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Has Morgan Stanley Turned its Back on ESG?

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It’s only been a few months since COP29 took place. Since then things have taken a dramatic turn when it comes to the ESG agenda. Just last week Morgan Stanley stated that it is leaving the Net-Zero Banking Alliance. This took place hot on the heels of Citigroup and Bank of America leaving the Alliance. And, in further news, JP Morgan also left the Alliance just yesterday. Has Morgan Stanley turned its back on ESG?

It might have started in Texas. In November last year Attorney General Ken Paxton sued BlackRock, State Street, and Vanguard, for conspiring to artificially constrict the market for coal through anticompetitive trade practices. It wasn’t the first time. It may not be the last time either.

The case focused on how the tactics of the largest three asset managers had led to a rise in the cost of energy for everyday Americans. It was also suggested that the strategy helped the investment companies to produce extraordinary gains. The Attorney General made it very clear that “Texas will not tolerate the illegal weaponization of the financial industry in service of a destructive, politicized ‘environmental’ agenda.”

Larry Fink, Chairman and Chief Executive of BlackRock responded with “[w]e are an active voice, we work with companies, but we need to work for the long-term interest[.]”

It’s not a long-term approach, suing the asset managers, according to some commentators. And it is also hurting pension funds in Texas, at the very least. At the same time, some argue that Texas is a very rich state with a huge budget surplus. How much can these ESG initiatives be harming Texans?

What has been the ESG Strategy of Morgan Stanley so far?

All banks have an ESG strategy. Morgan Stanley is no exception. Sustainable investing, ESG Reports, the company has made a commitment to address climate change. At least that was the case in 2024.

One of the bigger stories from 2024 was about the Series C financing of Datamaran Ltd by Morgan Stanley. The banking giant was attracted to Datamaran because it’s “a market leader in providing technology that enables companies to embed ESG into their business practices.”

Also in September, Morgan Stanley published its ESG Report for 2023. The report highlights how Morgan Stanley is a member of the IFRS Sustainability Alliance and helps monitor the standards being developed by the ISSB. More importantly, the Report reiterates Morgan Stanley’s approach to ESG.

“In 2021, Morgan Stanley set a goal to mobilize $1 trillion for sustainable solutions by 2030, including $750 billion toward low-carbon and green solutions. We have made significant progress, having now achieved over $820 billion.”

Morgan Stanley has a long-term goal of reaching net-zero financed emissions by 2050. This doesn’t appear to have changed.

What Has Happened at the Net-Zero Banking Alliance?

At first glance it doesn’t appear that Morgan Stanley has made any changes in its stance towards ESG. This leads on to the question, what has happened at the Net-Zero Banking Alliance? Or NZBA for short.

Organizations like the IOSCO or IFRS are without doubt market leading membership organizations for investment banks and asset managers alike. But organizations like the NZBA are different. Bank-led and UN-convened, the NZBA is a group of leading global banks committed to aligning their lending investment, and capital markets activities with net-zero greenhouse gas emissions by 2050.

NZBA is the climate accelerators for UN Environmental Programme Finance Initiative’s Principles for Responsible Banking (PRB).  However, the organization has been decidedly silent since October 2024.

In August 2024 there was a change of leadership at the NZBA. At this time the First Abu Dhabi Bank (FAB) became the new Chair of the NZBA Steering Group. The NZBA Chair is selected by the members of the NZBA Steering Group. Ms. Hana Al Rostamani, Group CEO of FAB currently runs the NZBA.

Rostamani was voted the Most Powerful Businesswoman 2024 in the Middle East by Forbes. She is the first female CEO of a U.A.E.-based bank. The only link to some of the banks leaving the NZBA and Rostanami was at the Abu Dhabi Finance Week 2024 which took place in December. Rostanami was a speaker at the event, next to the likes of Jane Fraser of Citi, Georges Elhedery, Group Chief Executive of HSBC, or Clare Woodman, Head of EMEA & CEO, Morgan Stanley.

The event may have been a success, but the NZBA doesn’t seem to have benefitted.

Is ESG still a Priority for Global Systemically Important Banks?

There are no visible cracks in the NZBA. Goldman Sachs, Wells Fargo, Citi, Bank of America, Morgan Stanley and now JP Morgan all left the NZBA since Trump was re-elected. However, there is a further twist to the story.

In 2022 a group of U.S. state attorneys general including from Texas sent civil investigative demands to the six largest banks in the U.S. It was alleged their ESG-related practices hurt the American energy industry. Sound familiar? The Committee on Judiciary at the U.S. Congress wrote to several stakeholders in December 2022 highlighting:

“At its core, ESG is merely partisan politics masquerading as responsible corporate governance. A major ESG ‘policy centerpiece’ is stifling investments in oil and gas, and Wall Street firms have ‘bragg[ed] about their coordinated efforts to choke off investments in energy.’ “

Much of this rhetoric is being generated from republican led states like Texas. And these sentiments were already being used before Trump was re-elected.

There is no doubt that ESG will remain a priority for banks like Morgan Stanley. The question is how Morgan Stanley and others will go about communicating sustainability practices? If what the republicans believe is true and ESG is a political weapon, then regulations may be brought in place by the new administration. Regulations that might stifle the much-needed actions needed to address climate change. Or may create a new framework to compliment existing ones. Its hard to predict.

What about the Net Zero Asset Managers Initiative?

When the Texas State Attorney General sued the asset managers, he implied that their involvement with the Net Zero Asset Managers Initiative was a signal of their mutual intent to reduce the output of coal, increasing the cost of electricity for Americans.

The Net Zero Asset Managers Initiative, similarly to the NZBA, is an international group of asset managers committed to supporting the goal of net zero carbon emissions by 2050 or sooner, and to support investing aligned with net zero emissions by 2050. The initiative is accredited by the United Nations Framework Convention on Climate Change (UNFCC) Race to Zero campaign and co-ordinated by the Institutional Investors Group on Climate Change (IIGCC). An organization that will struggle to make an impact in the U.S. during the next four years.

Much as the NZBA is struggling, the equivalent Asset Management Initiative will also be struggling. And it’s not just Banks and Asset Managers. Even Insurance companies in the U.S. have had to lower their commitment to support global climate initiatives emanating from previous COP events.

Morgan Stanley and others haven’t turned their backs on ESG. They are just walking a tight rope between providing low-cost energy for U.S. citizens whilst looking to the future and protecting the climate. It may well be the case that the new U.S. administration redefines how ESG should be applied to investing. Morgan Stanley has not turned its back on ESG. Nor have the other U.S. banks.

Municipal Bonds in Texas

It appears that following the departure of JP Morgan from the NZBA things have improved for the largest U.S. banks in Texas. The Texas attorney general’s office approves most public bond offerings before they’re able to close, giving Paxton influence over which banks can participate in such transactions. And municipal bonds are a huge market in the U.S., and in Texas returns are strong.

“The NZBA seeks to undermine our vital oil and gas industries, and membership could potentially prevent banks from being able to enter into contracts with Texas governmental entities,” Paxton said.

Who said running a financial institution was easy?

Author: Andy Samu

The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.

See Also:

Morgan Stanley Expands Into China’s Futures Market Amid Rising Global Interest | Disruption Banking

The Future of ESG Investing Under President Trump | Disruption Banking

How can the buy-side be sure of the ESG ratings of their investments? | Disruption Banking

Morgan Stanley Tops Institutional Investors in Asia | Disruption Banking

IOSCO Speaks on it’s Vision for the IFRS Foundation | Disruption Banking

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