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Cynthia Hanawalt, Denise Hearn

Of pots and kettles: Big Oil and the anti-ESG movement are accusing banks of running ‘climate cartels’

(Credit: David McNew - Getty Images)

The word “cartel” conjures images of backroom meetings of powerful business leaders. But the world’s most famous cartel, the Organization of the Petroleum Exporting Countries (OPEC), is no secret. OPEC is an affiliation of leading oil-producing countries that manipulates the global supply of crude to boost profits. Ironically, the fossil fuel industry and the Republican politicians they support are trying to spin that epithet by claiming that “climate cartels” have arisen among financial institutions working to implement net zero goals.

Funded by the fossil fuel lobby, some Republicans are taking aim at climate alliances, like the Glasgow Financial Alliance for Net Zero (GFANZ) and Climate Action 100+, for allegedly violating antitrust laws. Although these threats have apparently led to several defections from the GFANZ insurance alliance, the claims are political theater: climate alliances like these are permissible under U.S. antitrust law.

Climate alliances are not boycotts

GFANZ is a global coalition of leading financial institutions committed to accelerating decarbonization in line with the goals of the Paris Agreement. GFANZ alliances are built around information sharing, voluntary standard setting, and other collaborative activities among members. This is not unusual behavior: voluntary industry standard-setting and trade associations–like the American Petroleum Institute–have long been permissible under U.S. antitrust laws. Indeed, the FTC and DOJ offer guidelines to support the practices of trade associations and standard-setting organizations, clearly distinguishing between collaborative, often pro-competitive practices and behavior that violates antitrust law.

Traditionally, antitrust violations arise when competitors collude to set prices or limit production. This is known as horizontal collusion. A corporate boycott under antitrust law is not the same as a consumer “boycott” or protest movement to stop purchasing from a specific company. Rather, a corporate boycott is a specific type of horizontal agreement among competitors, where firms agree to take joint action against another competitor. The intent of a collective boycott must be anti-competitive–like excluding a rival from the market–to raise antitrust concerns. Industry coalitions with shared commitments, such as targeting net zero goals, do not fit this legal definition. In the GFANZ alliances, financial institutions do not compete with the companies they finance, and they voluntarily and independently establish and implement their climate goals. Notably, despite rampant accusations from Republican officials about antitrust violations, no cases have been filed.

The attacks on climate alliances are driven by climate deniers

These attacks are part of a broader “anti-woke capitalism” movement, funded by fossil fuel lobbying groups and climate denial think tanks, that is taking blunt aim at environmental, social, and governance (ESG) strategies in the financial industry. More than a hundred anti-ESG bills have targeted asset managers, pension funds, banks, and other financial institutions that even consider ESG risks in investment decisions. These ill-conceived bills have been decried by banking associations, investors, and business groups, and while a dozen states have passed anti-ESG legislation, the vast majority of these bills have failed. Some estimates suggest these bills could cost state taxpayers or pensioners hundreds of millions of dollars.

Congressional Republicans and some Republican attorneys general (AGs) are also exercising their investigative authority to challenge financial institutions’ ESG practices. Last week, the House Judiciary Committee issued a subpoena to Ceres, claiming the shareholder group “appears to facilitate collusion” through its involvement with Climate Action 100+. In April, 21 Republican state AGs published an open letter to more than 50 large asset managers, suggesting potential violations of fiduciary duty obligations and state consumer protection laws due to their ESG investment activities. And last fall, 19 Republican state AGs announced an investigation into the involvement of six large U.S. banks with the Net Zero Banking Alliance. These investigations suggest a troubling new front in the anti-ESG movement to weaponize consumer protection laws in an expanded effort to resist efforts to address the financial risks of climate change.

The consumers that politicians claim to be protecting want renewables

Undeniably, climate change presents the type of material financial risks that fiduciaries must consider. Warming of 2.2 degrees Celsius by 2050 could reduce global GDP levels by 20%. Climate and weather disasters cost $165 billion in the U.S. in 2022 alone, and the US could be losing $2 trillion annually by failing to address climate change. The bankruptcies of PG&E and Peabody Energy are two examples of Fortune 500 companies brought down by climate impacts or shifts to cleaner technology–more are sure to follow.

The public is aware of these risks and wants action. According to a Pew Research poll, 69% of U.S. adults prioritize developing alternative energy sources, such as wind and solar, over expanding the production of oil, coal, and natural gas. This means shifting finance from new fossil-fuel production toward alternative clean energy sources. And roughly the same percentage say that large businesses and corporations are doing too little to reduce climate change effects. In addition to being popular, it’s also scientifically necessary. If the world is to avoid the worst impacts of climate change, no new fossil fuel plants should be built, according to the International Energy Agency.

While Republicans cheer the unraveling of the Net Zero Insurer’s Alliance, insurers grapple with mounting financial losses from climate-related extreme weather events. For example, State Farm–the largest homeowners insurance company in California–recently announced it would stop selling coverage to new homeowners across the entire state due to untenable financial risk from wildfires and other natural disasters.

Despite political attempts to attack climate-aligned investing, the financial sector plays a critical role in achieving a safe and rapid transition to a clean energy economy, as well as in mitigating the substantial financial risks posed by climate change. So while the anti-ESG movement claims to be defending consumer and taxpayer interests, their fealty to the fossil fuel industry has left them blind to the financial and social impacts of a changing climate on the entire economy. These antitrust claims are meritless–but the American people will be footing the bill.

Cynthia Hanawalt is a senior fellow at the Sabin Center for Climate Change Law. Denise Hearn is a senior fellow at the Columbia Center on Sustainable Investment and co-author of The Myth of Capitalism: Monopolies and the Death of Competition. The authors co-lead the Antitrust & Sustainability Project at Columbia Law School and Columbia Climate School.

More must-read commentary published by Fortune:

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