Burying the ESG Fantasy: A Call to Action for Financial Regulators

The Time to Bury the ESG Fantasy Has Come

As the dust settles on the collapse of the Net-Zero Banking Alliance and the Net-Zero Insurance Alliance, one would expect a moment of reflection from major financial institutions. However, instead of a reckoning, we witness a disturbing continuation of a misguided regulatory framework that has been built on a foundation of fiction—specifically, the now-retired climate scenario known as RCP 8.5.

In a decisive move, the international scientific committee responsible for designing climate scenarios for the United Nations declared RCP 8.5 “implausible.” This scenario, once treated as a serious predictor of our climate future, has thankfully been retired from the framework that supports the next Intergovernmental Panel on Climate Change (IPCC) assessment. Yet, despite this clear signal, the machinery of climate regulation continues to hum along, powered by outdated and debunked assumptions.

Just take a look at BlackRock, the world’s largest asset manager and a central player in the ESG narrative. In its 2025 Climate Report, BlackRock still touted RCP 8.5 as a “tough, but plausible” scenario for stress-testing investment portfolios. This is a glaring disconnect from the current scientific consensus, which has deemed such projections not only unrealistic but also harmful in their application to financial decision-making.

The consequences of adhering to these outdated models are stark. Regulatory bodies and financial institutions have been coerced into modeling climate scenarios that are not only improbable but also detrimental to the economic viability of American energy producers. The International Association of Insurance Supervisors even commissioned tools based on RCP 8.5, perpetuating a cycle of financial discrimination against the very industry that underpins energy security.

Moreover, California’s Long-Term Solvency Regulation, which mandates climate stress tests for the next few decades, is built on the same flawed science that the U.N. has now disavowed. This regulatory overreach is not merely an academic concern; it has real implications for the livelihoods of countless workers in the energy sector and the stability of our economy.

The irony here is palpable: while the market shows a clear willingness to back oil and gas investments, with bank lending rising over 20% to reach a staggering $869 billion in 2024, regulatory bodies remain trapped in a parallel universe where fantasy still reigns. This dissonance suggests an alarming level of detachment from economic realities. Financial regulators and ratings agencies seem more inclined to cling to narratives that favor an ideological agenda than to adapt to the genuine dynamics of supply, demand, and technological advancements.

Now is the time for action. Every financial regulator that has relied on RCP 8.5 should formally retract those flawed analyses and disclose the impacts on institutions that have been unjustly penalized based on these dubious scenarios. ESG ratings agencies must clarify which of their methodologies rely on these now-retired models, and to what extent they have influenced capital allocation decisions.

The Federal Reserve bears a significant responsibility in this matter. It must clarify whether its 2026 supervisory stress tests incorporate inputs from the discredited pathway and, if so, suspend those exercises immediately. Additionally, state insurance regulators should pause any climate-related solvency requirements until they can reassess the situation with sound scientific backing.

In conclusion, the death of the Net-Zero Banking Alliance and the Net-Zero Insurance Alliance signals more than just the end of a flawed initiative; it marks a critical juncture for American financial institutions. As we stand on the brink of a new era, it is paramount that we dismantle the outdated regulatory framework fueled by disproven climate scenarios. Let us return to a discipline grounded in reality, where our financial institutions are encouraged to thrive in a marketplace that reflects genuine scientific understanding and economic pragmatism.