Banks Caught in the Middle Over Climate

Earlier this month, Kentucky became the latest state to push back against ESG efforts by banks and other financial firms. Noting the reliance of Kentucky’s power grid and economy on fossil fuels, State Treasurer Allison Ball called out institutions that, she said, were engaging in an “energy company boycott.”

The ultimatum? If these firms don’t reverse policies that limit their investments in fossil fuels, Kentucky will pull their accounts with them—in the same way West Virginia, Texas, and other states cut ties with financial firms over ESG.

What it means: The trend has added complexity to the reputation risk banks face on climate, which had been primarily related to claims that they were moving too slowly in addressing climate change. Now, the growing anti-ESG movement makes navigating a path toward a green economy more challenging for banks—especially with U.S. regulators preparing to monitor their climate-related risks.

A recent piece by the New York Times said some financial institutions have not wavered in their commitments despite divestment by ESG critics. But an increasingly patchy patchwork of politically tinged demands by states—red or blue—could be a problem. At RMA’s recent Annual Risk Management Conference, geopolitical risk expert Ian Bremmer said “there’s a non-negligible tail risk that we could be in a red versus blue investment environment in the Unit­ed States in five years.” 

 

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