For JPMorgan CEO, Jamie Dimon, the greatest risk is keeping oil and gas in the ground. That does not bode well for the planet.
Editor’s note: In a follow-up to our recent article on beta and shareholder activism, and as we enter the annual shareholder proxy season, we are profiling three poster companies of old-style American capitalism: Berkshire Hathaway, JPMorgan and Chevron.
As you know, annual general meetings (AGMs) of shareholders are opportunities to elect directors, ask questions and make business requests on myriad matters, like executive compensation, governance, climate, capital allocation, racial justice and more. The proxy season refers to that cluster of AGMs which occurs in April, May and June. As it is impractical for most shareholders to attend in person, instead they fill out a proxy which then is voted on their behalf at the AGM.
When asked why he robbed banks, Willie Sutton famously quipped “because that is where the money is.”
If asked why he persists in lending so much money to the fossil fuel industry, Jamie Dimon CEO and Chairman of JPMorgan Chase might well echo some similar essence.
Dimon presides over the largest and most powerful bank in America, which in turn makes him the most powerful and influential commercial banking leader in the world. His bank is the offspring of J.P. Morgan & Co. and the Chase Manhattan Bank merger, a holy joining of the Houses of Morgan and the Rockefellers in the year 2000.
He oversees a sprawling banking oligopoly, which along with Bank of America, Wells Fargo and Citigroup, controls 50% of all U.S. banking assets. Their dominance rivals the Top 3 index fund providers: BlackRock, Vanguard and State Street. Vanguard owns 8.8% and BlackRock owns 6.5% of JPMorgan. Oligopolists like to hang out with each other.
Presiding over such an immense amount of treasure gives Dimon oracle status.
In America big is beautiful. JPMorgan has $2.9 trillion in assets and a market capitalization of $350 billion. Last year, after taxes it earned $4 billion a month.
Presiding over such an immense pile of treasure gives Dimon oracle status. Like two other financial oligarchs, Berkshire Hathaway Chairman and CEO Warren Buffet, and BlackRock Chairman and CEO Larry Fink, he is a regular on CNBC dispensing bon mots on America and the world.
Chief of the croupier class
Being CEO of a modern American bank also means he is an exemplar of the croupier class that dominates the upper ranks of global finance. It is a professional cadre of bankers, accountants, tax advisors and lawyers who effortlessly control the game. They collect the bets, monitor the loan interest payments, mind the financial engines, direct the share buybacks, jawbone shareholders and pay out the winnings, to each according to their fair share.
These croupier delight in serving the interests of the 0.1% and in return earns large bonuses and tips, lodging them firmly within the 1% and allowing them to fly helicopters to the Hamptons and planes to Palm Beach.
Dashing and charismatic, Dimon is the global pit boss. He is the protege of financier Sandy Weill and the grandson of a Greek banker from Izmir and Athens. He is the longest-serving CEO of a major bank and has guided the firm’s stock from $39 dollars a share in 2004 to a recent high of $172. No wonder that to the JPMorgan board, and its key institutional shareholders, Dimon is an untouchable Adonis, a sentiment soundly signaled via his total compensation in 2021 of $82 million, about 1000 times more than a senior Chase teller.
Until this year, he could do no wrong. He was the savior of Wall Street after the Great Financial Crisis of 2007-8. No scandal, no illness could dent his Teflon image – or the recognition that JPMorgan bankers rule the world.
J.P. Morgan’s stock is down 27% in 2022, and ungrateful shareholder activists are now nipping at his feet demanding change.
But there is nothing like an existential climate crisis, a genocidal war in Europe and a global pandemic to sober up. even the biggest booster. J.P. Morgan’s stock is down 27% in 2022, and ungrateful shareholder activists are nipping at his feet demanding change. Bank analysts like Michael Mayo are sharpening their pencils.
Adonis or Janus
Today, Dimon finds himself being compared to another god –– Janus. Like Janus, the Roman god of beginnings, gates, transitions, time, duality, passages, frames and endings, Jamie Dimon has multiple sides.
Today, Dimon cannot decide if he is a shareholder, statesman or ESG champion.
