Company withdraws show the growing rift between the U.S. and Europe on the role of regulation and climate change
Since its inception in 2017, Climate Action 100+, an international coalition focused on climate issues, has been pivotal in pushing publicly traded companies to disclose more about their emissions and acknowledge climate-related business risks.
However, the group’s recent efforts to reduce emissions more aggressively with verifiable reporting have prompted JPMorgan, State Street and Pimco to withdraw, worried as much about short-term political and legal concerns as longer-term climate change issues.
The issue is a growing rift between the U.S. and Europe on the role of regulation and climate change. Until recently, Climate Action 100+‘s rules were flexible enough for U.S. companies to feel they could engage without financial, legal or regulatory accountability.
Last June, however, Climate Action 100+ announced new “phase 2” requirements requiring signatories to enhance their corporate disclosure and implement climate transition plans. The second phase also requires participating investors to submit an annual engagement schedule specifying the climate action and escalation strategies they intend to implement.
BlackRock having it both ways
Climate Action 100+ new guidelines were too much for the American firms. State Street said it was “moving from words to action,” concerned about legal risks. JPMorgan cited the development of its framework for engaging on climate risk as a reason for its withdrawal. BlackRock, the world’s largest asset manager, looks to have it both ways. It pulled out of Climate 100+ as a U.S. company but allowed its European subsidiary to remain in the coalition, highlighting regional regulatory differences. As Bloomberg columnist Alastair Marsh bluntly put it in a recent column, “Large investors only sign up to initiatives like CA100+ when there’s a clear marketing benefit to doing so.”
But there is a deeper issue at stake – U.S. companies are facing an intense backlash from the Republican party on pro-climate and ESG policies. In this case, conservatives are challenging any coalition-like approach that might be seen as corporate “collusion” and thus open for antitrust scrutiny.
But there is a deeper issue at stake – U.S. companies are facing an intense backlash from the Republican party on pro-climate and ESG policies.
“BlackRock appears to have entered into collusive agreements to ‘decarbonize’ its assets under management and reduce emissions to net zero in ways that may violate U.S. antitrust law,” the House Republican Committee on the Judiciary charged in a subpoena letter to BlackRock and State Street last December.
Republicans are betting that voters will not like climate policy’s perceived additional costs and hassles and are using it as a key pre-election attack on Biden’s climate incentive policies. The conservative backlash is playing on populist fears and suspicions that so-called “experts” or world organizations like Climate 100+ are threats to American freedom and choice. For example, instead of seeing U.S. subsidies developed under the Biden climate IRA Act, as positive for U.S. industry, they are being challenged as “subsidies” to China.
November’s presidential election is shaping up to be a referendum in part on whether the U.S. will pursue a decidedly more libertarian, anti-regulation approach to the energy transition (what the Republicans are championing) or a more rules-based European-styled approach.
Supply-side climate change
That is not to say that a green transition is not underway in the U.S. — it is happening more rapidly than many advocates believed possible with more than $3 trillion of private equity flowing into decarbonizing since the launch of the IRA — but the vision embraced by Republicans is a climate version of “supply side” economics where the unfettered “free market” pursuit of increasingly cheaper renewable energy does not preclude the rush to export oil and gas. Over time, the argument goes, prices, not regulation, will decide the pace of decarbonization.
While this may play well in American conservative circles, Mark Paul and Lina Moe of the Climate & Community Project argue it is decidedly not good for the rest of the world. America’s push for both fossil and renewable energy “is an unmitigated climate disaster in progress” they warn. They argue that any new renewable energy projects in America will do nothing to stop surging oil and gas exports. Nor will it cap the escape of toxic methane or end the fossil fuel infrastructure construction boom in everything from pipelines to gas turbines. “Without discrete restrictive supply-side planning and policy,” the authors argue, “the end of fossil fuels will be a chaotic collapse where workers, communities, and the environment suffer.”
In a column last year, David Wallace-Wells asked, “How Long Can America’s Climate Hypocrisy Last?” On any given week, there are new stories on the rapid escalation of fossil fuels in the U.S., which will be responsible for over one-third of all planned fossil fuel expansion through 2050, he argues. At the same time, it is the official U.S. policy to declare climate an existential threat. “The United States likes to admonish nations it describes as petrostates. But we’ve been pumping more petro almost every year in the age of climate alarm,” writes Wallace-Wells.
The issue can no longer be just the rush to renewables, it requires challenging the future of fossil fuels.
Even the Democrats are guilty. The Biden administration touted tapping the strategic petroleum reserve. President Barack Obama took credit for the American fossil fuel production boom. “That was me, people,” he told an audience in Texas. “Have you checked where your stocks were when I came into office and where they are now?” he asked. “What are you complaining about? Just say ‘thank you,’ please.” Obama called the basic rule of his energy policy “all of the above.”
It is no surprise that this is leading to rising cynicism among young climate activists who increasingly believe acts of civil disobedience are more effective than arduous coalitions like Climate 100+. The issue can no longer be just the rush to renewables, it requires challenging the future of fossil fuels.
“The oil industry has been playing each and every one of us in this room for fools.”
And that is a third rail issue in American culture and politics. Last fall, for example, New York’s Climate Week opened not with an exposition on renewable energy but a March to End Fossil Fuels — a much more pointed formulation than has framed similar climate marches in the past, says Wallace. Once seen as hopelessly naive, the Fossil Fuel Nonproliferation Treaty to end the expansion of fossil fuel production is picking up steam globally, with new nations signing on every few months.
As California Governor Gavin Newsom recently told the United Nations, “This climate crisis is a fossil fuel crisis. It’s not complicated. It’s the burning of oil. It’s the burning of gas. It’s the burning of coal. And we need to call that out. The oil industry has been playing each and every one of us in this room for fools.”
The U.S. will find out in November who the greater fool is.
