The six biggest banks in the United States are running for the hills and away from environmental and other ESG commitments as the Trump presidency takes shape and the Republican-controlled House and Senate resume business on Capitol Hill.

JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs quit the global banking industry’s net zero target-setting group, while the world’s biggest investment manager, Blackrock, quickly followed with the announcement it had left the Net Zero Asset Managers Initiative (NZAMI).

Ironically, this has unfolded against the backdrop of tragedy and loss unleashed by the unseasonal and devastating fires in the midst of the Los Angeles winter. It’s a disaster that has levelled communities and also any perception that anyone, including the most privileged among us, is guaranteed immunity from extreme weather events that are increasing in both intensity and frequency as we globally record the hottest, months, years and decades on record. 

Blackrock founder, Larry Fink, led the charge in advocating responsible investment, so his firm’s public about face of NZAMI could be alarming – but only if Blackrock’s actions and portfolio management align with its PR. 

A letter advising clients of its withdrawal from NZAMI, signed by BlackRock Vice Chairman Philipp Hildebrand and Global Head of Sustainable and Transition Solutions Helen Lees-Jones, said that the “departure doesn’t change the way we develop products and solutions for clients or how we manage their portfolios.”

Effectively, this letter confirms that Blackrock is a chameleon, its PR change colour to blend in against the political landscape of the day. Likewise the banks, which have maintained their individual financed emissions reduction targets despite their recent announcement.

US finance is both ensuring its alignment to any potential windfall gains from the ‘drill baby drill’ President’s policies, while shoring up defences against the anticipated right-wing backlash against climate action and ‘wokeness’ – principally ‘DEI’ (diversity, equality, inclusion) policies and practice.

But Los Angeles reminds us that nature and science will ultimately render ideology and PR irrelevant, even for the most powerful financial institutions on the planet. Banks, asset managers and, in particular, insurance underwriters are already factoring climate risk into their actuarial calculations and portfolio construction methods.

This is driving substantial shifts for all of us. Already, some of us are unable to insure property at affordable premiums, if we can insure them at all.

The implications for government and its long-suffering taxpayers are enormous. In the absence and/or inadequacy of private insurance, the cost of providing financial safety nets for disaster-struck communities is falling on federal and state governments. Local governments and utilities are picking up the tab for infrastructure restoration and local emergency support services.

Look no further than the energy sector to see the transfer of climate risk from the private into the public sector, as companies reassess the financial risk associated with climate change and decarbonisation. In the heady days of neo-liberalism through the 1980s, Victoria’s energy sector was privatised by the Kennett government. The private sector piled into facilities in Latrobe Valley and pole and wire distribution networks.

Now, private enterprise is in retreat, deserting power plants past their use-by date and unwilling to invest in new fossil fuel generation. In New South Wales, AGL resisted enormous political pressure to extend the life of its coal-fired Liddell plant in the Hunter Valley and is proceeding with its demolition this year.

Calculations of climate risk in the private sector are transforming the political landscape, even ideology. Former champions of neo-liberalism are now effectively converts to nationalisation and state ownership, exhorting taxpayers to stump up for publicly owned nuclear generators.

At time of writing, the Los Angeles damage bill was estimated to be in the range US$135 -$150 billion. According to trade journal, Insurance Business, insurers are expecting to pick up the tab for approximately $50 billion. Will it be the public treasury that will cover the US$100 billion gap?

It’s a question and context worth pondering as we consider the return on our investment of hundreds of billions in the transition to a net zero economy.

The cost of transition is the premium we will have to pay to hedge against more catastrophic financial and community consequences of climate inaction and its impact on future generations.