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Goldman Sachs ends some fossil-fuel funding, ups clean energy target to $150B

Goldman Sachs Group Inc. has pledged to cut off funding for certain new fossil fuel-related projects, facilitate another $110 billion in clean energy solutions by 2025, and seek out additional financing options to address the physical impacts of climate change. But the investment banking and management firm stopped short of pledging to pull funding for or divest from coal mining, oil and gas companies or the electric utilities that invest heavily in coal-fired generation.

Major financial firms and asset managers such as Goldman Sachs have come under pressure from environmental groups to end their financing for and investments in fossil fuels in order to speed up worldwide decarbonization and slow the pace of global warming.

"We recognize that we have an impact on the environment through our operations, our investments, and the production and services we finance on behalf of our clients," Goldman Sachs said in an updated environmental policy framework it released Dec. 15. The firm also said it believes that capital markets should play a role in addressing climate change.

That said, Goldman Sachs Chairman and CEO David Solomon in a Dec. 15 editorial in the Financial Times also noted that "profitability will always matter — capital must be deployed to those opportunities that have the greatest potential for success, and we must generate strong returns on invested capital to serve those saving for retirement. ... Finance must also address climate transition and inclusive growth while achieving and sustaining those returns."

The firm's framework largely focused on plans for future environmentally-friendly investments, and Goldman Sachs has targeted $750 billion in related financing, investing and advisory activity over the next 10 years. The paper also calls for applying "enhanced due diligence" for carbon-intensive energy sectors, including by pressing companies to support the global low-carbon transition or to diversify their portfolios.

In addition, Goldman Sachs pledged to stop financing transactions that directly support the development of coal-fired power plants, unless those projects have carbon capture and storage technologies. Moreover, Goldman Sachs will not finance any new thermal coal mine developments or mountaintop removal mining, nor new oil development in the Arctic Circle, including projects in the Arctic National Wildlife Refuge.

However, the firm will not at this time stop funding coal-mining companies, though it may do so in the future for companies that do not have a diversification strategy, the document stated.

Goldman Sachs also expanded its clean energy financing target from $40 billion to $150 billion by 2025 and noted that the firm has already helped provide $37 billion in such financing. As part of that goal, Goldman Sachs is launching an initiative aimed at getting lower-carbon technologies such as rooftop solar and clean cookstoves to underserved markets. The firm has also set a goal of helping to facilitate $500 million in financing and co-investments in grid modernization technologies.

Noting that "effective management of catastrophic risk relating to weather extremes has become increasingly important for our clients," Goldman Sachs talked about the ways in which it will help clients address their financial exposure to the physical impacts of climate change such as extreme storms.

The firm has structured over $14 billion in weather-related catastrophe bonds since 2006. Catastrophe bonds are generally used by the insurance industry to transfer some of the financial risks of extreme events, such as hurricanes, to investors.

Goldman Sachs is looking to establish partnerships to "develop new models for catastrophe bonds that can better evaluate the benefits of increased investments," said the paper. Flood barriers and stormwater detention structures, for example, can improve the ability to withstand extreme weather events, "which in turn could potentially be factored into the pricing and financial return models for catastrophe bonds," Goldman Sachs said.

As for its own climate risks, Goldman Sachs committed to analyzing the firm's carbon footprint across all of its equity business and asset management services and said it will facilitate $2 billion in green operational investments internally by 2020.

Goldman Sachs' environmental policy framework also outlined the need for more water-related investments. "Water scarcity and lack of access to clean water pose significant challenges around the world," the framework said. "These challenges are exacerbated by climate change, urbanization and population growth."

In addition, Goldman Sachs aims to facilitate private capital funding for water infrastructure investments, including through public-private partnerships. And the firm will look for opportunities to invest or co-invest in technologies that improve the efficiency of water delivery, recycling and to enhance wastewater management, it said.