Goldman Sachs announced on Thursday it plans to invest $40 billion of its own and its clients’ money in renewable energy projects over the next decade. The investment bank described the renewable energy sector as one of the biggest profit opportunities, comparing it to technology investments in the 1990s or to investing 10 years ago in fast-growing countries like Brazil, Russia, India and China. “This is another emerging opportunity we think will be quite large,” Stuart Bernstein, head of Goldman’s clean technology and renewables investment banking group told Reuters.
When you read this news, you might be wondering if this is not just a charm offensive, or in other words, an effort by Goldman to rehabilitate its reputation following Greg Smith’s famous New York Times op-ed accusing Goldman in lacking of any “moral fiber.” This might be the case here, but it is almost too easy to just dismiss it as a public relations stunt. Even if you’re not a Goldman’s fan, there are some good reasons why this announcement should be praised and not ridiculed. At the same time, you always need to look at the big picture and when you do, suddenly this step looks more like a lipstick on a Wall-Street pig. So which one is it?
Let’s look first at the reasons why this move should be praised:
1. Goldman has a record of clean energy investments – Goldman is no stranger to clean energy investment, so it isn’t like this announcement is coming out of nowhere. In 2005, Goldman pledged to invest and finance $1 billion of environmentally-friendly projects, which turned eventually into the deployment of $24 billion of financing by the end of 2011. Last year alone, Goldman spent about $5 billion on renewable energy projects. Reading its ESG report you also see that Goldman truly believes that the clean energy sector represents a lucrative investment opportunity right now.
2. The action matters more than the reason – Does it really matter why Goldman plans to invest $40 billion in clean energy? Not really. The investments are all that matter. I’m sure that if you go over the $260 billion invested last year in clean energy you will find many investors with reasons far less noble and yet no one really cares because at the end of the day what we have here is a sector that requires substantial capital investments. Michael Liebreich of Bloomberg New Energy Finance estimated it needs about $600 billion by 2020 and we’re not on track for clean energy to grow in these rates – so can we really be that judgmental about where the money comes from?
3. It provides a good example to Wall Street – Whether we want it or not, the clean energy sector needs Wall Street to generate a systemic change (at least 30 percent in countries’ electricity mix according to Liebreich). So any Wall Street leader that jumps on the clean energy wagon and might attract other investment banks to do the same should be praised.
Now, let’s look at the reasons why this move shouldn’t be praised:
1. Goldman Sachs is still part of the problem, not the solution – Even though this is a positive move, it doesn’t change anything substantial about the way Goldman does business or in its practices, which are dominated by short-termism and are far from promoting sustainable capitalism. In other words, Goldman needs to make a much greater effort to stop being part of the problem and start being part of the solution.
2. Regulation matters even more (or: Goldman supports Romney) – While investments are important to the clean energy sector, it seems that a stable and supportive regulatory environment matters even more. Take for example the Production Tax Credit, which expires at the end of the year. Terry R. Royer, chief executive of a wind-turbine components maker in Illinois, told the Wall Street Journal that failure to extend the tax credit would amount to pulling the rug out from under wind-energy manufacturers.
While President Obama is urging Congress to extend the tax credit, Romney’s campaign, according to the Boston Herald, did not say whether he would support extending the tax credits. “But his economic plan, called Believe in America, mocked Obama’s investment in renewable energy, calling solar and wind “two of the most ballyhooed” forms of alternative fuel,” the Herald reported. Now who is the top contributor to Romney’s campaign? Yes, you got it – Goldman Sachs with $535,080. And it might be that these half million dollars will have more impact on the clean energy sector than the $40 billion in planned investments and probably for the worse.
3. This is far from a challenging goal – Last year Goldman helped finance $4.8 billion in clean technology companies globally, and co-invested more than $500 million in that area. So when Goldman pledges to invest $4 billion for the next ten years, not only that it doesn’t set a high bar, it actually pledges to invest less and not more that it did last year.
So what do you think – should we praise Goldman for the $40 billion in planned investments or not?
Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.