Carbon Free Investing

Harrington Investments, Inc. (HII) divested from the fossil fuel industry in 2013.  It was not a difficult decision for us for several reasons.

First and foremost, it was clearly apparent after the publication of the First Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which served as the basis of the UN Framework on Climate Change report in 1990, that atmospheric concentrations of greenhouse gas is warming the earth.  The causation, among other natural causes were increasingly large concentrations of carbon dioxide (CO2) produced by the burning of fossil fuels.

            By the early 2000s, it was clear that the weather conditions across the globe were changing and natural disasters by 2015 (at the time of the Paris Climate Accord) were already radically impacting hundreds of communities with increasing hurricanes, tornadoes, cyclones, floods and droughts, wildfires, and other recurring events.

            Atmospheric concentrations of carbon dioxide have risen above annual averages of 400 parts per million, while in 2019 the world logged the most annual greenhouse gas emissions recorded:  more than 60 billion tons.  According to the UN, “the world must radically transform its energy systems within the next 12 years, which means cutting greenhouse gas emissions nearly in half by 2020 and zero by 2050.”

            Following the 2021 UN Climate Change Conference in Glasgow, Scotland (COP26) as fossil fuel lenders, including many banks and non-bank financial institutions, joined the Glasgow Financial Alliance for Net Zero (GFANZ), voluntarily pledging cutting all emissions to “net” zero; meaning that these corporations can keep polluting and lending to carbon, but compensate for or offset current emissions by purchasing credits and offsets, while not necessarily adopting fiduciary measures to halt, limit or restrict lending for fossil fuel extraction, production, distribution, or transportation (major pipeline projects).

            According to another carbon lender, Bank of America (BAC), achieving net-zero emissions by 2050 will demand approximately 7.6 gigatons of carbon dioxide offsets or removal, or a fifty-fold increase in the offset market, or the need for the low-end of growth in demand to at least quadruple.  In other words, bank carbon lenders, while not committing to reduce carbon lending; plan to pledge to net zero emissions by continuing to fund fossil fuels, while financing alternative energy and voluntarily pledging to buy carbon credits and other offsets.

            According to Petteri Taalas, Secretary General of the Meteorological Organization in his agency’s annual report on heat-trapping gases in the atmosphere:  “At the current rate of increase in greenhouse gas concentrations, we will see a temperature increase by the end of this century far in excess of the Paris agreement targets of 1.5 to 2 degrees Celsius (2.7-3.6 Fahrenheit) above pre-industrial levels.”

            According to the UN, emissions in 2030 are projected to be 16% higher than in 2010, based upon formal pledges so far, that should be halved by 2030 compared with 2020 levels and essentially hit zero by mid-century.

            Many individual and institutional SRI/ESG investors believe that corporate pledges are meaningless unless carbon lending is immediately halted and reversed.  Between 2016 and 2020 banks loaned over $3.8 trillion to the fossil fuel industry and lobbied to water down net zero commitments and climate action, while representing the largest delegation to the COP26 conference.

            Voluntary pledges and guidelines, website and CEO statements, buying carbon credits, or even limited financing of alternative energy, is not concretely reducing or eliminating the financing of carbon.  Corporate commitments must be backed by amending bylaws, articles of incorporation, and board committee duties by the board of directors, not worthless CEO statements, pledges, website declarations or voluntary codes, with no “rule of law,” or mandatory enforcement by independent third parties, such as governments, laws and regulations that can be adjudicated.

            According to the BAC study cited above, “Current [government] policies remain insufficient to adequately incentivize the changes necessary to reach these lofty goals, whether through carbon pricing or other means.”

            In other words, BAC wants to be incentivized by government (read: “subsidized” by governments paid by taxpayers) to reward corporate polluters and lenders to “save the planet.”  The problem is that even with subsidies from government, carbon offsets (read:  “paying to pollute”), including carbon credits, will not force banks to stop lending to fossil fuel producers or financing the transportation, distribution, and sale of fossil fuels.

            Ironically, the California cap-and-trade system enacted to allow corporations to offset carbon emissions by purchasing credits to pollute (which are traded in a secondary market), are being undermined by massive forest fires in the Western U.S. caused by climate change.  According to the Wall Street Journal, West Coast fires have consumed as many as 6.8 million metric tons of stored carbon dioxide enrolled in the Climate Trust, an Oregon non-profit that manages carbon offset acquisition projects.

            In 2022, HII will again work with our colleagues in the SRI/ESG Community to introduce and vote in favor of shareholder resolutions to force US fossil fuel lenders, led by JP Morgan Chase, CitiGroup, Bank of America, Goldman Sachs, Wells Fargo, Bank of Montreal, and others to set limits, restrict and halt lending and underwriting fossil fuel supplies and production inconsistent with fulfilling commitments of the International Energy Agency (IEA) and the UN Environmental Program Finance Initiative (UNEPFI), specific to net zero commitment.

            HII specifically is the lead filer with resolutions at CitiGroup (C), JP Morgan Chase (JPM) and Bank of Montreal (BOM).

            JPM and C are major carbon lenders; by 2018 lending a total of over $67 billion and over $46 billion, respectively, to support global fossil fuels, respectively.  While JPM has the distinction of being the largest global financial institutional supporter of fossil fuels, C has the distinction of recently financing Russian coal extraction.   BOM, a Canadian carbon lender, weighed in with over $21.6 billion in carbon loans.

            Recent studies that are important in analyzing corporate bank responses to climate change lending include:

• Banking on Climate Change: Fossil Fuel Finance Report 2021.
• The Big Con: How Big Polluters Are Advancing a “Net Zero” Climate Agenda to Delay, Deceive, and Deny.
• Net Expectations: Assessing the Role of Carbon Dioxide Removal in Companies’ Climate Plans.  Briefing by Greenpeace UK, January 2021.
• Wall Street’s Carbon Bubble: The Global Emissions of the U.S. Financial Sector.

When HII divested from carbon in 2013, it was not without forethought and had little, if any, negative performance impact to our clients, as the Firm was marginally exposed to carbon with one natural gas investment, and at one time, holding a domestic natural gas pipeline stock.

The production and financing of fossil fuels is an existential threat to health, safety, and the future of our global communities.  This will take all of us to change our lifestyles to save our children and grandchildren and many future generations to come.  It is a multiple generational challenge.

Personal Note:

            Climate change, driven by the expansion of fossil fuel bank financing, continues to increase natural disasters killing thousands of people along with destroying thousands of properties and homes by floods, hurricanes, droughts, tornadoes, cyclones, and wildfires.  As someone who lost everything and barely escaped the Atlas Fire in Napa County, California on October 8, 2017, I personally know the impact of climate change, literally fueled by bank carbon financing.  Climate change is real and is an existential global threat to all stakeholders and civil society, including all shareholders.  I will continue to ask other shareholders to support HII and our SRI colleagues’ proposals to force these banks to commit to protecting our environment, properties, livelihoods, and the very planet we all inhabit.