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Goldman Sachs Won't Finance Arctic Drilling or New Thermal Coal Mines

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Three months after the Trump administration announced plans to open the Arctic National Wildlife Refuge to oil and gas drilling, Goldman Sachs has pledged it will not finance drilling in the Arctic nor invest in new thermal coal mines anywhere in the world.

In addition, the firm has committed to invest or finance $750 billion over the next 10 years dedicated to two broad themes of “climate transition and inclusive growth,” and nine separate themes within those two categories, including clean energy and transport, sustainable food and agriculture and affordable education.

“Companies have traditionally treated sustainability as a peripheral issue, focusing narrowly on the way they manage their impact on the environment,” wrote Goldman Sachs CEO David Solomon in the Financial Times on Sunday. “We don’t have the luxury of that limited perspective any more. There is not only an urgent need to act, but also a powerful business and investing case to do so.”

Goldman is not renouncing all financing for fossil fuel based projects, which Solomon notes will continue to be produced, but pledging its support for clients as they reduce their carbon emissions and become more sustainable in the production, and in customers’ use, of their products.

“The markets can and will do much to address climate change, but given the magnitude and urgency of the challenge, that will not be enough,” writes Solomon. “In most places, there is no pricing mechanism to capture the cost of greenhouse gas emissions to society.”

Solomon called on governments to put a price on carbon through a cap and trade system, a carbon tax or other means. “Combining public policy, technology and capital is a must, not a choice.”

But it will be difficult. The UN Climate Change conference in Madrid with representatives from almost 200 countries ended Sunday without any agreement for developing a global carbon-trading system or tougher targets for cutting carbon emissions, two primary goals of the 2015 Paris accord. The U.S., the second largest emitter of greenhouse gases after China, has committed to withdraw from the Paris accord next year.

In a podcast, John Goldstein, head of Goldman Sachs Sustainable Finance Group, noted that in addition to the urgency of addressing climate change there is a strong business case to be made that supports such efforts.

“The business case is fundamentally better than it’s ever been … It’s not just the urgency, but it’s the opportunity … coming from a wide variety of angles.” These include millennials wanting to invest with an ESG lens and work at companies addressing those issues assets owners “coming together individually and collectively in groups, like the Climate Action 100+,” and companies, who now account for over a quarter of the new renewable power generation last year, according to Goldstein. “Frankly, without the fact the business case is now there, I don’t think we’d be able to make the same kind of commitment.”

As part of that commitment, Goldman Sachs has also updated its Environmental Policy Framework, which contains its guidelines and approach to addressing sectors with heightened environmental or social sensitivity, including oil and gas, water, chemicals and coal.

— Check out 10 Most Searched Financial Topics of 2019: Investopedia on ThinkAdvisor.


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