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Op-Ed | The American Prospect | March 18, 2021

John Kerry Must Choose: Wall Street Or The Planet

BankingClimate and EnvironmentFinancial Regulation
John Kerry Must Choose: Wall Street Or The Planet

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Two years ago, Goldman Sachs announced what was then Wall Street’s largest commitment to stop investing in the fossil fuel industry. That commitment—a ban on financing Arctic drilling, while still shoveling money into drilling everywhere else—was pitiful compared to what’s needed for Earth to stay below 1.5 degrees Celsius of warming and avoid the worst impacts of climate change. On Monday, Goldman dropped any pretense of caring about the planet when it announced plans to nominate Jessica Uhl, the chief financial officer of oil giant Royal Dutch Shell, to its board of directors. According to the Rainforest Action Network, Goldman is currently the 14th-biggest bank financier of fossil fuels in the world, having provided $83.75 billion since 2016.

Goldman should be a case study in why we can’t hope that Wall Street will do the right thing on climate change (and on everything else). When left to its own devices, Wall Street has shown time and again it will let our planet burn. So it’s alarming that international climate envoy John Kerry is urging the rest of the financial industry to follow Goldman’s lead, rather than embrace policies adequate to the climate crisis.

Politico reported over the weekend that Kerry has pitched American banks on creating a “net-zero banking alliance” modeled on pledges by most of the big Wall Street firms, including Goldman, to help the world achieve net-zero global emissions by 2050. Kerry is reportedly “leveraging personal relationships with Wall Street players” to get them on board with this voluntary net-zero commitment, even as he simultaneously asks the industry what the hell that even means. “No one knows what [the banks] mean yet, including Kerry’s team,” private equity manager Daniel Firger told Politico.

Indeed, all that Kerry appears to know about a “net-zero banking alliance” is that it’s what Goldman Sachs, Wells Fargo, Citi, and other big-name banks now say they want. That may be good enough for America’s global climate envoy, but there’s no reason to believe that will be good for the rest of us. Leaving aside the well-documented squishiness of the term “net-zero” and the fact that the U.S. and its major corporations must reach zero emissions long before 2050 to give the rest of the world a fighting chance to catch up, this is not the sort of bold leadership that President Biden has promised and is genuinely delivering elsewhere in his administration.

This isn’t the only indicator of Kerry’s mealymouthed approach to Wall Street and climate. He reportedly wants to add Mark Gallogly of Blackstone and Centerbridge Partners infamy to his team. As the Prospect reported, with Gallogly at the helm, Centerbridge bought Puerto Rican government debt and forced austerity on the island as it struggled to recover from the climate change–fueled Hurricane Maria. Centerbridge also invested in PG&E, the California electric giant that caused several deadly wildfires. Rather than taking ownership for this harm, Centerbridge financed the lawyer who represented 16,000 fire victims in a suit filed against PG&E, thereby shielding itself from accountability.

Gallogly’s record shows precisely what climate activists fear will happen in a warming world: Poorer populations in exposed regions will be left to suffer.

We have every reason to believe Kerry genuinely wants to save the Earth from climate devastation. His problem is that there is no neoliberal path to doing so. If, instead of using the government’s legal force, Kerry wants to try to persuade oil profiteers to voluntarily give up their business through friendly dinners and seats at diplomatic talks, he’ll inevitably run headfirst into the facts: Our financial system seeks short-term profit no matter the long-term harm, as anyone who’s paid attention since, say, 2008 knows.

It’s not as if we don’t know the incentives that financial markets want in return for greener investments, especially on the global stage on which Kerry operates. The Climate Finance Leadership Initiative, a global group of finance executives led by Michael Bloomberg, released a working paper last November on what might get their industry to fund green energy and infrastructure in the developing world. They’re due to publish a final report this spring. Developing economies urgently need to build up green infrastructure, even as the developed world must bear the brunt of global decarbonization, since it emits the most carbon and methane.

So what do the CEOs want in exchange? Among other things, according to their working paper, they want to do transactions in developed-world currencies; to be able to own the infrastructure themselves; pay low to no taxes, or at least receive government grants and tariff exemptions; face no requirements to use locally sourced materials; use out-of-court arbitration processes; and pass laws guaranteeing that electricity purchasers will be forced to pay their debts. They want, in other words, the usual trade policies that have hobbled developing countries for decades and ensured that their former colonizers always win.

These policies would, in the language of Wall Street, “mitigate risk” of not turning a profit. That’s understandable from the corporations’ perspective, but entirely at odds with the global goal of green development, much less an economically equitable world. This is Kerry’s problem: If he wants to use market means to achieve green ends, his only options are to either impose this unjust regime on developing nations—or walk away. Caught between these bad options, he seems to be trying to appeal to Wall Streeters’ consciences, positioning this “net-zero banking alliance” as a way to avoid cruel trade policies and still end finance’s love affair with Big Oil. But decades of desperate appeals to industry’s environmental conscience ought to have taught us that it just doesn’t work. As long as the money is there, that is what Wall Street will prioritize, life on Earth be damned.

There is another path, and it’s thankfully the one that other Biden officials appear to be taking: Use the actual power of the government to force Wall Street in a greener direction, whether they like it or not.Your donation keeps this site free and open for all to read. Give what you can…

CFTC acting chair Rostin Benham, for one, announced a new climate risk unit at his agency on Wednesday, which follows up on his report last September about climate regulation and the U.S. derivatives industry. This is concrete action, turning recommendations and policy study into reality. SEC acting chair Allison Herren Lee is also a shining example of this brighter path. While only serving in an acting capacity prior to fellow climate hawk Gary Gensler’s confirmation, she has already directed the Division of Corporate Finance to update guidance on climate risk disclosures, called for international cooperation on those standards, and put out a request for public comment on their development. She has been clear that self-regulation is no longer an option, saying on Monday, “If it’s not mandatory, companies are going to do what we would all do, right? Which is, tell the best version of the story—or maybe not tell the story at all.” Kerry would do well to follow in Lee’s footsteps, taking reality at face value instead of doing the same corporate coddling over and over and expecting a different result.

Confronting the climate crisis requires that government officials like Kerry let go of their fear of disappointing Wall Street. The Biden administration has indicated through its actions that it’s amenable to tackling climate change. But both Biden and Kerry must come to terms with the fact that preserving our planet comes at the price of forfeiting the banker and CEO class’s current good graces. And that, if they hope their historic legacies will be favorable, is the path they must choose.

PHOTO: “John Kerry at Climate Week NYC 2014” by TheClimateGroup is licensed under CC BY-NC-SA 2.0.

BankingClimate and EnvironmentFinancial Regulation

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