TCI and Goldman Sachs use power to advocate against climate change
I am so excited to have been reading about several financial big influential financial institutions taking positive action towards supporting the fight against climate change.
TCI Hedge Fund
First, I applaud TCI, an activist hedge fund which manages assets worth $28bn (€25bn), for taking action and publicly speaking out against companies and directors who are not taking the necessary action or responsibility to combat climate change. Using the power of your vote as a shareholder to force change, is something I strongly believe in and more shareholders should use this opportunity now rather than later.
TCI has sent letters to several companies such as Airbus and Alphabet (Google's parent company) to require disclosure of the company's climate actions, an action plan to reduce the GHG emissions by 2050 amongst other things. All of these letters have been made public on their website and you can find them here. Each letter is personally addressed to each company with clear expectations from their end, I recommend reading them as they contain some interesting information.
The hedge fund also warned it would vote against auditors where the annual report and accounts failed to report material climate risks. It threatened to dump investments where a “portfolio company refuses to disclose emissions and does not have a credible plan for their reduction”.
Goldman, on the other hand, has tightened its policy on fossil fuel financing.
They also recently updated their environmental policy framework which includes pledges to decline financing that directly supports new thermal coal mines and upstream Arctic oil exploration and development. The company is targeting $750 billion for “climate transition and inclusive growth finance” over the next decade, according to its website.
An increasing number of global banks have been reducing their lending to the coal industry, a leading contributor to greenhouse gas emissions, and increasing financing for renewable energy.
The Rainforest Action Network and the Sierra Club said that the revisions on fossil fuel financing make Goldman’s policy
“now the strongest among the big six U.S. banks,” while still behind those of European lenders including Credit Agricole SA and BNP Paribas SA. The move to rule out Arctic oil projects marks “a crucial first step, among U.S. banks, on ending financing expansion of oil and gas,”
the groups said in a joint statement.
Goldman’s new policy also included pledges to:
decline financing projects of new coal-fired power plants in developing nations - a commitment that previously only applied to the U.S. and developed countries - unless they have carbon capture and storage or equivalent emissions reduction technology;
engage with thermal coal mining companies on their plans to diversify away from the fossil fuel, and phase out financing for any that don’t have such strategies “within a reasonable timeframe.”
Solomon also urged governments to create a mechanism for putting a price on the cost of carbon - something that the officials in Madrid failed to do.
Still, he added that “the world will continue to produce and use fossil-based fuels, aeroplanes, cars and industrial goods, and Goldman Sachs will continue to support clients in transactions that are important to economic activity.”
Crédit Agricole and Prada
A little bit older news but not less important, the luxury brand Prada has signed a $50 million loan with banking group Crédit Agricole, with repayment terms conditional to meeting key targets around the sustainability of its products and operations.
According to Prada – which also owns subsidiary brand Miu Miu – this marks the first time that a luxury brand has procured a sustainability-linked loan.
In these transactions, the lender's meeting of certain social and environmental goals is incentivised through the favourable or unfavourable adjustment of interest rates.
In this case, that means Prada's interest payments on the 5-year loan will be determined annually based on whether the company has hit 3 specific objectives:
1. Physical shops: a certain number of them need to be certified gold or platinum according to the green-building rating system Leadership in Energy and Environmental Design (LEED). This takes into considerations everything from the design and construction of a building to its management and the extent to which it uses resources and produces waste.
2. Training hours given to employees.
3. Phase-out the use of virgin nylon by 2021 an transfer to Econyl, an infinitely recyclable yarn made from regenerated plastic waste.
The exact numbers that need to be hit are not fixed but will become increasingly more demanding as the company's green capabilities increase.
According to Prada's chief financial officer Alessandra Cozzani, linking more sustainable business practices to concrete financial rewards is an attempt to engrain these values into the very functioning of the company.
"This transaction demonstrates that sustainability is a key element for the development of the Prada Group, increasingly integrated into our strategy," she explained in a statement.
Outside of the fashion industry, sustainability-linked loans have been on the rise, with the market growing eightfold over the course of a year to reach an estimated value of £31 billion in 2018.
All of these developments are very encouraging indeed. It doesn't mean we are there yet, not by a long shot, yet I choose to celebrate progress an this is progress.
TCI: Article from The Guardian by Julia Kollewe, 2 Dec 2019
Goldman Sachs: Article from Bloomberg by Russell Ward, 16 Dec 2019
Crédit Agricole: Article from dezeen.com by Jennifer Hahn, 13 Nov 2019