A better shade of green for Wall Street
SARATOGA SPRINGS, N.Y. AND SAN FRANCISCO — Goldman Sachs became the first global investment bank to adopt a comprehensive environmental policy that acknowledges the value of "ecosystem services" last December. This firm, founded in 1869, is one of the oldest and most influential investment banking firms pushing brave new forms of corporate social responsibility.
With its groundbreaking initiative, Goldman Sachs recognizes the fact that we cannot achieve climate stabilization without government regulations to complement individual corporate actions. Today, virtually any company that voluntarily undertakes a transition to renewable energy and other noncarbon energy sources may put itself at a competitive disadvantage within its industry. A number of oil and auto executives have said privately that they can make the transition to clean energy, but they need government to regulate them so they can make the change in lock step with no loss of market share. Others are willing to move forward, sensing opportunity in being greener first.
Owner of more than a few fossil-fuel power plants, Goldman Sachs agreed to publicly report on its efforts to reduce emissions contributing to global climate change while investing $1 billion in renewable energy and efficiency projects. It also plans to fund a new "Center For Environmental Markets" while broadening the application of social and environmental factors into loaning and investment activities.
Why should Wall Street be so concerned about global climate change? Munich Reinsurance, the world's largest reinsurance company, has projected that losses to climate impacts will approximate $300 billion per year over the next two decades. Given the intensifying impacts of an unstable climate, it is obvious to many financial leaders that the ultimate viability of the global economy depends on government intervention to promote the necessary changes in the world's energy infrastructures. If government fails to intervene, insurance losses and defaulted business loans are the ultimate outcome, leading to a very damaging shrinkage of markets for goods and services, especially in developing countries.
Interestingly enough, Goldman Sachs is now pressing the Bush administration to adopt new public policies to respond to the global climate change threat. "It is telling that the first major call for regulation to address the rapidly escalating impacts of climate change is coming from the finance sector," commented Ross Gelbspan, author of the book "The Heat Is On." "Seen in a larger context, it seems that their own strategic needs require banks, insurers, and financial institutions to take a longer view of the health of the capitalist system. Most individual companies, by contrast, are obligated to respond to shorter-term concerns about their quarterly or annual earnings and losses. So it falls to the world's financial institutions to protect the long-term viability of the economy."
There are now many actors on Wall Street recognizing that there is always opportunity where there is risk. Independent rating agencies such as Innovest have already developed risk profiles of multinational corporations based on the carbon content of their products, slowly shifting public and private investments from bad to good environmental corporate actors.
Last week, Boston-based Ceres, a national coalition of investor and environmental groups, released a report on how 100 leading corporations were addressing global climate change. The two top firms across the globe were BP, an oil company also now investing in renewable energy sources in a big way, and DuPont, a chemicals firm that once was considered an enemy to the environment, but which recently announced a 70 percent reduction since 1994 of emissions linked to global climate change.
Once former intangibles (i.e., a cleaner power supply portfolio) become indeed tangible, companies embracing social values can then jump out ahead of their competitors, and green not only the planet, but their clients' long-term financial returns. Instead of environmental concerns representing a drag on potential profits, today's more sophisticated financial sector movers and shakers are discovering that being green is now the smart thing to do for any company betting on the near future of this planet Earth of ours.
Yes, we need Washington to back up the social product innovators, in order to institutionalize reforms to meet society's need for a comprehensive solution to the challenge of global climate change. But in the meantime, Wall Street is shaping the fate of our planet in ways the White House may never be able to do.
• Bruce Piasecki is the author of "Better Products, Better World: How Large Firms Shape The Future," forthcoming in spring 2006. Peter Asmus is a corporate social responsibility specialist.