With the war in Ukraine, he has wrapped himself in the American flag and urged Biden to craft and execute a Marshall Plan “to fortify the energy security of the United States and Europe.” It does not hurt that the war has been a bonanza for his largest oil and gas clients.
It also lays the groundwork for the almost unlimited future exploration and production of natural gas. While Dimon supports the development of renewable energy, his real power lies as the power broker who will decide the fate of natural gas as a long-term transition energy solution.
That puts him at odds with Jamie, the ESG champion. In his 2021 Annual CEO Letter and the 2021 Annual Report & Proxy, he pledged strong JPMorgan support to the Net Zero Banking Alliance (NZBA) and its 2050 net zero commitment. How he plans to do that and double down on fossil fuel financing may add yet another face to Jamie Dimon –– Harry Houdini.
The reality is he won’t. Dimon is first and last a shareholder. The rest is PR, lobbying or investor relations. He simply cannot get over his addiction to business as usual and profits garnered from lending to finance new energy projects. Like Janus and most of us, he is unable to escape his own lived experience and success. He has built the world’s leading global bank, but one who earns vast profits financing high-emissions businesses.
Today, Dimon cannot decide if he is a shareholder, statesman or ESG champion.
Like all of us, he is trying to have it all. We all lecture each other on net zero and global warming, while we drive our internal combustion cars to steakhouses. Dimon’s marketing team churns out beautiful glossy sustainability reports, while he urges his senior bankers to continue to bet heavily on responsibly financed emissions.
So much for current proactive confrontation of the major matter at hand, namely the urgent need to reduce carbon emissions and bend the carbon curve down, hard and now.
Dimon is now stuck in an increasingly uncomfortable position. Biden administration officials are pushing for full-on oil and gas exploration to reduce dependence on Russian gas –– a policy position that he supports.
Keep financing or keep it in the ground?
But this flies in the face of the International Energy Agency (IEA) and shareholder activists who are demanding that gas ‘stay in the ground’ and there be no new fossil fuel projects financed by the likes of Dimon and JPMorgan.
The IEA’s calls for a new project freeze last year were initially seen as a massive blow to the fossil fuel industry, says Dave Jones, global program lead at Ember think-tank. “This was a complete turnaround of the fossil-led IEA from five years ago.”
Shareholder activists like The Sierra Club Foundation, As You Sow and Mercy Investment Services and New York Pension leaders, jumped in, demanding that oil companies align themselves with the IEA’s net zero roadmaps.
JPMorgan and Wall Street banks now find themselves battling six IEA resolutions, as well as many others related to climate ambition, targets and transition plans. But these resolutions so far have achieved only modest levels of shareholder support at the AGMs of Citigroup, Bank of America, Wells Fargo and Goldman Sachs, 12.8%, 11%, 11% and 11.2%. Next up to bat is JP on May 17th and then Morgan Stanley on May 26th.
Why this low support? They are first time ever resolutions, and it does not help that proxy adviser Glass Lewis recommended a vote against it. But more importantly, the winds of energy insecurity have been blowing hard ever since the Russian guns fired their first salvos.
So here stands Dimon, who like Janus, the gatekeeper of Rome, now presides over perhaps the most momentous transition in human history.
The war in Ukraine has changed everything. While Europe rushes to renewable energy, fossil fuels are the only apparent immediate alternative to reducing dependence on Russian oil and gas. That translates into opening the floodgates to even more fossil fuel development, in the name of regional energy security.
And to climate activist shareholders, this is a very dangerous development –– one that could spell disaster to efforts to limit carbon emissions in the next 30 years and beyond.
Drilling and delivering are expensive
So here stands Dimon, who like Janus, the gatekeeper of Rome, now presides over perhaps the most momentous transition in human history. What Dimon decides today will have a huge bearing on the life his grandchildren live in 2050, and the immediate future of the global fossil fuel industry.
Dimon has a choice. He could throw his weight behind a coalition of more than 260 banks known as the Partnership for Carbon Accounting Financials (PCAF) whose mission is nothing less than “facilitating financial industry alignment with the Paris Climate Agreement.” To scientists, activists and policymakers this would and should be a thoughtful and intentional reversal of a centuries-old practice of burning fossil fuels – and a pullback from climate catastrophe.
