JPMorgan Chase & Co. announced a number of climate change initiatives aimed at reducing the scrutiny it has been under for quite some time. However, it remains to be seen just how much of a difference those changes will make. Critics argue that the bank didn’t go far enough, but the initiatives announced three weeks ago do indicate interest in making progress on the issues.
No matter what you think about the initiatives, it's interesting to point out that the firm has now officially made climate change a potential risk to its business operations. That suggests more than just a response to shareholder and activist pressure on the issue.
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JPMorgan Chase reveals climate change initiatives
JPMorgan Chase announced its climate change initiatives in a press release and at its investor day in late February. The firm committed to facilitating $200 billion to push forward the United Nations Sustainable Development Goals.
That amount includes $50 billion that has been put toward green initiatives that help the firm accomplish the sustainability commitments it made three years ago. The new commitment is aimed at addressing challenges in both developing and developed countries where gaps in social and economic development continue.
The initiatives cover three main areas. Green initiatives support climate action, clean water and waste management, social initiatives increase access to housing, education, and healthcare. Economic development initiatives focus on infrastructure, innovation and growth.
As part of the $200 billion commitment, the firm launched the JPMorgan Development Finance Institution to offer more financing for developing countries. It also put together an Environmental, Social and Governance Solutions group to advise clients on reducing their emissions and to respond to increased interest in ESG investing.
JPMorgan Chase expands financing restrictions for climate change
As part of its new climate change initiatives, JPMorgan Chase also introduced some new restrictions on its lending activities. For example, the firm said it won't provide lending, capital markets or advisory services to companies that earn most of their revenue from coal extraction. By 2024, the firm plans to phase out its remaining credit exposure to these companies.
JPMorgan also won't provide project financing or other asset-specific financing for projects in which the proceeds will be used to develop or refinance a coal-fired power plant unless it utilizes carbon capture and sequestration technology. The firm also won't provide financing for projects in which the proceeds will be used for new oil or gas development in the Arctic.
Critics not pleased
In November, a coalition of investors called on JPMorgan Chase to make changes to how it conducts business in light of climate change. The investors filed a number of climate-focused resolutions with JPMorgan and other major banking institutions, like Morgan Stanley, Goldman Sachs, Wells Fargo and Bank of America.
Although shareholders targeted the biggest banks in the country, JPMorgan Chase has been tagged the "worst banker" of climate change. In May, protests erupted at Chase tower as activists demanded that the firm defund fossil fuels.
JPMorgan's new initiatives to defund fossil fuels drew further criticism from those who said the bank didn't go far enough. One activist told The Washington Post that the firm basically just copied what Goldman Sachs did. Despite the moves, he said the firm will "retain the title of the doomsday bank."
One loophole pointed out by activists is that the initiatives still allow JPMorgan to do business with major coal miners that have other significant streams of revenue. The firm will also still provide loans to oil and gas projects in the mainland U.S., although it did cut out lending for projects in the Arctic, which are rather scarce anyway.
Why JPMorgan wasn't just responding to activist demands
On paper, it looks like JPMorgan Chase bowed to pressure from activists on climate change issues. However, it's important to point out that the firm may not merely be giving in on those issues. Bloomberg reported last month that JPMorgan Chase added "climate change" as a risk factor in its annual regulatory report.
The firm said climate change could hurt customers and operations. Possible risks were listed as droughts, flooding, more wildfires, rising sea levels and changing rainfall amounts. Such events could "prompt changes in regulations or consumer preferences, which in turn could have negative consequences" for the firm's business models, it said in the regulatory filing.
Citigroup, Goldman Sachs and Bank of America made similar additions to their regulatory filings about climate change as a risk factor. The addition of climate change marks a departure from the typical risks listed by major banks, which tend to be directly related to the economy, competition and regulation.