Monday, July 24, 2006

Responsible Investing: Goldman Sachs remains firmly in the green

Greenwire reported that since Goldman Sachs announced the banking industry's most aggressive environmental policy less than a year ago,it has invested more than $1.5 billion in renewable energy and energy efficiency projects:

... And with big plans to become a major liquidity provider in emerging energy markets, reduce its carbon footprint and support a federal emissions cap-and-trade regime, Goldman appears to be just warming up.

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Wall Street is watching closely just how far Goldman's new Chairman and CEO Lloyd Blankfein will take the world's largest investment bank in an unprecedented green direction. While environmental and free-market advocates are divided whether Goldman should stay the course and whether other investment banks should follow, Goldman's most recent investments are clearly in the black. For the second quarter that ended May 26, Goldman reported net earnings of $2.3 billion, up from $865 million in the year-earlier quarter, but off slightly from a record first quarter.

The strong performance this year puts Goldman first in worldwide announced and completed mergers and acquisitions; equity and related offerings; public common stock offerings and initial public offerings, according the New York-based firm. Investment banking produced net revenues of more than $1.5 billion last quarter, Goldman's best quarterly performance in six years, according to the company's balance sheet. Net revenues from the firm's Trading and Principal Investments unit, which reflects a slew of investments in alternative energy companies, were $6.96 billion -- up a robust $4.15 billion from the year-earlier quarter. Also notable, net revenues from the firm's Fixed Income, Currency and Commodities trading unit soared to a record $4.3 billion, up 15 percent from the previous record level set in the first quarter of 2005. Revenues from the unit were boosted by a $700 million gain from the sale of East Coast Power LLC, which operates a 940 megawatt gas cogeneration power plant in Linden, N.J. Goldman still has major stakes in more than two-dozen power-producing entities and operates an energy-trading unit, spurring the online magazine Slate to ask whether Goldman was "the new Enron."

....The firm, which is the nation's second-largest U.S. securities firm by market value, can inflame market passions easily. Such was the case last November when Goldman published its environmental policy framework that said the company would invest up to $1 billion in renewable energy and energy-efficiency projects, as well as encourage its employees and clients to promote activities that guard against climate change and environmental degradation. The policy followed a media campaign by the Rainforest Action Network to persuade Goldman and other large investment banks to develop comprehensive environmental policies. A mere eight months after unveiling its sustainability manifesto, Goldman has invested upwards of $1.5 billion in such projects, confirmed Lucas van Praag, a managing director with Goldman and head of its global corporate communications. "We saw opportunity beyond the $1 billion, so we pursued it," added van Praag, who would not specify which investments for competitive reasons.  What is clear is Goldman has invested heavily during the past year in wind farms, biofuels and solar energy.

<>....Just months before unveiling its environmental policy, Goldman announced plans to buy Houston-based Zilkha Renewable Energy, one of the nation's largest wind-energy developers. Zilkha -- renamed Horizon Wind Energy after the deal closed last summer -- owns, builds and operates a turbine portfolio of about 4,000 megawatts. Earlier this month, Idaho Power picked Horizon to build a 66 MW wind farm in Oregon. At the same time, Horizon said it had begun construction of a 400 MW wind farm in Illinois. Both projects are expected to come online next year, according to Horizon. The Horizon announcements come as the wind energy industry is on track this year to install a record 3,000 MW -- enough electricity for approximately 600,000 homes -- according to the American Wind Energy Association, an industry trade group.

<>Goldman is also investing in solar energy...Goldman was the lead investor in a $26 million private equity round of investment completed last month for SunEdison LLC, a Baltimore-based company that designs, installs and finances solar photovoltaic systems for large commercial customers. The investment round came almost a year after SunEdison announced a $60 million fund, financed by Goldman and Hudson Bank United, to oversee BP Solar's installation of photovoltaic systems atop Whole Foods Market and Staples Inc. stores. In announcing the most recent partnership, SunEdison CEO Jigar Shah hailed Goldman as no less than "Wall Street's leader in alternative energy investing." Securing an equity partnership with Goldman Sachs ... speaks volumes about the strength of our energy offerings and Goldman Sachs' commitment to the sector," Jigar added.

Like wind energy, the solar power industry is enjoying rapid growth.  The market for all solar technologies, including photovoltaic, space heating and pool heating, grew from 34,000 installations in 1998 to 67,000 in 2005, according to the Solar Electric Industries Association, an industry trade group. Photovoltaic installations, alone, grew at an average rate of 52 percent annually during the past five years.

<>Perhaps Goldman's biggest roll of the dice is in cellulosic ethanol, a not-yet-commercialized fuel derived from woody biomass. In May, Goldman became the first major Wall Street firm to invest in the technology. Goldman sunk more than $26 million in Iogen Corp., an Ottawa-based company that operates the world's first and only demonstration facility that converts straw, corn stalks, switchgrass and other agricultural materials to ethanol. Goldman's investment gives the company a minority stake in privately held Iogen, which will use the money to accelerate its plans to commercialize its ethanol, said Tania Glithero, Iogen's marketing and communications manager.  Iogen hopes to break ground on North America's first commercial cellulosic ethanol plant next year. Locations for the refinery have been narrowed to two sites amid Canada's wheat belt and a site in southern Idaho, Glithero said. While not sold yet at a single pump, cellulosic ethanol is the subject of considerable buzz in the United States. In his 2006 State of the Union address, Bush praised the fuel's potential to curb the nation's addiction to foreign oil. A joint study by the departments of Agriculture and Energy concludes that U.S. biomass feedstocks could produce enough ethanol to displace 30 percent of the nation's gasoline consumption.

Outside the realm of investing, Goldman's environmental policy commits the firm to walk a fine green line with its clients. By promoting business activities that guard against climate change and environmental degradation, Goldman says it would not outright reject clients that engage in questionable environmental practices. Instead, the investment firm will analyze how and where clients get their raw materials, as well as encourage clients to offer "full disclosure" with respect to the environmental effects, company officials have said. Externally, Goldman said it supports federal government policies that create long-term value for greenhouse gas emissions reductions and new technologies. "Voluntary action alone cannot solve the climate change problem," the document concluded.

 

Internally, Goldman vowed to cut its indirect greenhouse gas emissions by 7 percent from its leased and owned offices by 2012, using 2005 as a baseline. To that end, the company is building a global headquarters in Lower Manhattan that is designed to achieve gold LEED (Leadership in Energy & Environmental Design) certification from the U.S. Green Building Council. Goldman is striving for LEED Gold certification for all of its renovation and construction projects, according to the policy.

<>Goldman's stance on climate change is what sets the firm's policy apart from environmental policies promulgated by Citigroup, Lehman Bros. and other large financial institutions, said John Sohn, a senior associate with the World Resources Institute.
"They've gone the extra step to say that to solve this issue, we need a federal market-based cap-and-trade system," added Sohn, who helped Goldman develop its policy. "Clearly, that sends a signal to other investment banks that this is an important issue."

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