Banks Commit Billions to Clean Energy

(Image via Goldman Sachs)

As renewable energy integration continues to decrease in cost and commercialize, consumers are synchronously adopting new energy technologies. Financial institutions are also investing in the next generation of energy in an attempt to stay ahead of the curve. Taking into account that investments in clean energy often provide positive returns, major financial players such as JPMorgan Chase and Wells Fargo are now setting their sights on a sector they consider to have a strong, financially productive future. Citi has also projected the solar industry will grow 65% more than what is predicted by the International Energy Agency (“IEA”). Even with the IEA’s conservative estimates, studies still suggest that between now and 2040, global investments in renewable power will total $7 trillion, accounting for 60% of all new power plant investments. This unprecedented growth makes it abundantly clear why the financial sector is now strategically planning to accommodate to a clean energy economy. Financial giants such as Morgan Stanley, Bank of America, JPMorgan Chase, Goldman Sachs, Citi, and Wells Fargo rendered a joint statement in support of reaching a global climate agreement. The statement titled, “In Support of Prosperity and Growth” suggested that these financial overlords have not only proclaimed their backing of renewable energy projects, but are also dedicating hundreds of billions of dollars to ensure they have a stake in what they consider to be the “inevitable proliferation of clean energy technology.” Clearly, these financial firms are dedicating significant expenditures towards clean energy in an effort to proactively seize the opportunity that the disruptive, yet innovative renewable energy sector provides. Citi announced its goal of allocating $100 billion to clean energy financing over the next 10 years while Bank of America also announced plans to invest $125 billion over the next decade to “low carbon business.” Additionally, overseas banks have conducted studies that illustrate trending appeal in new age, clean energy financing. Goldman Sachs, for example, has shattered its targets, setting and exceeding their own expectations for clean energy investments. After setting a $40 billion, 10-year target in 2012, the company invested $10 billion over the course of one year and reached $37 billion by 2014. Currently, Goldman Sachs has expanded its clean energy investment target to $150 billion in lending and investment over the next 10 years. From an outside perspective, it doesn’t appear that Goldman Sachs’ sole motive is for a reputational gain, rather it’s also due to the fact financial forecasts continue to recognize the enormous earning potential that the transformative clean energy industry will likely usher. In a surprise to no one, head of Goldman Sachs’ Environmental Markets, Kyung-Ah Park, said in an interview with GreenBiz, “We are not a philanthropic organization….We are doing this for commercial purposes, to serve our clients." Evidently, Goldman Sachs wants to reap profits however it can, right? No way! Apparently the company views renewable energy as a “nascent industry” that can provide reliable returns while concurrently improving its internationally recognized presence.

As of late, the gravitation of banks and financial institutions towards clean energy investments has sent clear signals to markets around the world, adding tremendous momentum to the global climate action efforts. The parties fostering the transition and deploying clean energy infrastructure, are continuing to attract these large firms by illustrating the promising future for the renewable energy sector. As stated above, Goldman Sachs, one of the most profitable firms on the planet, has hopped on board with the environmental movement after acknowledging this rare opportunity to make responsible and profitable investments through climate change initiatives. In the company’s new policy framework Goldman Sachs states,

“Goldman Sachs acknowledges the scientific consensus, led by the Intergovernmental Panel on Climate Change, that climate change is a reality and that human activities are responsible for increasing concentrations of greenhouse gases in the Earth’s atmosphere.” Beyond the company’s realization that burning “brown” fossil fuels is causing enormous threats to the Earth’s ecosystems, it seems as though they would also benefit by positioning themselves center stage in the clean energy investment trend, while concurrently aiding in the prevention of of planetary catastrophe. Undoubtedly, these targets serve as momentum for clean energy financing as the trend continues to ascend. Earlier this year, the White House convened investors, businesses, non-profits and philanthropists for the Clean Energy Investment Summit, in an attempt to advance financing for the development of clean energy projects. Supplementary to this, a group of long- term investors committed to forming the Aligned Intermediary, a group whose mission is to stimulate further investment solutions for climate change mitigation efforts.

Directed by Peter Davidson, former Head of the Department of Energy’s loan program, this particular coalition of investors, businesses, and nonprofits will certainly discover new-age methods for making clean energy investments a much more streamlined process. The group of investors and stakeholders seeks to organize an array of investing entities, clean energy organizations, and state-of-the-art innovations in hopes of one day fostering an ecosystem that cultivates connections between financiers, developers, and entrepreneurs.

Recently, Citi generated a report that highlighted the need to reform financial vehicles for energy, efficiency, and renewable energy investments. In doing so, it demonstrated that the White House’s initiative has accurately addressed the inevitable challenges that will be faced by transitioning to a renewable energy industry. As a result, Aligned Intermediary is now collaborating to generate new ways to break down the barriers and clear the way for clean energy investments on both the construction and innovation fronts. With financial powerhouses now acknowledging the need to mitigate climate disasters as well as the enormous opportunity for economic development posed by the renewable energy industry, all of the big dogs are lining up, ready to invest. Strategically speaking, in order to effectively deploy this new capital into the emerging clean-tech sector, banks must distribute a mix of investments and loans to start-up companies and well established firms seeking to conduct research and development, scale-up, and deploy grid integrated technologies. In doing so, this avenue of new age investing will appear exponentially more viable for aspiring contributors.

While various government initiatives attempt to pave the way for the clean energy industry, the financial sector is also collectively calling for climate action. Numerous firms have consistently exceeded investment targets making it seem as though the proactive buy-in by the world's most powerful financial institutions can surely lay the first stone for the accelerated financing and innovation for the future of clean energy solutions.