In February, JPMorgan Chase became the latest big name to jump on the ESG ship, pledging US$200 billion towards advancing the objectives of the United Nations SDGs, including US$50 billion toward green initiatives that also fulfil the 2017 clean financing target. This week, the bank also launched a new US$100 million multi-manager sustainable long/short fund, an alternative strategy designed to allocate capital to companies that lead their peer groups in sustainable performance and will benefit from long-term sustainable trends, in a clear tactic to benefit from investor interest in ESG and the commercial returns that the data is starting to suggest these strategies could deliver.
The bank has also launched the JP Morgan Development Finance Institution, focusing on scaling up financing for developing countries, as well as setting up a new ESG Solutions Group to advise clients on reducing their carbon emissions and “respond to increased interest in ESG investing”, and a new Energy Transition Team to provide strategic and financial advice to corporate clients on M&A transactions that support their carbon optimisation objectives. It has pledged to stop any new lending or providing services to companies deriving the majority of their revenues from coal, and phasing out its remaining exposure to such companies by 2024, as well as ceasing financing for coal-fired power plants (unless they are utilising carbon capture and sequestration technology) and banning project financing for Arctic development.
A leaked report from JP Morgan in January warned that climate change could incur “catastrophic outcomes” including a threat to human life, noting that global heating is on course to hit 3.5C above pre-industrial levels by the end of the century, with most estimates of the impact of climate change underestimating the size of the problem. “Although precise predictions are not possible, it is clear that the Earth is on an unsustainable trajectory. Something will have to change at some point if the human race is going to survive,” said the report, which also highlighted that climate change “reflects a global market failure in the sense that producers and consumers of CO2 emissions do not pay for the climate damage that results,” and encouraged the introduction of a global carbon tax.
Many will take the JP Morgan’s latest actions with a hefty pinch of salt, given that the bank is one of the largest financiers of fossil fuels with an estimated US$75 billion directed towards activities including fracking and Arctic oil and gas exploration since the Paris Agreement was signed in 2016, contributing to a total of US$1.9 trillion in financing to the fossil fuel sector between 2016-18. Others, however, might see it as a positive sign that investor momentum and commercial imperatives are forcing even this behemoth to change its ways.