The Wells Fargo (WFC) loan portfolio is heavily exposed to borrowers beset by climate risk; WFC discloses, for example, more than $40 billion of unpaid loan balances relating to properties located in flood zones. Moreover, WFC acknowledges in its 2020 CDP Climate Change questionnaire that “[i]f emerging regulations and policies impact customers' operating environments negatively, the bank could be exposed to revenue erosion which could lead to lower capital ratios through decreased retained earnings or asset quality decay.” Finally, recent movement toward tying bank capital reserve requirements to loan-book climate risk by the European Central Bank and Bank of England affect WFC’s operations in those regions.

WFC is a member of the Net Zero Banking Alliance, for which our CEO committed to align with pathways consistent with a maximum temperature rise of 1.5 degrees Celsius above pre-industrial levels, utilizing decarbonization scenarios from “credible and well-recognized sources.”

However, membership in the Alliance does not necessarily equate with alignment with global climate goals. One of the world’s most credible sources, the IEA, in its NZE scenario, states that “no fossil fuel exploration is required and no new oil and natural gas fields are required beyond those that have already been approved for development.” The UNEP FI Input Paper to the G20 Sustainable Finance Working Group defined credible net zero commitments of financial institutions including: “A financial institution establishing a net-zero commitment should begin aligning with the required assumptions and implications of IPCC 1.5°C no/low overshoot pathways as soon as possible….All no/low overshoot scenarios indicate an immediate reduction in fossil fuels, signalling that investment in new fossil fuel development is not aligned with 1.5°C.” WFC has restricted financing for new coal operations and Arctic drilling, but has no policy to halt financing any new oil and gas exploration and development. WFC is the fourth-highest financier of companies expanding fossil fuels, according to the Banking on Climate Chaos report.

WFC faces two associated problems: first, its prominence in asserting climate leadership flies in the face of its actions, creating reputational risk from accusations of greenwashing; second, in extending loans for projects which are unneeded under the IEA NZE scenario or UNEP FI recommendations, it is loading potentially stranded assets onto its balance sheet. In this regard, investors need to know that WFC’s lending and underwriting policies are consistent with its own net zero commitment.