Ethan Swope/AP Photo
Fire crews battle the Eaton Fire, January 8, 2025, in Altadena, California.
The torching of Los Angeles is not over, but it has already put a damper on Wall Street’s efforts to cozy up to the incoming Trump administration. Over the past couple of weeks, all six of America’s biggest banks have rolled back promises to use their power as financial intermediaries to protect the planet. The reason why is really simple: Donald Trump and the conservative movement, fueled by cash from the fossil fuel industry, are taking power. They want big banks to get in line with their profit-maximizing, planet-burning aims. And the banks are eagerly complying.
But the banks didn’t count on wildfires in a major American city splashed across television screens right in the middle of their surrender moment. “It is a tragic irony that banks are walking back from their climate commitments just when climate risks are happening before our eyes,” said Graham Steele, the former assistant secretary for financial institutions at the Treasury Department under Joe Biden.
Specifically, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs have all dropped out of a group initiated in 2021, in conjunction with the United Nations, called the Net-Zero Banking Alliance. The commitment statement outlining principles for responsible banking says that members will transition their investments and lending targets to “align with pathways to net-zero” emissions by 2050, with the intention of holding the rise in global temperatures at or below 1.5 degrees Celsius.
The 141 member banks in the alliance, which come from 44 countries, hold $61 trillion in financial assets in their portfolios. And they weren’t making these commitments out of a general goodwill to save the planet, nice as that may be. The impact of a warming climate, including the out-of-control catastrophe we’re seeing in Los Angeles right now, is a major threat to financial safety and soundness. Global economic losses from climate change will reach into the trillions, and among the first in line to eat those losses are banks and other financiers.
Insured losses from the L.A. conflagration are already estimated to total $20 billion, and we’re not close to being done yet. The state’s insurance companies will bear a ton of these losses; some will fall on the public insurer of last resort, FAIR Plan, but if it can’t pay all claims, insurance companies are required to kick in. Even before this hit, denied insurance renewals, including in some areas hard-hit by the wildfires, were causing strain in the community.
This will impact banks in cascading ways. First of all, a property with a mortgage that gets wiped out could be a loss to the bank. If portions of the state become uninsurable and policies are not renewed, banks can’t issue mortgages there either. Reduced mortgage activity means reduced interest revenue, and it filters back into the real economy and faltering commercial activity, including businesses with bank loans. “You could see something like the foreclosure crisis in 2008 confined to a regional area, and that’s when we know these risks manifest on bank balance sheets,” said Steele, who co-authored an influential 2019 paper about climate financial risk.
The impact of a warming climate, including the out-of-control catastrophe we’re seeing in Los Angeles right now, is a major threat to financial safety and soundness.
Then there are more indirect losses possible, due to the tight connectivity between insurance and other financial firms. Let’s say a bankrupt insurer liquidates assets to pay off creditors; those values would be lower, which banks may not anticipate. The Silicon Valley Bank implosion offers an example of a firm that believes itself to be sound incinerating into dust when financial conditions shift.
Or think about an insurer’s counterparties—many of them big banks—that could be left holding the bag amid a bankruptcy. “As we saw in 2008, insurers insure your property and home and car, but they are also large diversified asset managers,” Steele said. “So insurance solvency can impact financial stability. Because U.S. financial regulators have been too slow to respond, we don’t know links in the chain between insurers and financial institutions.”
Finally, there is transition risk from a bank holding carbon-related assets that become devalued because of the move to clean energy. We are seeing a massive construction boom in cleantech that may even endure into the Trump years; even electrification of transportation like cars seems to be on an endless march. If banks get stuck with oil and gas assets on their balance sheets that rapidly fall in value, the result could be financial crisis.
These factors, not just a crunchy belief in environmentalism, are what led banks to join the Net-Zero Banking Alliance in the first place. But in the U.S., the six biggest banks (which as recently as 2018 had $700 billion in fossil fuel–related assets on their balance sheets) had a problem named Donald Trump. Protecting themselves from climate disaster sounds too much like the dreaded “ESG” (environmental, social, and governance investing), which conservatives have fearmongered themselves into believing is an un-American restraint on the free market. And they would be sure to target banks which continued to promote anything that smelled like ESG.
So like so many other billionaires and large corporations, the banks quietly climbed down. “The Trump administration says they are going to deregulate Wall Street,” Steele said. “One of the only things standing in the way of that are these climate commitments. The banks are looking to squeeze more profit out of their customers, so they’re aligning with oil companies that want to squeeze more fossil fuels out of the earth.”
It is technically true that membership in the alliance has no bearing on the individual net-zero commitments that major banks have made in the past. “The only credible way for financial institutions to meet their long-standing net-zero commitments is to rapidly phase out fossil fuel financing and scale up funding for clean energy solutions,” said Ben Cushing, campaign director for the Sierra Club’s Fossil-Free Finance campaign, in a statement.
But if the big banks bug out of their international commitment, there’s no credible reason to believe that they will pursue their individual ones. “Chalk one up for the skeptics who labeled voluntary climate commitments as greenwashing,” Steele said. While “net zero” was a somewhat amorphous concept that banks were using as a cover to still conduct fossil financing, balanced by dubious “carbon offsets,” whatever comes after will likely be even weaker. And when the banks come into contact with conservative lawmakers who already defanged them, those commitments will shrink once more.
“If they’re not willing to participate in forums that are PR exercises, why would they do any substantive commitments?” Steele asked.
Perhaps the only real answer to that question is manifested in the raging blazes in the hills above Los Angeles, and the threat to communities within and below. The costs from extreme weather are already starting to pile up: $110 billion to save western North Carolina and other communities ravaged by hurricanes, just in the year-end funding bill.
Mother Nature isn’t going to make allowances for big banks because they want to partner with Donald Trump. Climate destruction will still show up on their bottom lines. 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.
