Casten Grills Megabank CEOs on Fossil Fuel Investments
Washington, DC – U.S. Congressman Sean Casten (IL-06) questioned bank CEOs from Wells Fargo, Goldman Sachs, Bank of America, Morgan Stanley, and JP Morgan Chase during the House Financial Services Committee Hearing entitled, "Holding Megabanks Accountable: An Update on Banking Practices, Programs, and Policies."
All six banks that appeared before today's hearing have pledged to achieve net-zero greenhouse gas emissions by 2050, aligning their financing with a core goal of the Paris Climate Agreement. Contrary to bad faith arguments made by several House Republicans during the hearing, financial institutions are recognizing the threat posed by the climate crisis not to appease any party's political whims or appear "woke" but as a good business practice. While these commitments are encouraging, Casten pushed the banks on whether they are actually taking steps to shift their risk exposure to fossil fuels and GHG emissions.
"I want to start by apologizing to our witnesses," Casten began. "I'm awfully troubled that some of my colleagues across the aisle who are so outspoken in their opposition to socialism and the Belt and Road Initiative seem to be so predisposed to policies that would direct our banks to invest in politically preferred industries or else. I apologize, I encourage you all to get copies of the Wealth of Nations and send it to them and remind them how capitalism works."
Casten directed his first question to Wells Fargo CEO Charles Scharf, asking Scharf if his total exposure to the fossil fuel sector was bigger or smaller than it was when Scharf appeared before the committee just over a year ago. Months after that March 2020 hearing, Wells Fargo subsequently posted its first loss since the financial crisis in July 2020, losing $2.4 billion in the second quarter. One of the biggest factors was undoubtedly the loans the bank made to oil and gas companies. Despite only being 3% of the bank's outstanding commercial loans, oil and gas companies made up a whopping 47% of the bank's past-due commercial loans. Once again, Mr. Scharf could not confirm what his existing Oil and Gas exposure was and whether it was decreased from a year ago.
Click here to watch Casten's full questioning.
Earlier today, Casten introduced the Climate Change Financial Risk Act of 2021 along with Senator Brian Schatz (D-HI), legislation requiring the Federal Reserve to take action to identify and manage climate related risks by directing the Fed to conduct stress tests on large financial institutions to measure their resilience to climate-related financial risks.
REMARKS:
Rep. Casten
Thank you Madam Chair, and thank you to all our witnesses. I want to start by apologizing to our witnesses. I'm awfully troubled that some of my colleagues across the aisle who are so outspoken in their opposition to socialism and the Belt and Road Initiative seem to be so predisposed to policies that would direct our banks to invest in politically preferred industries or else. I apologize, I encourage you all to get copies of the Wealth of Nations and send it to them if they get those letters and remind them how capitalism works.
Mr Scharf, the last time you were here we spoke about your exposure to the oil and gas sector and potential write offs, you subsequently posted your first quarterly loss since 2008 and I think in some of the reports I've seen suggest that over half of the past two loans was in the fossil fuel sector. Just yes or no, is your total exposure to the fossil fuel sector bigger or smaller than it was when we spoke a year ago?
Mr. Charles W. Scharf, Chief Executive Officer & President, Wells Fargo & Company
Congressman, I'm not sure of the answer, I'd be surprised if it were that different.
Rep. Casten
Okay, so if it's been written down, would that imply that you have? Because there's the total value, right, and then there's the total value of the initial holdings.
Mr. Charles W. Scharf, Chief Executive Officer & President, Wells Fargo & Company
Congressman, yes but there's a difference between adding losses, and actually writing down. Clearly something we can get back to you on.
Rep. Casten
Okay, okay, well, I'd be interested in understanding. Mr Gorman, you said in your testimony that climate change considerations are integrated into the firms risk management and governance processes, we have advanced diligence process in sectors. Are you satisfied that you have a consistent methodology for calculating the carbon impact of your investments that is used by all the portfolio companies and businesses you invest in, and by your competitors so that you have a consistent reporting standard?
Mr. James P. Gorman, Chairman & Chief Executive Officer, Morgan Stanley
No, I think there's clearly, this is a space that's evolving, it's still in the infancy. Various international government bodies, international bodies and banks are trying to sort out the right methodology, says be clearly sustainability accountable. So no, we're in the early days.
Rep. Casten
Okay as you put these processes in place that you have, however imperfect they are. Have you ever written up or down your carbon exposure as you would with a, with a piece of debt if the utilization factor changes in ways that you look at the security from a financial perspective, have you ever changed that or is that just the point of investment you do that diligence?
Mr. James P. Gorman, Chairman & Chief Executive Officer, Morgan Stanley
I don't think we have, to the best of my knowledge we have not, if I'm wrong on that I'll certainly let you know.
Rep. Casten
Ok, Mr. Solomon, you've made similar statements that you've been carbon neutral since 2015, will be net zero. And I think these statements are terrific. I'm gonna saying it as criticism, same questions as Mr Gorman, are you satisfied that you have a consistent methodology and have you ever written up or down the greenhouse gas exposure?
Mr. David M. Solomon, Chairman & Chief Executive Officer, Goldman Sachs
So with respect to carbon neutral that's in our buildings that's taken our buildings, I'm not aware of any material up and down, and I'd echo what James said just about the process, the process is new, it's not consistent, it's not clear, and so it's still an evolving space.
Rep. Casten
Okay. Mr. Dimon. You said in your opening remarks that abandoning fossil fuels is not an option right now. Over the suite of the investments you have in the fossil fuel space, you have senior debt, you've got various levels of subordinated debt, presumably some equity. Setting aside the total exposure, have you taken any steps to shift the risk exposure in your portfolio to the space. So in other words, have you ever shifted more towards more senior security vehicles?
Mr. Jamie Dimon, Chairman & Chief Executive Officer, JPMorgan Chase & Co.
I do not believe so, no.
Rep. Casten
Is it reasonable to assume that if you saw a risk coming you might take measures to protect your investment and move to a more senior position?
Mr. Jamie Dimon, Chairman & Chief Executive Officer, JPMorgan Chase & Co.
You certainly should assume that.
Rep. Casten
Mr. Moynihan, your bank is one of the largest financiers of fossil energy I believe of the folks here, same question as Mr. Dimon, are you changing your risk exposure?
Mr. Brian T. Moynihan, Chairman & Chief Executive Officer, Bank of America
We look at individual credits based on their prospects. And so we have not, to my knowledge, changed any material exposure in our risk today. In terms of the discussion we continue to look at the portfolios and figure out how you can measure the types of things you're talking about and work has been going on.
Rep. Casten
Ok well, I'm about out of time. Today I introduced a climate change financial risk bill with Senator Schatz that is designed to do this scenario testing in our financial sector. And my view is that you all are crazily smart, you are extremely sophisticated. I have high confidence that your banks are probably going to be fine, because you are the most sophisticated, and when you see these risks coming you will find ways to offload them to other people in the financial sector who are not. We have an obligation on this committee, our prudential regulators, of making sure that as that cash moves around the system, as we transition to a cleaner economy, that we are protected. And I hope you will support us as we make sure that we maintain our robust financial systems. Thank you and I yield back. Thank you.