Opinion

Felix Salmon

JP Morgan still financing mountaintop removal mining

By Felix Salmon
January 14, 2010

In the wake of the publication of an extremely high-impact article in Science magazine which says that mountaintop removal mining has enormous environmental impacts which can’t possibly be mitigated, the campaign against JP Morgan Chase’s financing of such activity is heating up again:

JPMorgan Chase has been funding six of the top eight coal mining companies responsible for mountaintop removal coal mining in the United States. Recently, its investment bank underwrote more than $1 billion in new financing to Massey Energy, the largest mountaintop removal coal mining company.

JPMorgan Chase states that its “environmental goal is to make a positive contribution to sustainable business practices by integrating environmental practices into our business model.” Yet, Massey Energy has a deplorable environmental record, having violated the Clean Water Act no fewer than 4,500 times – resulting in a $30 million fine in 2008.

The practice of mountaintop removal mining is egregious in the extreme: the Economist, for instance, has said that “the underlying question is why America allows this practice at all”. And JP Morgan can’t fall back on the “everybody else is going it” argument: BofA pulled all its financing as long ago as 2008, and Wells Fargo has pulled out as well, leaving the field wide open for JP Morgan — which can either charge monopoly rents for such financing, or can do the right thing and withdraw from the field as well.

It makes financial sense for the likes of Massey Energy to destroy the environment in search of cheap coal. That’s what they do. But it’s not JP Morgan’s job to facilitate such activity, in the US or anywhere else. If they want to stop being perceived as evil banksters, they’d be well advised to get out of this business sharpish.

Comments
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“It makes financial sense for the likes of Massey Energy to destroy the environment in search of cheap coal. That’s what they do.”

It makes financial sense for the likes of JP Morgan Chase to provide financing to companies at a huge profit, irrespective of whether they harm the environment. That is what they do.

Come on Felix, you’re being lazy.

Posted by okobojicat | Report as abusive
 

I second what okobojicat says.

It makes sense to me to say that Massey has a moral obligation to go beyond the law to do what is right, and only pursue (relatively) environmentally responsible means of extracting coal. It makes sense to me, in fact, to say that JPM’s responsibility is less, because its involvement is less direct; one of the main points of a decentralized economy is that we have bounded capacity for gathering and processing information, so to a large extent we take care of our part and leave others responsible for their parts. It does not make sense, then, to say JPM is more morally culpable for something one of its customers is doing than it itself is.

Posted by dWj | Report as abusive
 

J.P. Morgan has a fiduciary responsibility to its shareholders to maximize profit while minimizing risk. There are no statutes in it’s corporate governance regarding environmental conservation. It’s J.P. Morgan’s responsibility to maximize profit, why should it forsake a sector where it can collect “monopoly rents”?

If change is to be effected, shouldn’t the focus of the change be on regulation, not financing?

Posted by Kosta0101 | Report as abusive
 

I normally find myself agreeing with Felix, but today seems odd and I keep seeing things he said that irk me – like this: “It makes financial sense for the likes of Massey Energy to destroy the environment in search of cheap coal. That’s what they do. But it’s not JP Morgan’s job to facilitate such activity”.

Why is it NOT JPM’s job to facilitate such activity, if it earns them a good return on their loan? Again, JP Morgan is not on this earth to make loans to ethical or environmentally responsible businesses, it’s here to make profitable loans (at least in the short term, until they blow up). They have absolutely no obligation to make a distinction between ‘good’ and ‘bad’ activities of potential customers.

That’s how we set up the system. To come in and demand that banks suddenly act in responsible ways, when we didn’t, haven’t, and not looking likely to put in place, incentives and punishments for them to act in responsible ways, is simply wishful thinking!

It’s like me getting mad at my friends who regularly buy bottled water. Well, it’s cheap and convenient, so why shouldn’t she buy it? If we really want to discourage people from buying bottled water, we need to set up a system so bottled water become so expensive monetarily or so despicable socially that people like my friend stop. To simply blame my friend for being indifferent to the environment is a waste of time and energy, while both could be used more wisely.

Posted by jian1312 | Report as abusive
 

If JP Morgan earns net after taxes $20M on their $1B loan to these parasites, but loses $100M because customers abandon them over their short-sighted policy, then they will have violated this fiduciary duty that some of you believe is so black and white.

The fiduciary duty of any corporate officer is to do what’s best for the company. That doesn’t always mean they must maximize short term profits, a colossual mistake demonstrated by many financial firms this past decade (tell me about the fiduciary duties of the CEOs of Lehman, Bear Stearns, AIG< BofA, Citi, etc). No actions by a corporation get executed in a vacuum – they must consider all second order effects of their decisions.

And if you're thinking of questioning my classification of MTR companies as parasites, don't. A parasite is an organism that feeds off a larger one, while giving nothing in return, often to the detriment of the host organism. That is exactly what companies like Massey are – they destroy streams, rivers, lakes, mountains, and communities, sell a product that then distributes mercury and various forms of carbon into the atmosphere, all at great cost to the rest of society, while they get enriched. That's a parasite, and aiding and abetting such a company is not in the fiduciary interests of JPM.

Posted by OnTheTimes | Report as abusive
 

If JP Morgan earns net after taxes $30M on their $1B loan to these parasites, but loses $100M because customers abandon them over their short-sighted policy, then they will have violated this fiduciary duty that some of you believe is so black and white.

The fiduciary duty of any corporate officer is to do what’s best for the company. That doesn’t always mean they must maximize short term profits, a colossual mistake demonstrated by many financial firms this past decade (tell me about the fiduciary duties of the CEOs of Lehman, Bear Stearns, AIG, BofA, Citi, etc., all of whom booked short term profits that were imaginary in the long term). No actions by a corporation get executed in a vacuum – they must consider all second order effects of their decisions, and how customers respond to corporations’ behavior can not be ignored.

And if you’re thinking of questioning my classification of MTR companies as parasites, don’t. A parasite is an organism that feeds off a larger one, while giving nothing in return, often to the detriment of the host organism. That is exactly what companies like Massey are – they destroy streams, rivers, lakes, mountains, and communities, to extract a product that then distributes mercury and various forms of carbon into the atmosphere, all at great cost to the rest of society, while they get enriched. That’s a parasite, and aiding and abetting such a company is not in the fiduciary interests of JPM.

Posted by OnTheTimes | Report as abusive
 

It makes sense for a bank to refuse to do business with a client it does not trust, and to my mind a wide definition of “trust” is appropriate. But to judge the environmental behaviour of a client, or the countries in which it does business or the way it treats its staff (or any number of similar controversial issues)is inviting conflict and problems except in the context of judging if these factors affect the client’s ability to repay envisaged finance. It is for regulators to regulate mining behaviour, not banks.

Posted by RogerS | Report as abusive
 

Well, I closed my credit cards from citibank in response to this news. I hope others do the same. I grew up in coal country where the streams run orange and where industry continues to externalize clean up costs to the taxpayers. JP Morgan shareholders should be shamed and should require environmental responsibilities. After all, if the 2% of freshwater continues to be polluted, none of us will have clean water – and as far as I’m concerned – this is a right for all – we can’t drink money.

Posted by rivers | Report as abusive
 

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