the thousands.

It has taken the climate crisis to bring into focus the role of financing and the role of banks. Should banks, which can be bailed out by taxpayers, be financing industries that cause loss of life?

Indeed, the climate crisis has brought into question the notion of fiduciary duty more broadly. It’s no coincidence that banks are now addressing gun financing, private prison financing and tobacco financing. What was once only questioned by ‘screened funds’ is now being questioned by much of the financial industry.

If warning clients about climate-change impact is fiduciary duty, then financing your clients’ potential destruction should surely be considered within the assessment of fiduciary duty too.

While this press attention on a JPMorgan research note might seem overblown, the real effects are likely to be huge, because it asks this question of all of us, not just banks: if we are aware of something that is harmful to hundreds, millions, even billions of people, why would we allow our financial system to perpetuate it?