The world’s biggest banks are quietly hanging on to carbon-intensive clients because of what they see as unrealistic demands from regulators and civil society — and the threat to their fees.
Judson Berkey didn’t hold back.
It was early February and the UBS Group AG banker had WebEx-dialed into a meeting held on the 17th floor of the Japanese Financial Services Agency’s building in the Kasumigaseki district of central Tokyo. The closed-door gathering with representatives of the Federal Reserve, the European Central Bank and public officials from around the world was billed as a “check-in” for regulators to ask key market participants how they were dealing with the growing tapestry of rules and guidelines around transitioning the economy away from high-carbon assets.
What might otherwise have been a staid conference took an unexpected turn as Berkey, group head of engagement and regulatory strategy at UBS, interjected. The finance industry was being asked to align loans, investments and capital-markets portfolios with a global warming trajectory of 1.5C, while the planet may in fact be hurtling toward a 2.8C increase from pre-industrial times, he noted.
The upshot: The world’s biggest banks can’t live up to the green regulatory ideal unless they start dumping huge numbers of clients worldwide at a reckless pace and also roil economies in large swathes of the globe that primarily rely on dirty fuels. Faced with that dilemma, many lenders are quietly reeling in their climate ambitions.
“Banks are living and lending on planet earth, not planet NGFS,” Berkey told the group in an impassioned speech, alluding to the Network for Greening the Financial System, a collection of central bankers that creates model scenarios for how the energy transition may evolve. Details of what transpired at the meeting hosted by the Financial Stability Board — a coordinator of global regulations — came from people who were in the room but asked not to be named discussing private talks. Berkey confirmed his participation, declining to say more.
The UBS banker’s outburst, which got little pushback from those present, exposes the cracks emerging in a multitrillion-dollar transition finance project, and taps into what’s rapidly becoming one of the most contentious issues in the global banking industry. In private, senior bankers in sustainable finance divisions in London, New York, Toronto and Paris grumble about unrealistic expectations from regulators, civil society and climate activists around the industry’s role in getting the planet to net zero....
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