In FORTUNEâ€™s green issue, we named Goldman Sachs the leading investment bank when it comes to the environment. You could argue that several European banks are equally committed to sustainability, or more so, and as we wrapped up the issue, Bank of America announced an impressive $20 billion initiative to support renewable energy and other businesses addressing climate change. A few days later, Merrill Lynch said it would back federal regulation of greenhouse gases. The point is, when it comes to green business, the ground seems to be shifting on Wall Streetâ€”although lots of controversy remains about the big banks’ practices, as weâ€™ll see in a moment.
I donâ€™t claim to be an expert on Goldman. Iâ€™ve kept an eye on the companyâ€™s environmental practices ever since my colleague Pattie Sellers wrote a terrific profile of Hank Paulson, who was then CEO, that focused on his work with The Nature Conservancy (â€œHank Paulsonâ€™s Secret Lifeâ€), where he served as chairman of the board. When Goldman announced a pathbreaking environmental policy in 2005, there was lots of grumbling that this was Paulsonâ€™s pet project, and that he was imposing his own green ethic on the firm. A tiny but noisy mutual fund called the Free Enterprise Action Fund even filed a shareholder resolution, complaining that Paulson was using the investment bank “as a vehicle to promote his personal hobby.”
Not likely. The fact is, today, after Paulson’s departure to become U.S. Treasury secretary, Goldman is more gung-ho about the environment than ever, according to Mark Tercek, who oversees corporate citizenship at the firm. Why? Because the hard-nosed, bottom-line oriented bankers have found that getting ahead of the curve on environmental issues can be good for business. Some examples:
Investments: Goldman, as part of its environmental policy, invested about $1.5 billion in alternative energy and clean technology. It invested in Iogen, which is developing cellulosic ethanol, Horizon Wind Energy, which it now plans to sell at a profit, Sun Edison and First Solar, which are in the solar energy biz, and Nordex, which makes wind turbines. “We were an early mover, so it was a good investment strategy,” Tercek told me.
Research: Beginning in Europe, Goldman asked its research analysts to include environmental, social and governance factors when they analyze companies or industries. Guess what? Clients liked the extra analysis. The ESG research is being extended to the U.S. now. This isn’t a big profit center for Goldman, but the client response was a sign that investors are taking environmental risks and opportunities into account when they decide where to invest their money.
Deals: This is tricky area. Goldman promised in its policy “to take the environmental impacts and practices of our clients and potential clients into consideration as we make business selection decisions.” The policy also says Goldman will encourage clients to be transparent about their environmental impact, and to do business with “appropriate safeguards” in sensitive areas. These criteria could, in theory, stand in the way of winning investment banking deals and, like all bankers, Goldman’s lust for market share.
But it turns out that Goldman’s green cred helped the bank play a key role in a very big deal–the private equity bid for Texas energy company TXU by Kohlberg Kravis and Roberts and Texas Pacific. Goldman’s people were reluctant to discuss their role, because they won’t want to claim credit for the deal, but it appears as if the bank’s reputation and its relationships with environmental groups may have been useful when the private equity firms sought the approval of Environmental Defense and the Natural Resources Defense Council for their bid.
More broadly, though, if Goldman and other big banks like Citigroup and Merrill are going to claim to care about the environment, as they all do, they are going to have to wrestle with some tough questions about what deals to do–and they may even (horror!) have to forego some business.
The most obvious issue? Conventional coal-fired power plants. Last week, the Rainforest Action Network took out a full-page ad in The New York Times asking major financial institutions, including Goldman, Citi and Merrill, to stop investing in new coal-fired plants. Here’s a link to the ad. And here, according to RAN, are the links between Goldman and coal:
Along with WestLB, closed a $1.1 billion syndication on the Longview coal plant financing. Longview is a 600MW supercritical pulverized coal fired project located in Maidsville, West Virginia.
Potential new co-owner of TXU through proposed KKR and Texas Pacific Group buyout. [Note: TXU plans three new coal plants. Until recently, it wanted to build 11.]
Large institutional holder in NRG Energy. As of 2005, NRG had interests in a portfolio of 235 operating generation units at 61 power generation plants, with a total generation capacity of approximately 24,580 megawatts. NRG is the 2nd largest generator in Texas after TXU.
Interestingly, Mark Tercek at Goldman told me he’d met with Mike Brune, who leads RAN. A longtime banker who has been doing corporate citizenship for about a year, Tercek said he has enjoyed meeting with the bank’s critics and learning from them. “We got a lot of great, free advice,” he said. Not that he’s going to take all of it: Goldman isn’t likely to pull out of financing the coal business anytime soon.
Nor, though, is Goldman likely to pull back from its commitment to the environment. The company has set up a small think tank called the Center for Environmental Markets, and it has awarded grants to three very credible research groups–Resources for the Future, the World Resources Institute and the Woods Hole Research Center–to study climate change and forest ecosystems.
Meanwhile, Goldman’s new world headquarters will be a green building, certified by LEED. The bank offers employees who work late rides home in hybrid-electric cars. And when Tercek and I had lunch to talk about the greening of Goldman, we drank bottled water from the bank’s main supplier: Keeper Springs, a firm set up by Robert F. Kennedy Jr. that donates its profits to the Waterkeeper Alliance. Money’s no longer the only green on Wall Street.