Transition Finance Weekly - January 16, 2025
Net-Zero Collaborations in Crisis, Building Back Better in LA, Oklahoma Pushes Renewables Ban
1. Net-Zero Collaborations in Crisis
Asset managers join banks in pulling out of global climate alliances.
The $57 trillion Net Zero Asset Managers Initiative (NZAM) suspended activities this week after BlackRock announced it was departing the group. NZAM said its suspension and “review” of activities was a response to “recent developments in the U.S. and different regulatory and client expectations in investors’ respective jurisdictions.” Translation: under political pressure from the Trump-aligned extreme right-wing, we’re backing away from our commitments.
This follows five major U.S. banks’ withdrawal from the Net Zero Banking Alliance over the past month, with devastating Southern California wildfires as a backdrop. Anti-ESG leader Texas AG Ken Paxton responded by closing his investigation and ending his state-sponsored harassment of the big banks. Already, Texas anti-ESG activism has cost taxpayers more than $600 million and thousands of jobs.
But climate risk is here to stay, and as Pleiades’ Frances Sawyer has said, “right-wing politicization… cannot stop banks’ engagement with reality.” Climate change is financial risk, and regardless of what they say, banks know their profits — and their shareholders’ returns — depend on facing it responsibly.
The American Prospect’s David Dayen: “The imperative to transition away from the oil and gas assets that will create further damage remains urgent. Succumbing to Trump goes hand in hand with damaging their own financial futures. And this week’s carnage is a powerful testament to that.”
2. Rebuilding and Resilience After Disaster: Pricing Risk Appropriately
Building back faster in Southern California must also mean building back safer.
California Gov. Gavin Newsom is suspending provisions of CEQA and the California Coastal Act and has asked for recommendations for how to waive parts of the building code to facilitate rapid rebuilding after Los Angeles-area wildfires. But any moves in this direction need to be limited and cautious, because if cutting regulations means cutting corners, homeowners will just face the same kind of catastrophic risk next time around.
These wildfires will be among the costliest disasters in U.S. history, in part because much of the Southern California building stock was not built to resist extreme weather. Building back more resiliently will mitigate some future insurance risk, and help keep coverage affordable and available at a time when the property insurance model is teetering.
As communities like Paradise have modeled in the wake of devastating fires, the construction industry has skill and knowledge to increase fire readiness, including fire-resistant construction materials, design, and home hardening. Many of these provisions are mandated in the building code, but not widely enforced, especially where the building stock is old like in Pacific Palisades.
Wildfire resilience expert Doug Green of Headwaters Economics: “The more homes that comply, the less chance you get those structural ignitions and the less chance you get those huge disasters like this. It takes people doing the right thing to their own home — dealing with vegetation, making sure roofs are clean, having right roofing. It’s really a community-wide strategy to stop fires that happen like this.”
3. Oklahoma Legislators Push to Ban Renewable Energy Outright
Jobs, affordable energy, and tax revenue be damned!
Oklahoma state power players are burnishing their right-wing credibility by floating a ban on renewable energy projects. Currently, renewables generate almost half the state’s energy, often at a lower cost than fossil generation, and also provide critical energy transition jobs in a state with an ideal climate for wind and solar and a skilled oil and gas workforce.
Across the nation, local activists and astroturf groups have stopped hundreds of renewable projects for political reasons, imposing steep costs on ratepayers, killing clean energy jobs, and impacting the tax base. Ohio now permits counties to fully ban renewables, and the Trump administration is reportedly considering a ban on offshore wind, which would put existing projects in jeopardy.
Heatmap’s Jael Holzman: “As talk in Congress proceeds toward changing the Inflation Reduction Act, rest assured some of these [Oklahoma anti-renewables activists] will contact their members of Congress when the time comes. And you should expect the same from the myriad of anti-renewables activists in other states fighting solar and wind projects in their own backyards.”
4. For Renewables in the U.S., 2024 Was a Very Good Year
Unfortunately, renewables can’t bring down emissions on their own as energy demand increases.
Just since 2019, Texas solar generation capacity has shot up 800%, wind capacity has doubled, and battery storage capacity has gone up more than 50X. In California, the utility-scale battery network has reached 11,000 MW. And nationwide, the grid added more than 50 GW of new carbon-free capacity, representing 96% of all capacity growth.
But U.S. emissions barely budged, because higher transportation emissions (due in part to higher gasoline consumption) and increased power demand (driven in large part by AI) offset oil and gas emissions reductions mostly driven by successful methane reduction regulations.
5. In Texas, Up Is Down: Climate-Hostile Extremist Judge Rules That Rational Investment Is Illegal
The judge says American Airlines violated the law by doing business with an investment firm that doesn’t pretend climate risk isn’t real.
A right-wing extremist Texas federal judge ruled that American Airlines violated federal law by hiring investment giant BlackRock, which doesn’t deny the reality of climate risk, to manage its employee retirement 401(k) plan.
Judge Reed O’Connor wrote that ESG is only used to pursue “social objectives” as an end. This ignores that asset managers are in the business of making money and that they consider ESG-related factors because they believe them to be material and relevant to investors’ financial well-being.
After months of climate catastrophes that threaten to upend foundational pillars of our financial system, the idea that investors shouldn’t be allowed to consider climate risk is deeply confusing.
It’s worth noting that O’Connor does not have a background in financial services and that he is known for often controversial rulings. A Federalist Society contributor, he is a favorite of partisan judge-shoppers who has ruled in favor of sex discrimination, restricting same-sex marriage, separating indigenous children from their families, and overturning the Affordable Care Act.
Bloomberg’s Matt Levine cheekily on the decision: “If you just run an index fund, but in your heart you are thinking about ESG — if you talk publicly about climate change, or vote your shares in favor of climate initiatives — that’s also illegal.”