The think tank Carbon Tracker Initiative goes even further. It warns “that net zero targets are not enough for companies to be aligned with Paris –– they need absolute limits on future emissions and significant interim targets.”
They point out a simple reality: There is a limited remaining carbon budget. That means no new fossil fuel projects are to be built or financed.
The House of Morgan will decide the future of fossil fuel development
Should the House of Morgan side with the PCAF, the fate of the fossil fuel industry will be sealed.
Of course, JPMorgan will not. Dimon and JPMorgan have no choice. They cannot and will not walk away from oil and gas profits.
Dimon and JPMorgan cannot and will not walk away from oil and gas profits.
To do so would present the company, its shareholders and civilization as we know it, with the greatest financial risk ever in the history of banking. You only have to read Carbon Tracker, PRI and Climate Action 100 research on Peak Oil, stranded asset risk and looming accounting and audit issues, to get a sinking feeling the entire banking industry is as dependent on the future of fossil fuel as the oil and gas industry.
In that sense, the war in Ukraine is a godsend. To save democracy, it is now the patriotic duty of the industry to extract as much fossil fuel as it can, and in as short a time as possible.
Drill, baby, drill
Everyone is racing to produce, finance and burn gas, gas and more gas. The industry plans 195 gigantic oil and gas projects that would each result in at least a billion tons of CO2 emissions over their lifetimes, for a total equivalent of about 18 years of current global CO2 emissions. About 60% of these have already started pumping. The dozen biggest oil companies are on track to spend $103 million a day for the rest of the decade exploiting new fields of oil and gas that cannot be burned if global heating is to be limited to well under 2 C.
Even before Ukraine, bankers had been on a six-year credit-fueled bender. Since the Paris Climate Agreement in 2015, the largest banks have invested more than $3.8 trillion into the fossil fuel sector. Last year, the 60 largest banks invested $742 billion in fossil fuels, at the same time that the IEA said that new oil and gas investments need to end for the world to have a chance of meeting global climate goals.
Related story: The Oracle of Omaha refuses to take shareholders seriously
In fact, across the Group of 20 leading industrial and developing nations, banks have $13 trillion of exposure to carbon-intensive sectors, which constitutes 19% of on-balance sheet loans.
But the impact of bank lending on the global economy –– and carbon emissions –– is far greater than just lending to oil companies. A newly released report, The Carbon Bankroll: The Climate Impact and Untapped Power of Corporate Cash, jointly published by the Climate Safe Lending Network (CSLN), The Outdoor Policy Outfit (TOPO), and BankFWD. The report finds that the carbon footprint generated by their investments and cash held in big banks are a significant source, and sometimes their largest source, of emissions. “For some of the world’s largest companies, including Google, Meta, Microsoft, and Salesforce, their cash holdings are their largest source of emissions; increasing total emissions by 91% – 112%, when compared to most recently reported emissions,” says James Vaccaro, executive director of CSLN.
Breaking, not bending the curve
Because fossil fuel projects projects stretch way into the future, they also lock in future emissions trajectories. They do not bend the curve. They blow it up.
But for JPMorgan, and its shareholders, long term concerns about the carbon curve will have to continue to play second fiddle to harvesting revenue from lending and underwriting the fossil fuel industry. By conventional financial standards, to not do so, would be a gross violation of Dimon’s responsibilities to not only JPMorgan’s shareholders but the U.S. economy. According to the American Petroleum Institute, America’s oil and natural gas industry accounts for 8% of the nation’s gross domestic product and 16% of all capital expenditure. Between 2012 and 2016, America’s oil and natural gas industry spent an average of $227 billion investing in America’s infrastructure annually.
Sure, there is a lot of talk of patient money and de-risking large swathes of energy transition pathways. But that is the equivalent of Saudi promises to replace oil by turning its desert into a resort.
The equation for Saudi Arabia and JPMorgan is simple. For Saudi Arabia, and many other fossil fuel producers, it costs almost nothing to finance and pump oil from the ground. For banks financing these projects, the loan amounts are large and the margins are fat. And banks love the ongoing and repeat business of financing emissions.
Reverse that equation, and the results will be catastrophic. Adonis knows this and will continue to throw away good money after bad, via hydrocarbon loans.
It is the path Janus has chosen. The earth be damned.