Transition Finance Weekly - September 27, 2024
Small Banks At Risk, Calif. AG Sues Exxon, Helene Shuts Oil Rigs
1. The Next Financial Crisis Could Be Climate-Driven
Climate effects will decimate real estate portfolios -- and smaller banks will be hit the hardest.
Climate-driven natural disasters have more than quadrupled in recent years compared to thirty years ago, and a new financial risk assessment from First Street analysts shows how hard they’re hitting America's banks. Extreme weather events are knocking down the value of their portfolios, and as the crisis accelerates, smaller banks are seeing the greatest risk. Almost a third of the banks the analysts studied — virtually all of them regional, small, or community banks — already face material financial risk due to climate exposure.
Increasingly, weather damage isn’t covered by insurance, putting smaller banks on the hook. Nearly 80% of the damage First Street evaluated was outside FEMA flood zones and ineligible for flood insurance, and the homeowners’ insurance market is collapsing in disaster-prone places like Florida.
Unlike giants like Citigroup, smaller banks can’t simply pull out of risky markets, or offset losses through lucrative market investments; their capital is typically invested at home in their climate-vulnerable communities. They’re also not protected by federal regulation because they’re state-chartered, so every state needs to take action to forestall a small-bank crisis. States should incorporate federal principles for climate related financial risk into state-level regulation, and hold large banks accountable for transparency about the systemic risk impact of their own lending and investment practices.
2. California AG Sues ExxonMobil for False Claims About Plastics
The suit alleges a “decades-long campaign of deception” about the impact of plastic recycling.
As oil companies brace for peak oil demand, they’ve attempted to shore demand and consumption up by promoting plastic production. But plastic waste is a public relations problem, which they’ve tried to counter through messaging about recycling.
Now California Attorney General Rob Bonta has filed suit against ExxonMobil on Monday over decades of claims that plastic recycling benefits the environment, even though most plastic waste — even when collected for recycling — is not actually recycled, and much of it can’t be. These claims, Bonta said, have led Californians to buy and use more plastics, escalating the plastic waste problem. Research shows that only about 5% of plastics are really recycled in the U.S.; the rest is packed into landfills or ends up into the ocean, where it seeps into the water supply.
Other states have filed suits over false sustainability claims — earlier this year, New York AG Letitia James sued the world’s largest beef producer for lying about its agricultural practices and cities and states have organized to sue oil companies over their deception on climate change.
Former EPA regional administrator Judith Enck: “The plastics industry has known for decades that — unlike paper and glass and metal — plastics are not designed to be recycled and therefore do not achieve a high recycling rate. Yet, the industry made every effort to convince the public otherwise while profiting off the planetary crisis it created.”
3. Oil Companies Evacuate Offshore Rigs Over Hurricane Threats
In a metaphor for what’s happening to their businesses, a hurricane pushed Big Oil’s employees off their drilling platforms this week.
This week, oil companies operating in the Gulf of Mexico are getting exposed to the climate risks that threaten their businesses: BP, Chevron, Shell, and other oil companies rushed to pull their employees out of the Gulf of Mexico and shut down oil production in advance of Hurricane Helene, which hit the Florida coast today.
These fossil fuel companies have driven the climate crisis, and now they’re paying for it: demand is expected to peak before 2030, fossil fuel revenues declined 30% last year, and their drag on global returns is alarming investment managers, who are pulling out of the sector.
In the meantime, as Helene moves today from Florida’s Gulf Coast into Georgia, the storm has driven dangerous surges, sheering winds, and left more than one million consumers without power.
IEEFA report: “Over the last decade, shedding oil, gas, and coal has proven a winning financial strategy — even taking the recent energy crisis into account. As the sector’s historic value thesis erodes, a few high-profit quarters have been unable to reverse a decade of underperformance.”
4. Clean Energy Lifts Local Economies Across Pennsylvania, and Unions Are On Board
Clean energy jobs far outstrip jobs in fossil fuels. Why does fracking get so much political attention?
It’s become a truism that political candidates need to tread carefully in Pennsylvania on the question of fracking. But that doesn’t match the reality on the ground, where more than half of Pennsylvania’s energy jobs are in clean energy, eight times more people work in clean energy than in the gas industry, and three-quarters of poll respondents are bullish on renewables.
Pennsylvania unions are on board, too; union members know clean energy is the future, and they’re organizing to build out a clean energy work force, help oil and gas workers transition to new jobs, and improve pay and working conditions. Clean energy workers are now unionized at a higher rate than energy workers as a whole.
Angela Ferrito, PA AFL-CIO: “We all want the same thing, at the end of the day,” said Ferritto. “We want clean air, we want clean water, we want to be able to see our children and grandchildren run around the earth like we did as children — and we also want to be able to go to work, come home and know that we’re gonna be able to take care of our families.”
5. Three Mile Island Is Coming Back Online
The decommissioned plant will rejoin the grid to meet spiking AI energy demand.
The Three Mile Island nuclear plant, shuttered in 2019, is coming back online in 2028 to power Microsoft’s AI data centers through an agreement the tech giant struck with Constellation Energy. And it’s not the first idled nuclear plant to be recommissioned: Michigan’s Palisades plant will be back online within a year.
Nuclear energy remains part of the clean-energy equation; it’s currently the world’s second-largest source of low-carbon power. But new nuclear plants take years to build, and solar is cheaper than nuclear, even accounting for the cost of battery storage to make solar energy available 24/7. This means solar is growing much faster: in 2024, the world is set to add 600 GW of solar capacity, which is nearly seven times more than all global planned nuclear capacity. And solar and wind together have already surpassed nuclear generation in the United States.
MICHIGAN BATTERY PROJECTS GET A FEDERAL BOOST
This week the Department of Energy announced it’s putting $355 million into four EV battery projects in Michigan, the traditional center of the U.S. auto industry. The projects, which include both battery components manufacturing and minerals recovery, will create hundreds of stable jobs, strengthen the auto manufacturing supply chain, and improve American competitiveness on the world stage.
