HSBC chief Stuart Kirk made a presentation at an investor conference last week, chastising banking regulators for overstating the financial risk of climate change. What was he thinking? As punishment for his heresy, the British bank sent him to a re-education camp.
Mr. Kirk is, or at least was, the bank’s global head of responsible investment. His candid presentation titled “Why Investors Don’t Need to Worry About Climate Risk” understandably caught the eye. We understand why banking regulators and companies hoping to make money from the next tidal wave of climate regulation might be offended by his truth.
But he merely said what many in his industry believe but are too shy to say: climate change poses negligible risk to the global economy and bank balance sheets. Oh, and central bankers are partly to blame for the current economic turmoil because they have focused too much on climate change while ignoring much bigger and more immediate risks like inflation.
“Unsubstantiated, strident, partisan, selfish, and apocalyptic warnings are ALWAYS wrong,” noted one of his slides. He highlighted dizzying quotes from banking potentates such as Mark Carney, the former governor of the Bank of England, who recently said the damage caused by climate change would eclipse the current pain of rising prices. Tell that to the workers struggling with 8% inflation.
If climate change poses such a huge economic threat, Mr. Kirk asked, why have asset prices risen as doomsday warnings have risen? Either the climate risk is negligible, or the climate risk is already in the prices, or all investors are wrong, he said. If you believe the latter, then you don’t believe in markets and shouldn’t regulate them.
He also pointed out that the growth of global GDP in this century will far eclipse the impact of climate change and that humanity will find ways to adapt. Yet he said banks were focusing too much on climate change mitigation, i.e. forcing fueling a transition to green energy, rather than financing adaptation. .
Mr Kirk warned that climate regulations have diverted bank resources away from lending. The Bank of England’s climate stress tests (the results of which are due to be released on Tuesday) are rigged to make bank balance sheets less resilient to changes in climate policy. This allows regulators to justify more aggressive financial regulation to punish fossil fuel investments.
The Financial Times reported on Monday that the content of Mr Kirk’s presentation had been approved internally at the bank. But after a political uproar, HSBC suspended Mr Kirk pending an investigation. CEO Noel Quinn denounced Mr Kirk’s remarks as “inconsistent with HSBC’s strategy”. What a pusillanimous profile.
Kudos to Mr. Kirk for exposing the hubris of regulatory climate emperors even as his superiors recoil in fear.
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Appeared in the print edition of May 24, 2022 under the title “A financier tells truths about the climate”.