Will the Financial Industry Lead the U.S. to Green?


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This seems a bit of an oxymoron. After all, how much can banks contribute to environmental sustainability? Banks do not require a lot of water to operate or release toxic pollutants into the air. To my knowledge the printing of money does not have a large carbon footprint. While banks and all office-based enterprises can be made more energy and paper-efficient, saving significant expense, it won’t save the world.

But in reality the financial industry can have a major impact on global climate change and energy issues by how it finances new projects. Banks provide the capital that every new project or business needs to start and grow. To maximize its payback for money lent or invested and to reduce risk of loss, “green” is being recognized as very important. Several major banks and investment houses are beginning to recognize that investment in green buildings and clean and smarter infrastructure is needed in the U.S. and can result in good returns and low risk of failure. They recognize this as good economics and not being “cool” in any way. A study by AT Kearney showed that between 2008 and 2009 (during the economic crisis), companies that had a sustainability focus (i.e., listed on the Dow Jones Sustainability Index or Goldman Sachs SUSTAIN list) outperformed equivalent companies across the board by 10 to over 25%. That certainly would be preferable companies for financial firms to invest in.

And then there is growing concern about climate change. The banking community is now taking the cue from the overwhelming majority of the scientific community that now believes climate change is real and could potentially do extreme damage to manmade structures and projects. The risks and liability are real. The United Nations Environmental Programme estimated that lost value of buildings and structures because of climate change could total $1 trillion every year by 2040. This is forcing the insurance and banking industries to look into more investments in projects that are less vulnerable to storms, etc. and/or represent positive steps for climate change mitigation.

Finally, many investment houses are beginning to recognize that companies or projects with potential environmental issues represent a major investment repayment risk. Incidents like last year’s BP Deepwater Horizon resulted in reputational issues for the firm, as well as the billions of dollars spent to clean up natural areas and places where people live, work, and play. Companies now realize that the government and the public will expect nothing less than complete restoration of a site to its pre-accident condition, money not withstanding. While BP was flush with cash, most others would have had to declare bankruptcy and not pay back investors. Financial institutions are now including “what if” environmental risk in their calculation of whether to invest or not.

CCES can help your firm develop a viable and recognized sustainability program and can help determine whether projects have potential high climate change risk or not.

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