The Financial System may be the Greatest Weapon Against Climate Change
In January of 2021, Trump made headlines on a daily basis, and within this sea of news, a devastating decision was seemingly overlooked. In the last months of his administration, Trump rushed to open the Arctic Wildlife Refuge located in Alaska to oil drilling. Not only would this increase greenhouse gas emissions in general, but it would also place a risk one of the last preserved areas of nature in the United States. The Arctic Wildlife Refuge is home to polar bears and other arctic creatures whose homes have already been endangered by climate change. This decision was crushing to wildlife and environmental activists and it prompted an unlikely entity to act. Within a month, every major American bank published a public statement stating that they would not fund any oil/gas project in the Arctic and Alaska region; many international banks would also follow suit. Essentially, the financial system acted against their immediate interests (there was certainly money to be made in oil drilling) and instead implemented policies that would protect the environment. As you may rightfully suspect, this move was not entirely altruistic. Legally, these companies’ first responsibility is to their shareholders and such a decision to oppose profits would immediately result in sudden changes in corporate leadership. The shareholders, however, supported this decision in support of combating climate change; a growing trend in the financial sector.
As a whole, the financial sector has adopted the belief that preventing climate change will lead to future financial success. Sustainability and climate risks have become leading factors of investing strategies, a change that will shift the climate battle for the better. The above instance was an example of the financial sector coming together to prevent further worsening the climate change situation. They also certainly have the power to better the situation by shaping America’s corporate policy. The effect of the financial sector is best witnessed in the case of ExxonMobil. Two asset managing firms, BlackRock and Vanguard, both of whom have pledged to make climate change a leading priority, own nearly 15% of ExxonMobil combined. A majority of the remaining shareholders are also comprised of investment firms in the financial sector, a handful of which have also pledged to make climate a priority. With their shift in ideology, the financial sector as a whole, which is the majority shareholder in most oil/gas companies, has started to push these firms to enact climate-friendly policies and has elected climate activists to the board of directors of many of these companies. In doing so, they have made the largest offenders of the climate some of the most progressive firms in fixing the climate issue.
The last major effect of the financial sector is shaping the direction of future investment. In the past year, a new term has come to the forefront of investment strategies. The term ESG, which stands for Environmental, Social, and Governance, has become a leading factor in investment. Environmental, Social, and Governance are traditionally non-financial factors, however, they have become leading factors that investors want to be implemented into their investment strategies. In offering ESG investing, the financial sector promotes the development of electric vehicles, green energy technologies, and promotes companies that make an effort to better the environment and climate.
As the overall situation worsens, it is imperative that we utilize every tool we have to combat climate change. The financial sector has mobilized to become an extremely powerful and effective tool to further those goals.
