By Alex Wilson, MBA ’25
This article was written in response to a seminar given by Marilyn Ceci, Managing Director and Senior Advisor to the Center for Carbon Transition, J.P. Morgan, in an EDGE Seminar at Duke University’s Fuqua School of Business in Spring 2024. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speaker.
On October 10, 2023, the Institute of International Finance released a report, The Role of The Financial Sector in the Net Zero Transition. Reading this report, one thing became clear to me: the finance industry believes they, as investors, are not the primary drivers of the climate transition. As was emphasized multiple times, the financial industry needs “strong, pro-growth policy frameworks at the national and global levels” to create the appropriate “market conditions for effective private sector action in support of a net-zero economy.” The conclusion I drew from this report is: government is driving this ship, and financial institutions will jump aboard only if their involvement suits their needs or the needs of their shareholders.
Leveraging lobbying power
Though the sector seems to be content with its lagging position in the adoption curve, there are other actions its players could take at this moment while they wait for the right market conditions. For instance, the banking industry could aim its tremendous lobbying power in favor of carbon pricing and the potential SEC rule for carbon disclosures. In 2023, financial sector players (finance/credit companies, investment firms, commercial banks, etc.) spent almost $300M on lobbying.[1] Among their priorities, surely a couple million dollars could go towards the promotion of climate-protective legislation and regulation.
Even more strategic than lobbying for specific policies would be to help seat representatives who believe the climate transition is critical and see the private sector’s role in this transition. The financial industry can do their part in educating their customers, asset holders, and shareholders about climate change. If financial institutions can help their clients see the need for climate action, then these voters will be more likely to vote for candidates who can enact those “pro-growth policies” and “market conditions” the banks desire. The banks can think of this education as an investment that is as valuable as the lobbying for/against the Overdraft Protection Act of 2021 or the Credit Card Competition Act of 2022.[2]
Educating customers
Another reason financial institutions should strongly consider customer education as a priority is due to the average age of their customers and asset holders. As the NASDAQ recently reported online, “Americans 70 and older now have an astonishing 30% share” of equities in the United States.[3] Furthermore, “the share of equities held by people who are at or near retirement age (55+) has climbed to about 80%.”[4] In short, older Americans have a greater presence/involvement in the financial sector than younger Americans. Older Americans are also less likely to believe climate change is relevant and requires action, and more specific to J.P. Morgan’s portfolio, are less likely to favor proposals and actions that shift “U.S. energy reliance away from fossil fuels or even eliminate fossil fuels entirely.”[5]
If the majority of an institution’s client base doesn’t even see the impact between investment and further damage (or protection) of the planet, then the only consideration is, of course, simple financial return. I will concede the point that the financial institutions do exist to serve their current clients. However, banks are not without the ability to influence their clients’ priorities. Further education about climate change could cause asset holders to also care about the environmental impact of their funds. If enough customers agree to the importance of divesting from climate damage, the priorities of clients may shift from strictly financial to a more holistic view of returns.
Aligning values with younger consumers
Additionally, besides focusing on their current clients, all firms are interested in future clients. If younger individuals are not yet involved in investing or financial markets, it is plausible to assume that these people, with their support for climate action, may someday be customers. The financial sector players should consider how they can make themselves as attractive as possible to future, young investors who care about the climate. That likely will mean divesting from fossil fuels and investing more heavily in climate technology and firms practicing emission reduction.
In short, though the financial sector wants governments to lead the way, legislatively and financially, toward Net Zero and other climate protection targets, the industry is not without its own paths for action at the moment. The banks and investment firms can do more than passively wait for their ideal world conditions to come into existence. Instead, they could join the public sectors and actively create that future that is sufficiently attractive to justify their participation in the quest to save the planet.
[1] Finance, Insurance & Real Estate Lobbying Profile. OpenSecrets. (2024, January 24). https://www.opensecrets.org/federal-lobbying/sectors/summary?id=F
[2] JPMorgan Chase & Co Profile: Lobbying. OpenSecrets. (n.d.). https://www.opensecrets.org/orgs/jpmorgan-chase-co/lobbying?id=d000000103
[3] Grieve, P. (2024, January 29). Older Americans now own 80% of the stock market – here’s why that’s a problem. Nasdaq News & Insights. https://www.nasdaq.com/articles/older-americans-now-own-80-of-the-stock-market-heres-why-thats-a-problem
[4] Ibid.
[5] Funk, C. (2021, May 26). Key findings: How Americans’ attitudes about climate change differ by generation, party and other factors. Pew Research Center. https://www.pewresearch.org/short-reads/2021/05/26/key-findings-how-americans-attitudes-about-climate-change-differ-by-generation-party-and-other-factors/