The Green Machine Rolls Over Washington

Photo: Saul Loeb/AFP/Getty Images
Donald Trump and his EPA Secretary Scott Pruitt have pulled out of the Paris Agreement and are trying to halt the sustainable environment movement. North America’s CEOs and its financial institutions are having none of it.

Upon immediately taking the oath of office, Donald Trump ordered the removal of all climate change material and research from the EPA website. Federal climate plans created under former President Obama, tribal assistance programs and references to international cooperation have been stricken from the site.

Removing the information could provide Trump and Pruitt, a climate change opponent, an opportunity to eliminate funding for programs viewed as incompatible with the administrations “American First” campaign, including programs to keep water in the Great Lakes safe to drink for millions of North Americans.

For Canada, this could potentially slow pro-environment policy should businesses face cost pressures relative to their U.S. competitors. The federal Liberals have already approved the Trans Mountain and Line 3 pipelines. “After these massive approvals, how is it still possible to meet Canada’s already-weak Paris climate commitments?” asked Dale Marshall, National Program Manager of the Environmental Defense Canada.

Canada may continue to acquiesce on environmental policy in order to curry favour with the U.S. on upcoming NAFTA renegotiations.

Yet the alarm bells on climate change continue to ring and the rest of the world is responding. China and India, two countries in a race to modernize their large and impoverished populations, demonstrated this in their decision to support the reforms at COP21. China alone is projected to spend $360 billion in renewables between 2016-2020.

Paul Fisher, the recently retired deputy head of the Bank of England, suggested in October of 2016 that climate change could spark the world’s next financial crisis. As Fisher pointed out, the cost to adapting if global warming is not checked will be enormous and would trigger a “system-wide repricing of assets” that could occur suddenly.

Meanwhile, back in North America two business behemoths have decided to push forward on climate change regardless of changing political winds. Bill Gates and Mark Zuckerberg have combined, along with other high-profile entrepreneurs to create The Breakthrough Energy Coalition, an investment vehicle designed to create a “new economic revolution”. Their efforts have created a wave of momentum in investing in clean energy.

Financial Institutions Respond

Financial institutions are joining to growing chorus and they are responding with vast sums of capital. From lower risk funds (pension plans) to higher risk funds (venture capital funds) and all sources of capital in-between money is pouring into companies, technologies and infrastructure assets that promote a clean and sustainable environment.

Undeterred by Trump’s anti-climate change rhetoric, financial institutions not only see an opportunity to influence improvements in environmental conditions but also an opportunity to enhance investment returns.

The Forum for Sustainable and Responsible Investment estimates that in the U.S. one out every five dollars under professional management was invested in SRI or sustainable and responsible investing. That is the equivalent of $8.7 trillion and that figure is growing at 33% based on 2014-2016 average growth rates.

Growth should continue. Various studies, including the 2015 report by the Hong Kong University of Science and Technology, suggest sustainability-themed investments perform as good, if not better, than investments without a sustainability commitment.

North America’s financial institutions clearly understand the opportunity in sustainability-themed investments. Here are some of the key North American financial institutions, and recent investments taking place, supporting sustainable environment investing:

Pension Funds

In January 2017, the New York State Common Retirement Fund (CRF), the third largest pension fund in the U.S. with $185 billion in assets, joined the Portfolio Decarbonization Coalition (PDC). The PDC is a coalition of 28 members with over $3 trillion in assets and who have pledged to gradually decarbonize a total of $600 billion of assets by designing investment portfolios with a smaller climate change impact.

In Canada, two recent investments took place. Labourers Pension Fund of Central and Eastern Canada (LiUNA), a multi-employer fund with $6 billion in assets under management agreed to invest up to $200 million in NRStor Inc., a Canadian company developing projects including large-scale compressed air storage and commercial and industrial battery applications that allow companies to reduce expensive peak-hour use.

“We believe energy storage is a key enabler of our future energy system, and welcome the opportunity to invest capital into low-carbon assets on behalf of our pension fund.” commented LiUNA International Vice-President Joe Mancinelli at the time of transaction.

The Caisse de depot et placement du Quebec invested $700 million for a 30 per cent stake in General Electric’s Water & Process Technologies business, a company that provides equipment, chemicals and services for the treatment of waste water in 130 countries.

