HSBC is the latest European bank (and Europe’s largest) to join the fight against climate change, announcing recently that it will no longer finance new coal-burning power plants, oil sands projects, or artic drilling. The bank’s executives of course have the moral right to make such a decision, as long as the shareholders agree and want their investment steered away from such projects.
However, such a decision not only breaches the bank’s executives’ legal obligation, their fiduciary duty, to act in the best interest of the shareholders—it is also immoral. It is immoral because it is not in the shareholders’ self-interest: it will harm their flourishing and also prevent everyone else’s.
HSBC’s executives likely did not make the decision with the intent of harming the shareholders and others (at least one would hope so). But they based the decision on some mistaken premises that make it inconsistent with their shareholders’ self-interest and the requirements of human flourishing.
The first mistaken premise is that fossil fuels are destructive and should be abandoned. This is based on the environmentalist argument that the global temperature is dangerously rising and it is caused by increasing CO2 emissions generated by the use of fossil fuels. The questions those embracing this premise fail to ask are: 1) Is the human use of fossil fuels causing dangerous CO2 emissions and global warming? and 2) Do the fossil fuels offer any human benefits, and if yes, what is the balance of their benefits and risks?
The answer to the first question is ‘no.’ Despite the speculative climate models not based on real climate trends, there is no evidence that that man-made CO2 emissions have caused dangerous levels of CO2 or global warming. Actual measurements show that since the industrial revolution, CO2 in the atmosphere has risen from 0.3 to 0.4 percent, and the average global temperature has increased less than one degree Celsius—which has happened many times before the industrial revolution throughout history. (For sources, see The Moral Case for Fossil Fuels by Alex Epstein).
The answer to the second question is yes, and that the human benefits of fossil fuel use outweigh their risks (such as pollution, dangerous CO2 emissions, and the like), as Epstein and others have argued. Plentiful, reliable, and affordable energy—which only the fossil fuels currently provide (see Lawrence Solomon’s analysis of the cost of renewable sources of energy)—is the requirement of human survival and flourishing. HSBC itself has acknowledged that by making an exception to its decision by continuing to finance coal-burning power plants in Bangladesh, Indonesia and Vietnam where many people still don’t have access to electricity.
The second mistaken premise HSBC adopted in its decision to not finance development of fossil fuels is that the bank should appease environmental pressure groups—Greenpeace was cheering HSBC’s decision as a victory—by signaling its climate fighting virtue as opposed to maximizing the long-term returns to its shareholders.
The bank’s executives might have assumed that doing the former will somehow lead to the latter. But conflicting goals cannot be reconciled, and goals not based on facts cannot be achieved.
And whether the bank executives evade the facts or not, they remain unchanged:
- Human flourishing requires cheap, plentiful, and reliable energy.
- Currently, fossil fuels are the only source of such energy.
- There is soaring demand for fossil fuels, to meet the human need for electricity, transportation, and various materials produced from fossil fuels.
- There is profit to be made from financing development of fossil fuels.
- Refusing to finance fossil fuel development means decreased returns to shareholders, particularly if investments are made in the money-losing renewable energy projects instead.
Evading facts and appeasing others is irrational and therefore, immoral. It can only lead to the loss of values, such as loss of profits and share value and loss of benefits of fossil fuels in this case.
Shareholders of HSBC and other banks that make unsound decisions and signal it as a virtue would do well by doing two things: finding other financial institutions that adhere to their fiduciary duty and make rational decisions, wherever they can be found; and supporting such financial institutions in resisting pressure from environmental groups to abandon sound investments.
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