November 30, 2005
A Light Bulb Turns On: Goldman Sachs First Investment Bank to Adopt Environmental Policy
by William Baue
The policy matches the robustness of other such policies recently adopted by global financial
institutions, but the status of Goldman Sachs as an investment bank brings added significance.
Last week, Goldman Sachs (ticker: GS) followed in the footsteps of
global financial institutions Citigroup (C), Bank of America (BAC), and JP Morgan
Chase (JPM) in
adopting a comprehensive environmental policy. The policy combines important philosophical statements, for
example acknowledging the reality of human-induced climate change, with practical commitments, such
as the goal of reducing indirect greenhouse gas (GHG) emissions from leased and owned offices by
seven percent by 2012.
"We believe that climate change is one of the most
significant environmental challenges of the 21st century and is linked to other important issues
such as economic growth and development, poverty alleviation, access to clean water, and adequate
energy supplies," states the policy. "At the same time, we recognize that the climate change
problem cannot be solved through voluntary action alone and will work to develop partnerships with
other organizations to help identify and promote effective and efficient regulatory/policy
approaches to reducing greenhouse gas emissions."
Setting the GS policy apart from other
banks' policies is its commitment to the United Nations Millennium Ecosystem Assessment (MA), as well as its $5
million donation to establish the Center for Environmental Markets to study how the free-market
system can solve environmental problems. What mostly sets the GS policy apart, though, is the type
of bank it is.
"This policy does not break new ground when it comes to substantive
environmental issues," said Michelle Chan-Fishel, head of the green investments program for Friends
of the Earth (FoE), which has engaged with GS for
a number of years on environmental issues. "However, it's signficant because Goldman Sachs is the
first 'pure' investment bank to develop such a detailed environmental policy."
Hogue, global finance campaigner for the Rainforest Action Network (RAN) that also engaged with GS on its environmental performance,
echoes this sense of the importance that GS's actions send to the market.
Sachs is a bell weather of what the marketplace considers valuable," Ms. Hogue told
SocialFunds.com. "Their application of sustainability principles to their research side allows
investors to guide their decisions according to their values and according to long-term return on
The United Nations Environment Programme Financial Initiative (UNEP FI) commissioned GS to conduct research on
the materiality of environmental, social, and governance (ESG) issues in the oil and gas sector
that resulted in a well-regarded report that served as an impetus for creating the policy, according to Ms. Chan-Fishel.
report found that indeed 'environmental and social issues count,'" Ms. Chan-Fishel points out.
"After producing that report, a light bulb went off at Goldman Sachs, and it realized that ESG
issues could be material for other sectors as well."
While the policy pledges to broaden
the brokerage's equity research to cover to cover more sectors beyond the oil and gas sector, it
does not extend ESG analysis across all equity research.
Also, while the policy gives
"preference" to financing projects that secure free, prior informed consultation from affected
indigenous peoples, it stops short of requiring it. Likewise, the policy "prefers" but does
not "require" Forest Stewardship Council (FSC)
certification, the only forest management certification recognized as sufficiently rigorous by many
"The 'preference' language mirrors that of other institutions who fear
legal liability that could stem from making absolute statements," said Ms. Hogue. "While we would,
of course, like to see a stated complete commitment to support only certified forestry projects, we
believe that Goldman, like all companies, should be judged by their actions in aggressively
implementing these commitments."
"There certainly is wiggle room in the policy, which
raises some concern--for example, the policy says that a bank will make "up to $1 billion" in
renewables investments," said Ms. Chan-Fishel. "What is the definition of 'renewables?'"
"I had advocated that GS leave out nuclear power and large dams, which do not comply with the
World Commission on Dams standards--but to no avail!" she added.
While other banks with
strong environmental policies such as Citigroup, Bank of America, and JP Morgan Chase have signed
onto he Equator Principles (EPs),
GS does not do significant project finance lending covered by the EPs.
"However, GS has
borrowed some of the EP methodologies and has applied them to underwriting transactions--I think
the EPs certainly offer a helpful reference point for them," said Ms. Chan-Fishel.
Equator Principles are far weaker than many of Goldman Sachs' policies, and we are far more
interested in measuring against best practices than the base level of competency," Ms. Hogue points
out. "The critical issue is that these firms use their financial leverage to make change quickly
and effectively--whether this happens through Equator or not is of no significance."
Hogue adds two observations that are unique pieces of the Goldman Sachs puzzle.
CEO Hank Paulson has been far more engaged in formulating and disseminating this policy than any
CEO to date--we believe that the clear leadership from the top creates significant opportunity for
aggressive implementation," she says. "Second, the language in the Goldman Sachs policy that calls
for federal regulation on climate change is far stronger and adds value to the process begun by JP
Morgan Chase--we believe the Wall Street consensus demanding that Washington step up the climate
issue can force the necessary debate to make lasting and binding change."