The Greening of Goldman Sachs

By Traci Hukill, AlterNet. Posted January 3, 2006.

Last year the investment bank Goldman Sachs acquired a portfolio of mortgages in default that involved a remarkable piece of land in Tierra del Fuego, Chile. The wild, starkly beautiful island on the far tip of South America is a haven of biodiversity, home to old-growth beech forests and a unique network of peat bogs. So when the bank donated all 680,000 acres of the property -- an area about a third the size of Yellowstone -- to the Wildlife Conservation Society in trust to the people of Chile, it was a boon to ecological preservation.

It was also a source of perplexity in some quarters. While Goldman Sachs explained that it had simply acted on a "rare opportunity for the firm to benefit global conservation," many people found it hard to trust such a gesture of generosity from a financial institution.

But there is reason to think that skeptics can relax their vigilance on this one and maybe even entertain some hope. In November Goldman Sachs, a financial sector leader worth $60 billion, rolled out a new environmental policy that goes further, and is smarter, than any comparable policy in the corporate world.

The unveiling of the framework to address environmental degradation and climate change capped 18 months of consultations with environmental groups. Among them were Rainforest Action Network (RAN), Rainforest Alliance, World Resources Institute and Friends of the Earth.

Only eight pages long, the plan (PDF) contains some fairly typical stuff, such as a vow to use more recycled paper in Goldman's offices. But it also contains a promise to reject projects in environmental no-go zones, and to institute further changes in the way it does business--all with an eye on ethics and the environment.

According to the framework, Goldman Sachs will:

• disclose the greenhouse gas emissions of all its operations;
• make $1 billion available for investments in renewable energy;
• set up a think tank to identify other lucrative green markets;
• work on public policy measures relating to climate change;
• conduct more rigorous assessments of its new projects' impacts on the environment and on indigenous people;
• refuse to finance extractive projects in World Heritage sites or any projects that violate the environmental laws of the host country.

This is not a case of Goldman pretending its job is to save the world, or forsaking its primary mission to make money for its investors. Self-interest is in full effect here. Goldman Sachs is positioning itself to be a leader in the green energy sector.

It's also averting risk. The policy says so in so many strangulated, jargoney words: "We believe that companies' management of environmental and related social risks and opportunities may affect corporate performance."

Translation: there are real financial costs to ignoring the environment and the people who depend on it for their survival, and we don't intend to get stuck paying them.

Gold standard

If Goldman Sachs winds up doing well by doing good, that's fine with Ilyse Hogue, coordinator of Rainforest Action Network's Global Finance Campaign. To her, Goldman's new policy is genuine cause for excitement for three reasons, starting with the investment firm's reputation.

"It's largely regarded, in a way that I'm just coming to understand, as the gold standard in the market," Hogue says. "So simply by making the commitment to these values, Goldman sends strong signals through the marketplace that are heard in corners of the economic system that we've yet to reach."

Second, Goldman Sachs CEO Hank Paulson, who also chairs the board of The Nature Conservancy, showed an avid interest in the policy from the start of the process. In other successful corporate campaigns undertaken by RAN -- with JPMorgan Chase, Bank of America and Citigroup -- the boss's buy-in has been critical to follow-through. Hogue believes that Paulson's commitment bodes well for Goldman's putting its money where its mouth is in coming years.

Third is the policy itself. It's the first corporate environmental policy to hinge on the newly minted idea of "ecosystem services," which is a way of looking at the environment in terms of what it provides for humans. Ecosystem services might include the storm buffer provided by healthy mangrove forests lacing tropical coastlines, or the water filtration furnished by intact wetlands. A healthy forest provides multiple ecosystem services: It cleanses the air by providing a carbon sink, it produces clean water, it may contain habitat for spawning fish that in turn feed humans, and it provides the intangible service of recreation and spiritual renewal.

All of these "services" have value, and their disruption exacts a price. Deforestation in Haiti made the 2004 flooding and mudslides truly disastrous. The warming of Caribbean waters fueled Hurricane Katrina, and when the surge hit, the damaged Louisiana wetlands were unable to slow it.

If it seems mercenary to make the case that nature should be protected so humans may be spared the cost of failed natural systems -- in lives, resources and dollars -- it's also true that the formula translates effortlessly into financespeak. This is something banks get.

Traci Hukill is a freelance journalist based in Monterey, Calif.

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