Contributed by Samuel Furfari © 2023
Professor of energy geopolitics

Silicon Valley Bank went bankrupt because it confused bits with molecules.

But the truth always comes out and this failure is an eye-opener for many operators… including BlackRock.

The bankruptcy of Silicon Valley Bank (SVB) in March 2023, California’s regional bank, shook the entire international banking system. There are fears of a repeat of what happened between 2008 and 2011. In my graphs on energy consumption, I often show the notch in global primary energy consumption formed by this crisis. Yes, crises reduce energy consumption and therefore CO₂ emissions, because 81% of the energy consumed in the world emits this molecule, which has become a pariah, while it constantly leaves our mouths.

The SVB was the start-up bank that, since 1983, has allowed venture capitalists to launch their companies, which, if successful, are bought up by the largest companies. It is certainly a noble and very useful profession. But this “climate bank” was suddenly faced with a rapid decline in deposits as start-ups found it increasingly difficult to secure their cash flow.

The SVB has been proud to support entrepreneurs and high-growth companies that are disrupting traditional sectors, which is expected to accelerate the transition to a fairer and more sustainable world. It has funded entrepreneurs and companies in the technology, life sciences, healthcare and even wine sectors. They have made it clear that their loan portfolio does not match that of banks whose traditional clientele consists of sectors with high CO₂ emissions, such as fossil fuel exploration and production or electricity generation from fossil fuels. In January 2022, the SVB announced its commitment to provide $5 billion in sustainable financing by 2027 to help reduce the temperature increase by 1.5°C. They were convinced that the transition to a low-carbon economy represented an opportunity for the SVB and its clients, for example through loans to finance renewable energy projects and innovative climate technologies, which they finance within their Climate Tech and Sustainability Group.

After 40 years, the mechanism has stalled, for several reasons related to finance, but it seems that the green utopia is another reason. After the digital innovation, the whole of Silicon Valley got caught up in the frenzy of the fight against climate change, thinking that if we could manage immaterial bits, we could manage material molecules, because energy depends on molecules. They also thought they could manage people’s lives, because energy is life. The banks thought it was the same thing, but it is not. Moreover, digital creates, but the fight against climate change punishes and destroys value.

Green Big Brother

SVB was part of the Carbon Disclosure Project’s (CDP) standardized and globally recognized green activities and policies reporting system. They call it “disclosure.”

Founded in 2000, CDP was the first platform to use investor pressure to influence companies to disclose their environmental commitments. The information held by the CDP allows investors, companies, cities and national and regional governments – for a fee – to monitor companies’ commitment to ecological doctrine. This company, which likes to masquerade as a non-profit organisation, is doing exactly what climate scientist Richard Lindzen has been saying for years: “If you control carbon, you control life”.

The CDP company has a budget of €3.4 million for 2021, 42% of which is funded by public bodies. Without knowing it, we are financing organisations with our taxes that are sticking their noses into companies’ business. In the disclosure that the SVB submitted to the CDP in 2022, the word climate appears 275 times in 47 pages of detailed questions. So this Californian bank had all the credit it needed to pass the climate change test.

BlackRock is no longer a green rock

In January 2020, Larry Fink, CEO of BlackRock, the world’s largest asset manager, warned in his traditional annual letter to business leaders that climate risk would change his investment policy. The financial giant wanted to use its power to push companies to fight climate change. The SVB has already done so.

In his 2023 annual letter to investors, the CEO makes a different statement. The word ‘climate’ appears five times, but the word ‘energy’ appears 22 times. BlackRock states that it works with energy companies around the world because they are critical to meeting the energy needs of businesses. To ensure energy price continuity during the transition, BlackRock recognises that fossil fuels, particularly natural gas, will remain important primary energy sources for many years to come. That is why it is also investing in gas pipelines, including in the Middle East, where massive investment in traditional energy is underway.

It is not too late for this financial giant, rationality has returned. The banking system would do well to concentrate on its business and not use its funding and EGS criteria to play politics. There will always be someone who invests in traditional energies because they are essential for the functioning of the economy, for job creation and therefore for social well-being. Whether globally or in the ‘green EU’, wind and solar together account for only 3% of primary energy demand. Assuming, unlikely as it is, that they will be multiplied by five in the foreseeable future, this will mean that 85% of energy will still come from conventional sources. Someone will have to invest in this sector, contrary to what the SVB thought.

Digital depends on bits, energy, climate, sustainable development and our quality of life depend on molecules. And they’re not the same thing at all. We urgently need to stop dreaming that the digital revolution will make the energy transition possible.

Let us hope that the failure of the SVB will not send a shock wave through the global economy like the collapse of Lehman Brothers. Otherwise, by triggering an economic crisis, the energy transition bank will have unwittingly succeeded in reducing global CO2 emissions. I hope there won’t be a second notch in my graph.

Samuel Furfari

See Samuel Furfari’s many books on energy and geopolitics in English and French on Amazon