Major policy shifts related to climate change such as a carbon tax could cost the financial industry up to $1 trillion, according to a study by management consulting firm Oliver Wyman.
The study states that banks, insurers and asset managers can reduce risks and increase earnings potential by reallocating capital to greener companies and investments. The report found that, while a growing number of banks are taking these steps, less than 10% of the industry has a "robust data-driven approach" to do so.
The report comes as major banks such as JPMorgan Chase and Goldman Sachs, as well as asset management firm BlackRock, have unveiled their own commitments to combat climate change.
Researchers say companies that move fast will be best positioned to capture the growing revenue pool from green investments, which they put at $40 billion globally today. The study’s authors expect that figure to grow to $100-150 billion as transition financing and sustainable investing grows.
"The financial industry can have a significant impact on accelerating the transition to a green economy by proactively steering capital towards the businesses and technologies that will drive it," James Davis, a partner at Oliver Wyman and lead author of the report, said in a statement. “Our analysis shows that there are strong commercial reasons to act — the financial risks are material and need to be incorporated into decision-making, while sustainable finance is one of the most promising areas for revenue growth in the industry at the moment. This is an opportunity for the industry to lead."
JPMorgan is the latest major bank to scale back on its ties to fossil fuels and pursue green financing. On Monday, the New York-based bank said it plans to curb financing for coal mining and coal-fired power, as well as end financing for new oil and gas drilling in the Arctic, according to Reuters.
In its investor day slide presentation, which was published on Tuesday, the U.S.’s largest bank said it will also facilitate $200 billion of transactions in green financing in 2020, up from $175 billion in 2019.
The bank is the world’s largest funder of fossil-fuel companies, according to a report by Rainforest Action Network, which says the bank loaned $196 billion to fossil-fuel companies between 2016 and 2018. JPMorgan’s ties to the industry has made it the target of shareholder activists.
JPMorgan’s announcement follows a similar move by Goldman Sachs in December.
The investment bank strengthened its environmental stance, targeting $750 billion over the next 10 years for "climate transition and inclusive growth finance," CEO David Solomon announced in an op-ed in Financial Times.
Bill McKibben, an environmental studies professor at Middlebury College and a climate activist, said JPMorgan’s announcement was disappointing.
"It seems like weak beer to me, basically just copying Goldman," McKibben told The Washington Post. "But it shows that even the biggest bank on earth feels citizen pressure, so we will keep supplying that!"