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US: Regulator moves to stop banks blacklisting sectors as investors push S&P 500 on physical climate risk

New York State and Impax want asset location data, while OCC swoops in to ban sector-wide exclusions

The US Treasury’s Office of the Comptroller of the Currency (OCC) has drafted a rule to prevent banks from sector-wide lending bans, such as those being increasingly introduced for oil & gas, weapons and private prisons. The new rule would allow the federal agency to “take supervisory or enforcement action” on previously-issued guidance, which stated that banks should assess customers on a case-by-case basis and not “engage in the termination of entire categories of customers”.

The move comes after Alaskan lawmakers complained that state revenues and jobs were being threatened as a result of banks blacklisting new oil & gas projects in the Arctic. Investigations by OCC found that in several instances, banks had asked customers to commit to international climate agreements and controls on carbon emissions.

It said sector-wide blacklists were based on “personal beliefs and opinions … that are more appropriately the purview of state and Federal legislatures” and not “quantitative, risk-based assessments”. The agency said that climate change risk must be considered together with the risk posed by “foreign wars caused in part by US energy dependence and the risk of blackouts”.

The proposed rule is open for feedback until January 4, less than two weeks before the inauguration of President-elect Biden. The new administration has the power to remove the current OCC head, a Trump appointee.

Elsewhere in the US, New York State’s $194bn pension fund has teamed up with sustainability specialist Impax Asset Management to push S&P 500 firms for precise location data to help investors better gauge their exposure to physical climate risk. 

In a letter sent to S&P 500 firms last month, the duo called for the disclosure of “street addresses, or latitudes and longitudes, of all assets whose loss or impairment would materially affect financial results”. 

According to a recent report by S&P Global an estimated 60% of S&P 500 Index companies, which includes the likes of Amazon, Microsoft and JP Morgan Chase, own physical assets that face high risk of climate-related physical losses. 

Too often disclosure of location data by corporates is “vague” and “boilerplate”, with many simply stating the state or country the company’s operations are located in, said Julie Gorte, Senior Vice President for Sustainable Investing at Impax.

These concerns prompted Impax, which manages £18.1bn (€19.9bn), to petition the US Securities and Exchange Commissions (SEC) this summer, asking the regulator to amend rules to force companies to identify the location of significant assets.

New York State Comptroller Thomas DiNapoli, sole trustee of the state’s pension fund, wrote to the SEC shortly after Impax, expressing his support for the petition and arguing that better disclosure of location data “is a necessity for the accurate assessment of climate risks, and the assignment of appropriate valuations to those risks so that market prices truly reflect value”.

Gorte told RI that the SEC had not responded to Impax’s petition, “nor did she expect it to”, although she does see signs of hope for the regulator on climate issues – particularly in the shape of SEC Commissioner Allison Herren Lee, appointed last year, who has spoken recently of the “imperative for the SEC to focus on climate risk as systemic risk”.  She added that Impax could re-engage the SEC on next year, once current Chair, Jay Clayton, has been replaced by Joe Biden’s administration. 

The SEC declined to comment. 

New York State’s ESG Investment Officer,  Eri Yamaguchi, who came up with the idea of writing to S&P 500 companies, told RI that companies have tended to focus on transition risks over physical risks, but added that this is changing.