Goldman Sachs follows global peers on fossil fuels

  • Police remove Extinction Rebellion climate change protesters who blocked the road outside the Goldman Sachs International office in London on April 25, 2019. Goldman Sachs announced Dec. 15, 2019, that it will not finance any oil and gas development in the Arctic. (Photo/Matt Dunham/AP)

Though many Alaskans may see Goldman Sachs’ decision not to invest in Arctic oil projects as the equivalent of a lump of coal in their holiday stocking, that’s not on the bank’s gift list either. The global lender, investor and financial services firm also pledged not to finance new coal mines or coal-fired power plants anywhere in the world.

Goldman Sachs is the first big U.S.-based bank to publicly declare it will not finance new oil projects in the Arctic, including anything to do with the Arctic National Wildlife Refuge.

The company’s Dec. 15 announcement takes a stand against projects that “significantly convert or degrade a natural habitat,” Goldman Sachs said on its website.

At the same time that it said no to financing Arctic oil and thermal coal (metallurgical coal used to make steel is still OK), the bank announced a commitment to invest $750 billion over the next 10 years in areas that focus on climate transition.

Goldman Sachs “acknowledged” the scientific consensus on climate change, which it said is one of the “most significant environmental challenges of the 21st century.”

The decision was not the first time the bank has talked down investment in Arctic oil and gas. In 2017, one of the bank’s natural resource experts said other “enormous cheap, easier-to-produce and quicker-time-to-market resources in the Permian onshore U.S.” looked better than Arctic oil.

“We think there is almost no rationale for Arctic exploration … Immensely complex, expensive projects like the Arctic we think can move too high on the cost curve to be economically doable,” Michele Della Vigna, head of energy industry research at Goldman Sachs, said in a CNBC interview in March 2017.

This time, the bank’s position is more philosophical than financial.

“This is grounded in a core view of where the world is going, a thesis, a research-driven view … that fundamentally these questions of climate transition and inclusive growth are going to be central, secular themes for the economy for our clients and for ourselves,” John Goldstein, head of Goldman Sachs’ Sustainable Finance Group, said on a podcast. “This is where the world is going.”

With almost $1 trillion in assets as of last summer, Goldman Sachs is the fifth-largest U.S. bank, according to S&P Global Market Intelligence, a financial industry research firm. The company had 2018 net earnings of $10.5 billion, just a couple billion dollars shy of BP.

The 150-year-old company also said it will phase out financing of thermal coal mining companies that do not have plans to diversify away from the fuel.

As of the end of 2018, Goldman Sachs had financed $80 billion in clean-energy projects toward its goal of financing or investing $150 billion in clean energy by 2025, according to the company’s 2019 annual report.

“We are a financial institution, operating in global markets, with a global client base — and we have a real opportunity through that work not only to lead by example in how we run our organization, but to drive sustainable outcomes for our clients and for our communities,” the annual report said.

The Rainforest Action Network said Goldman’s Dec. 15 commitments are the “strongest fossil finance restrictions of any major U.S. bank.” The praise had its limits, however. The bank still lags behind its global competitors, the organization said.

Goldman Sachs’ announcement came a month after the European Investment Bank, or EIB, said it would stop issuing loans for coal or oil and gas infrastructure projects after 2021. The lag is to allow for completion of projects already underway.

“This is an important first step — this is not the last step,” said Andrew McDowell, the bank’s vice president.

The EIB board of directors adopted the plan after heated debate, with some countries objecting to the inclusion of natural gas in the ban, according to a Nov. 18 report by Environmental and Energy News, a Washington, D.C.-based energy newsletter.

The EIB decision could pressure other financial institutions to follow, such as the World Bank and Asian Development Bank, the report said.

Under the bank’s new policy, projects will need to show they can produce one kilowatt hour of energy while emitting less than a half-pound of carbon dioxide, a post-2021 standard that will ban traditional gas-burning power plants. The bank said “new technologies,” such as carbon capture and storage, may be able to qualify for financing.

“The EIB’s new financing criteria will make lending to gas projects very difficult,” Nicholas Browne, a Singapore-based research director with energy consultancy Wood Mackenzie, said in a company statement Nov. 15.

“That presents a concern for the gas industry,” he said. “This might increase the risk that the popular and political tide turns on gas like it already has on coal in most countries. If this does occur, it may slow the rate of growth of gas and LNG demand. In turn, this would be a major strategic challenge for companies that have identified gas as the key driver of future growth.”

Since 2013, the EIB has funded about $15 billion (U.S.) of fossil fuel projects. Last year it funded about $2 billion worth of projects.

Just a week before the EIB announcement, delegates at a European gas conference in Paris heard how the financial services sector is increasingly concerned about investing in gas projects given the growing pressure against fossil fuel.

“There is a growing presumption against giving any of our clients’ money to you,” Nick Stansbury, from Legal and General Investment Management, said at the conference, according to reports by S&P Global Platts. “The flow of capital is imperiled by this revolution.”

Cristian Carraretto, of the European Bank for Reconstruction and Development, or EBRD, said the bank’s policy on fossil fuel investment was changing quickly. The EBRD has already made it policy not to invest in any coal projects “under any conditions,” he was quoted by S&P Global Platts.

In addition, the development bank will not support upstream oil projects except under specific country-by-country conditions.

“Things are getting more and more difficult,” he said.

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Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Updated: 
12/31/2019 - 2:41pm