Banks

Goldman Sachs has announced plans to spend $150 billion in clean energy investments over the next decade. In a report released this past fall it announced that $41 billion had already been invested in 89 companies, generating 31 gigawatts of clean energy, employed more than 129,000 people and created $41 billion in revenue in the last year.

Morgan Stanley continues to drive forward its Institute for Sustainable Investing. Its goal has been to channel investments toward companies that address environmental, social and governance challenges. The Institute was launched in 2013 with a goal of getting a minimum of $10 billion of client assets into its Investing with Impact Portfolio by 2018. This past fall it announced it had reached $6 billion.

TD Bank established the green bond market in Canada in 2014 and continues to rive the market today. In the fall of 2016 it completed a $500 million green bond issue for the World Bank to support the financing of global climate action. TD has also been active in local green bond financings including CoPower and Ontario infrastructure financing. Moody’s Investors Services found that global green bond issuance hit a record of $93 billion in 2016. It expects this number to reach over $200 billion in 2017. This sub-sector of the capital markets should continue to be a growth opportunity for TD and Canada’s major banks.

Mutual Funds

In December 2016, Eaton Vance, one of the world’s largest mutual fund companies with over $300 billion in assets, purchased Calvert Investments. Calvert is considered one of North America’s leading sustainable environment focused mutual fund companies with over $12 billion in assets. The deal was a clear signal by Eaton Vance that is sees significant potential in the sector and the ability to create scale. Other major mutual fund players including Blackrock and Vanguard are increasing their exposure to sustainable environment investing by adding new products for their customers. In Canada, the sustainable environment mutual fund industry remains relatively nascent. Yet with recent trends in the U.S. there is undoubtedly a bigger spillover into the Canadian mutual fund market in the near future.

Family Offices

Perhaps one of the biggest proponents and sources of capital for the sustainable environment movement is coming from the family office model. CREO (Cleantech, Renewable Energy and Environmental Opportunities) is a U.S. based network of family offices and high-net worth individuals with more than $80 billion in investable capital. To date CREO has invested over $3 billion in clean energy and environment focused investments and it continues to aggressively drive institutional scale family office investments in the sector. High profile families including the Rockefeller family and the Grantham family made headlines in 2016 for their financial commitments to sustainable environment investing.

Venture Capital

In December 2016, the Bill Gates and Mark Zuckerberg lead Breakthrough Energy Coalition launched the Breakthrough Energy Ventures Fund with seed capital of $1 billion. The funds goal is to bring new zero-emissions energy technologies to market and is structured in partnership with government research agencies around the world. Key financial backers include Jeff Bezos, Michael Bloomberg, Vinod Khosla and Richard Branson. Other venture capital groups, including Silver Lake Partners, one of the worlds largest venture capital firms with $24 billion in assets, continues to their expand sustainable environment investing platforms.

In Canada, the venture capital community commitment to sustainable environment investing continues to grow. In November 2016, the BDC announced the launch of a $135 million venture capital fund to support Canadian energy and cleantech start-up businesses with global potential. Industry leaders including ArcTern Ventures and Sustainable Development Technology Canada also pushed the agenda forward, making numerous investments and continuing to expand the push for more funds committed to Canadian clean tech funding.

The Canadian federal government is also stepping up its game. Despite criticism for recent pipeline approvals and delays in nature protection policies the Canadian federal government is also upping the ante. In the recent 2017 federal budget, the government announced a commitment to spend $2.4 billion over four years to support Canada’s clean technology industry. In addition, it committed to spend a further $20 billion over eleven years in green infrastructure development.

Rolling Forward

Donald Trump and EPA Secretary Scott Pruitt are waging war on the environment. Their attempts to silence climate change research and redact objective data are well underway. Yet both men fail at appreciating that one of the combatants on the other side of this war is perhaps the biggest and most powerful sector in the world, the financial sector. Across the board every risk level of financial capital is increasing its investments in a sustainable environment. The almighty dollar is speaking and Trump and Pruitt are not listening. It’s unknown how long this war will last. But based on the scale of the investment capital, and the influence of the people spending that capital, one thing seems certain – Trump and Pruitt are likely to get run over by the green machine.