Wall Street adds climate change to bottom line
Wall Street now views the color green as something other than money.
In the latest sign that global climate change is becoming a major factor for investors, potentially the largest private takeover in the nation's history has environmentalists' fingerprints all over it.
A consortium of private investors announced Monday they would pay almost $45 billion to acquire TXU Corp., which generates electricity in the state of Texas. What makes the deal more than just another gigantic financial transaction is that the buyers of the company consulted with environmental groups and agreed to sharply scale back plans to build new coal-fired power plants.
"This is a real breakthrough, an indication investors are paying attention to the real financial risk associated with climate change," says Dan Bakal, director of electric power programs at Ceres, a Boston-based environmental group that advises investors controlling $3.7 trillion in assets. "It means Wall Street is really beginning to pay attention."
Wall Street analysts believe the deal could mean that future takeovers will start to factor in the cost of corporate carbon emissions.
This could affect mergers and acquisitions in a broad range of industries, including manufacturing companies, the auto industry, mining companies, and other utilities.
"What it shows is the environment has a much greater presence than in the past and the issue of global warming is under increased scrutiny," says Sam Stovall, chief investment strategist at Standard & Poor's in New York. "These are additional factors that must be addressed in future mergers."
In fact, there are some signs Wall Street is trying to get up to speed as quickly as possible. For the past three years, the World Resources Institute (WRI), an environmental think tank in Washington, D.C., has been working with investment banks and securities firms such as Merrill Lynch, Citigroup, and Goldman Sachs to teach them how to establish their own carbon "footprint" and analyze other companies' emissions.
By calculating the footprint – the amount of greenhouse gases a company pumps into the atmosphere – analysts can begin to forecast the potential risks of climate-change lawsuits and future costs of any greenhouse-gas regulations.
"It's been a slow start, but we have been pleased to see financial institutions begin to grapple with those systems," says Jennifer Layke, deputy director of climate and energy for WRI. "But this is the first time we have seen a set of investors reach out to the environmental community around the terms of a new investment deal."
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