2010 Goldman Sachs Making Up To $1B Investment in Renewable Energy

Goldman Sachs Environmental Policy Framework

In mid- January (see Bloomberg) Goldman Sachs Group Inc. said that shortages will reappear in the crude oil market as supply fails to keep pace with a recovery in demand. Global oil consumption will return to levels seen before the financial crisis by the third quarter of this year, Goldman analyst Jeffrey Currie said in a presentation in London.  At the same time, projects to bring new oil to consumers are still lagging as a result of the credit crunch, he said. By 2011, the market is back to capacity constraints…The financial crisis created a collapse in company returns which has significantly interrupted the investment phase.”

Goldman Sachs is aggressively seeking market making opportunities in environmental markets. The policy framework that they have laid out explains both their investment strategy and an underlying commitment to protect the environment and indigenous populations. Their specific interests in wind, water, solar, alternative biofuels and sustainable forestry related products are detailed below along with references to existing partnerships and hints of future commitments.

Goldman Sachs “seeks to make a significant positive contribution to climate change, sustainable forestry and ecosystem services through market-based solutions.”

In their own words-  Goldman Sachs’ core competencies include

• Identifying market opportunities,
• Creating efficient market structures,
• Providing liquidity
• Investing capital.

Goldman Sachs will aggressively seek market making and investment opportunities in the environmental markets described below.

• Emissions trading (CO2, SO2),
• Weather derivatives,
• Renewable energy credits, and
• Other climate related commodities

These are Goldman Sachs’ stated objectives:

1. They intend to be  a leading U.S. wind energy developer and generator through their recently acquired subsidiary, Horizon Wind Energy (f.k.a. Zilkha Renewable Energy).
2. They will make available up to $1 billion to invest in renewable energy and energy efficiency projects.
3. They will evaluate opportunities and, where appropriate, encourage the development of and participate in markets for water, biodiversity, forest management, forest-based ecosystems, and other ecosystem features and services.
4. They will continue to devise investment structures for renewable energy and invest alongside our energy clients, such as our wind energy partnership with Shell Wind Energy and our solar energy fund with BP Solar.
5. They will explore investment opportunities in renewable and/or cleaner burning alternative fuels such as renewable diesel (such as our investment in Changing World Technologies), ethanol and biomass.
6. They will seek to make investments in, and create financing structures to assist in the development and commercialization of, other environmentally friendly technologies.

Equator Principles

The Equator Principles serve as a framework for determining, assessing, and managing environmental and social risk in project financing, based on the policies of the World Bank and its private sector arm, the International Finance Corporation. Goldman Sachs will seek to apply the general guidelines to debt and equity underwriting transactions, to the initiation of loans and to investment banking advisory assignments where the use of proceeds is specified to be used for potentially

Goldman Sachs says that they will not knowingly finance

• Any project or initiate loans where the specified use of proceeds would significantly convert or degrade a critical natural habitat.
• Extractive projects or commercial logging in World Heritage sites.ii
• Companies or projects that collude with or are knowingly engaged in illegal logging
• Projects that contravene any relevant international environmental agreement which has been enacted into the law of, or otherwise has the force of law in, the country in which the project is located.

Goldman Sachs prefers to

• Only finance preservation and light, nonextractive use of forest resources for projects in forests whose high conservation values are endangered.iii
• Develop due diligence procedures around key environmental issues for use in evaluating potential financings.
• Protect the highest conservation values in forests with respect to its execution of financings in the logging and forest products industries.
• Use a Forest Stewardship Council or a comparable certification when they finance forestry projects that impact high conservation value forests.
• Examine whether clients process, purchase, or trade wood products from high risk countries and will encourage such clients to have certifiable systems in place to ensure that the wood they process, purchase or trade comes from legal sources.
• Provide training, as appropriate, to our employees on environmental issues and practices.
• Develop training sessions and provide the tools necessary to make informed decisions.
• Finance projects in indigenous areas where free, prior informed consultation results in support of the project by the affected indigenous peoples.