Wall Street will regret helping the world burn

If a financial adviser advises you to cash in some of your 401(k) to cover living expenses, fire said financial adviser immediately and leave them the harshest possible Google review. Yet in its panicky retreat from the climate fight, Wall Street is doing just that, stealing from its own future wealth in exchange for short-term cash and comfort.

By deciding en masse to abandon climate ambition and embrace the fossil fuels destroying the environment, financial firms will make it more difficult to limit that destruction and the economic and financial reckoning it will bring.

Several recent studies have suggested that letting the planet heat to 3 degrees Celsius above preindustrial averages — the path we’re now following — could slash global gross domestic product by a third or more. That’s more than $30 trillion — the equivalent of wiping out the whole American economy. Unchecked climate change is "a recipe for permanent recession, meaning continuously shrinking economies, failing businesses, and significantly increased unemployment," U.N. Climate Change Executive Secretary Simon Steill said in a recent speech. Banks will always find ways to eat, of course. But when the pie is 33% smaller, everybody ends up hungry.

In a way, you can’t blame the banks. Even before President Donald "Drill Baby Drill" Trump returned to the White House, other Republican politicians bankrolled by, and doing the bidding of, fossil-fuel firms were trying to retaliate against banks for trying to help save the planet. Attorneys general in 19 red states launched investigations of every member of the Net Zero Banking Alliance, a global coalition of firms pledging to align their businesses with the goal of eliminating greenhouse-gas emissions by 2050. Texas barred several banks and green-tinted money managers such as BlackRock Inc. from doing business in the state.

Under such pressure, and apparently not seeing enough profit in defending green policies, banks have taken Trump’s reelection as a signal to drop the net-zero act and reopen their vaults to polluters, Bloomberg News’s Alastair Marsh reported this week. Goldman Sachs Group Inc. fled the NZBA in December, and every other major U.S. bank followed soon after, along with several in Australia, Canada and Japan. In February, Wells Fargo & Co. publicly abandoned its goal of zeroing out emissions in its financing portfolio by 2050. It probably won’t be the last.

Most banks, including the ones leaving the NZBA, still have their own clean-energy transition plans, and they’ve promised to keep helping customers who want green financing. But if you follow the money, almost none of them are doing nearly enough.

In order to cap global heating at 1.5C, energy financing should favor green projects over dirty ones by a ratio of 4-to-1, according to BloombergNEF. In 2023, the latest data available, the ratio was a pitiful 0.89-to-1. Most U.S. and Canadian banks, which have a lot of built-in fossil-fuel business, lag far behind even that woeful benchmark. In the past year, banks injected $730 billion into fossil fuels via loans, compared with $690 billion for the transition, according to Bloomberg News. In the nuclear winter of the Trump administration, that ratio will undoubtedly shrink.

One quote in Bloomberg’s reporting on this trend is particularly revealing. "The world isn’t on a path for net zero by 2050, and so any bank or asset manager that’s being told to align lending or investment practices to that kind of pathway is aligning with a fictitious world," Aniket Shah, head of sustainability and transition strategy at Jefferies Financial Group Inc., told Marsh. (Jefferies, coincidentally, was one bank Texas found sufficiently loyal to fossil fuels; it became the state’s top municipal-bond manager in 2023.)

This is a bit like my wife saying, "My husband’s not sticking to his diet, so I might as well buy him more donuts." Also, the donut shop gives her a cut of the profit on every dozen. Just as it is possible for me to eat healthier, it is still physically possible — if just barely — for the world to achieve net zero and avoid the most catastrophic heating. It isn’t a matter of engineering but of political will and financial means.

Banks are a key element in the "financial means" part of that, and they keep choosing to finance oil, gas and coal instead. They have pumped $6.9 trillion into those industries since the 2016 Paris agreement that set 1.5C as a warming target, according to a report by the Rainforest Action Network, the Sierra Club and others.

Again, the banks aren’t solely to blame. If society could get its act together and price carbon emissions to match the destruction they wreak on the world, then those tempting fossil-fuel deals would be far less plentiful and profitable for banks. Instead, the world’s political leaders keep carbon dirt-cheap, effectively subsidizing fossil fuels by another $7 trillion per year, according to the International Monetary Fund. Eliminating those subsidies alone, including real taxes on carbon, would more than cover the $5 trillion or so annually that BloombergNEF has estimated we will need to hit net zero by 2050.

While we wait for that miracle to happen, the world keeps getting hotter. The expensive natural disasters fueled by a chaotic climate are multiplying, threatening to blow a $2 trillion hole in the U.S. housing market and create a nightmare for banks. And the transition to cleaner energy, with all the financial opportunity that brings, has its own economic momentum. Trump is apparently happy to cede such fertile ground to China, Europe and elsewhere. Banking customers may not be so happy to do so.

It was naive to ever hope Wall Street would voluntarily save the world without some financial incentive. But avoiding climate change’s economic destruction and the smack of the political pendulum when it swings against fossil fuels again should be incentive enough. The reckoning could come sooner than banks may expect.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Mark Gongloff is a Bloomberg Opinion editor and columnist covering climate change. He previously worked for Fortune.com, the Huffington Post and the Wall Street Journal.