Wall Street’s $22 Trillion Carbon Time Bomb

The clock is ticking for banks, insurers and asset managers still providing support to oil, gas and coal producers. It’s not just the moral imperative—that fossil-fuel use is destroying the atmosphere and life on Earth with it. It’s that their financial health requires leaving such companies behind.

According to Moody’s Investors Service, financial institutions in the Group of 20 leading industrial and developing nations have $22 trillion of exposure to carbon-intensive industries. That’s equal to about 20% of their total loans and investments. So unless these firms make a swift shift to climate-friendly financing, they risk reporting losses, Moody’s said.

Banks, insurers and asset managers need to adjust their “business models toward lending and investing in new and developing green infrastructure projects, while supporting corporates in carbon-intensive sectors that are pivoting to low-carbon business models,” the credit-rating company wrote in a report last week. This is how Moody’s breaks it down:

Exposure to Carbon-Intensive Sectors

  • Banks: $13.8 trillion (19% of on-balance sheet loans)
  • Insurers: $1.8 trillion (13% of cash and invested assets)
  • Asset managers: $6.6 trillion (28% of equity holdings)

The warning from Moody’s was followed this week by the European Central Bank, which said most lenders have yet to produce concrete plans showing how they will change their business strategies to account for the climate crisis. While about half of the 112 institutions overseen by the ECB are “contemplating setting exclusion targets for some segments of the market, only a handful of them mention actively planning to steer their portfolios on a Paris-compatible trajectory,” Executive Board member Frank Elderson said in a blog post Nov. 22.