Sunday’s massive climate march in New York was followed on Monday by the less coherent Flood Wall Street effort. Lots of people protested outside the New York Stock Exchange, and scores were arrested, including a guy wearing a Polar Bear suit. (Bulls are welcome on Wall Street, bears not so much.) The general complaint was that the engine of capitalism is killing the environment, especially the climate, and that it should be shut down immediately.
For most of its history, Wall Street was no great friend to the environment. America’s capital markets gained critical mass in the late 19th century by financing railroads and providing capital to steel and oil industries, earning enormous fortunes for John D. Rockefller and his fellow Robber Barons. The nation’s first mega-deal came in 1901, when J.P. Morgan bought out Andrew Carnegie’s steel company for $480 million, thus forging U.S. Steel.)] And of course the world’s coal mines, oil and natural gas wells, timber, chemical, and other environmentally unfriendly endeavors couldn’t function largely if not for global finance.
Here’s the thing, though. One of the possible solutions to global warming and climate change is a rapid scaling up of technologies that allow humans to go about their business while emitting less carbon dioxide, or no CO2 at all. And increasingly, Wall Street wants to be in on the green rush. Tesla Motors, for example, which now enjoys a $30 billion market capitalization thanks to bullish investors. Launched in 2009, it received a $465 million government loan which it paid back years ahead of schedule. But that same year it also rasied nearly $300 million in venture capital. The next year during its initial public offering, it raised another $226 million in private money. Then another $200 million more in stock in late 2012, in an offering underwritten by Goldman Sachs. The company returned in May 2013 to Wall Streetto raise $600 million in debt and another $312 million in stock. Yes, Nevada is helping to fund Tesla’s giant new battery factory, but Wall Street will provide most of the funds necessary to construct it.
The next green IPO will be from Vivint, a Utah-based company that sells solar panels door-to-door. Partially owned by the Blackstone Group, a giant of global finance, Vivint is set to raise $371 million thanks to no lesser Wall Street institutions than Goldman, Merrill Lynch, and Credit Suisse.
Indeed, private capital has largely stepped into the path forged by public capital. Government plays an important role by setting standards and providing early financing for risky applications of new technology—the telegraph, the computer, nuclear energy. In 2008 and 2009, the Energy Department backed early (and expensive) utility-scale solar plants, on a scale that had not been done previously. But even the U.S. government, with its huge balance sheet, can’t do it all. Fortunately,once projects are proven to be viable, Wall Street rushes in. For instance, Bank of America is providing financing for a 160-megawatt wind farms in Oklahoma.
Rolling out carbon-free energy, whether it is a rooftop solar system, or a giant wind farm, involves complex financial calculations. Developers need to take advantage of tax breaks and credits, figure out how to reduce upfront costs, and match up willing capital with viable projects. That means that financial innovation is now as important to scaling up renewable energy as engineering innovation.
Residential rooftop solar power was very slow to attain critical mass in large measure because the upfront costs were so high—even with tax credits. Solar City, a company also founded by Elon Musk, offers customers “solar leases:” they put little or no money down and then pay for the power generated by the rooftop systems. Goldman Sachs funneled $500 million to Solar City to back leases, part of the bank’s goal to invest $40 billion in renewable energy. And now Wall Street is doing to those leases what it has been doing for years to mortgages —securitizing them and selling them in pieces to investors. Doing so allows companies like Solar City to put new capital to work. Solar City so far has placed three issues of securitized leases worth more than $300 million.
There’s even more financial innovation going on. In recent years, we’ve seen an explosion of so-called “green bonds.” These investments raise debt that is devoted to specific projects, which can be peddled to those who want to put their green money where their green mouth is. Through early June this year, some $16.6 billion in green bonds had been raised around the world. The leading underwriter? Bank of America. Toyota issued $1.75 billion of green bonds, to help finance customer leases and purchases of hybrids. That was managed by Citigroup, Bank of America, and Morgan Stanley. In July, the District of Columbia Water and Sewer Authority sold $350 million in green bonds to finance improvements in the water system in the nation’s capital. Again, the sale was managed by Barclays and Goldman.
Of course, Wall Street firms aren’t doing this out of the goodness of their own hearts, although they do like the positive buzz such deals can generate. They’re doing is because they can make money doing so. And this is the real transformation we’ve seen in the last several years. The Occupy-likeprotesters might not like it, but renewable energy, efficiency, and sustainability have become big businesses, with huge needs for capital. You can’t crowdfund your way to stopping climate change.