Banks: A market-driven path to a Clean Trillion?

Do banks care about the environment? At Citi, we believe that working to promote sustainability— both for our firm and our client base—is good business practice. We also care about the environment because our stakeholders in both the public and private sectors care about it—our clients ask about it in Request For Proposals, non-governmental organizations (NGOs) ask about it, and our employees ask about it. 

Our environmental initiatives also have positive bottom line impacts. In 2013, Citi facilitated $8.8 billion in climate positive financing activities, and we also saved $12.5 million in electricity expenses as a result of efficiency activities in our own facilities.

Still, some may question the commitment of banks to advancing environmental sustainability, because so much of our global economy, thus so much of what banks are financing, are the “brown” deals—financing traditional power, energy and infrastructure deals that keep the global economy rolling, keep the lights on, and foster economic development around the world.

Our green transactions generally have to meet the same standards for risk and return as all other transactions. However, we are helping to take green financing out of the philanthropic realm and into a market-driven one by working together with our clients, governments, and NGOs to both innovate and mainstream green activities.

Ceres, a non-profit organization of environmentalists, investors, and companies earlier this year came out with a report on the “Clean Trillion.” The report says that to meet the international goal of keeping rising temperatures to a limit of 2° C or less, thus avoid catastrophic global climate change, by 2030, global investment in clean energy solutions needs to hit $1 trillion per year. It is estimated that in 2012, $281 billion was invested. Citi—one of the largest banks in the world—has invested or helped facilitate an average of $7.7 billion annually in clean energy activities during the past seven years. 

How do we fill in that gap?

We can look for guidance and patterns of success in some of the transactions in which Citi has participated.  Looking back to 2011 and 2012, Citi financed what are still the largest wind and solar projects in the world. Caithness Shepherd’s Flat Wind Project and the Desert Sunlight Solar Project will generate 845 MW and 550 MW, respectively, for California’s residential markets. These financings were notable both for their absolute size as well as the way we created a new structuring solution in conjunction with the U.S. Department of Energy (DOE) to utilize the DOE Loan Guarantee Program to work in the capital markets.

A second set of transactions involved green bonds underwritten by Citi for a number of entities, including the International Finance Corporation, the State of Michigan, and most recently, Toyota.  Green bonds are essentially the same as regular bonds, but they include a commitment that the issuer will use the proceeds of the bonds for environmentally positive purposes and will report on related progress. The emergence of green bonds as a financing alternative has stimulated a lot of investor interest and has the potential to incentivize environmental activities in the public and private sectors in exciting, market-driven ways.

The last set of transactions to highlight involves energy efficiency finance. Citi recently completed two landmark transactions to help finance energy efficiency improvements for homeowners. In the first instance, we provided Kilowatt Financial, a clean energy consumer finance company, with a $100 million debt facility to finance energy efficiency loans for homeowners. In the second, a program called WHEEL (Warehouse for Energy Efficiency Loans) provides capital for state and utility energy efficiency loans to homeowners on the one end, and on the other end provides securitized packages of these loans for institutional investors. WHEEL was made possible by a partnership between Citi, DOE, the Pennsylvania Treasury Department, the Energy Programs Consortium, and Renewable Funding (a third-party facilitator).

All of these examples have two things in common. First, public-private partnerships involving parties such as the federal government, states, and NGOs as well as Citi and other private sector actors were essential to laying the groundwork to make these deals happen. Second, many of the players involved, including Citi, were willing to put in the extra work to innovate and overcome obstacles to make them happen. 

This combination of partnership, innovation, and a little extra effort will together be the key ingredients in turning the “Clean Trillion” idea into a market reality.

 

Val Smith is Director of Corporate Sustainability for Citi. She has been with Citi since 2004 and is responsible for developing Citi’s environmental strategy and initiatives in partnership with business. Smith earned her MBA from UNC-Chapel Hill, and her BA in Environmental Science from the University of Virginia. Smith has also worked for environmental organizations, including the National Audubon Society, Brainerd Foundation, and the Houston Advanced Research Center.  

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