Friday, December 9, 2022

The Green Blue Chip Wave of Wall Street

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Blue chip companies are prioritizing sustainability, renewable energy, and eco investing. What does this mean for the future of the stock market?

When household brand giant Unilever announced last year that it would open up climate transition plans to a vote by its shareholders, it signaled a giant shift in how blue chip companies see the future.

“It’s the first time a major global company has voluntarily committed to put its climate transition plans before a shareholder vote,” the company said in a statement.

The announcement came shortly after British billionaire Chris Hohn launched the “Say on Climate” campaign. Its aim is to encourage corporations to give more voice to their shareholders on critical climate issues.

“Unilever believes that the economy-wide shift to net-zero emissions will require a greater and deeper level of engagement between companies and their investors about their climate transition plans,” the parent company to Hellmann’s and Dove said in a statement.

“[C]limate change is the most pressing issue of our time,” said Alan Jope, Unilever’s CEO. The multinational corporation says it will look at its climate plans regularly, on a “rolling basis.” Advisory votes will happen every three years and there will be annual progress reporting beginning this year.

Unilever, which is worth more than $120 billion, has already pledged to reduce carbon emissions by half over its 2010 numbers. It aims to be net-zero emissions by 2039, and reduce all carbon dioxide emissions by 2030. 

“We welcome this increased transparency and in the plan we present,” Jope said. “We will be clear both about the areas in our direct control where we have a high degree of certainty of our route to net zero, as well as more challenging areas across our value chain where systemic solutions will be required to achieve our targets.”

Unilever’s green ethos mirrors a growing shift among blue chip companies. According to New York-based lender Goldman Sachs Group Inc., its future is also green.

ESG investing

Goldman Sachs says it has identified ESG (environment, social, and governance) investing as a core strategy for the firm’s future.

According to Carey Halio, chief executive officer of Goldman Sachs Bank USA, the lender’s future will fund more ESG bonds on a regular basis than ever before in its history. It’s earmarking $750 billion in sustainable financing for use by 2030.

“We expect to issue once every 12 to 18 months with respect to benchmark issuance and we have the flexibility to do other kinds of liabilities as well in addition to the benchmark bond,” said Halio in an interview Friday. “We think it will be a core part of our strategy going forward.”

Goldman Sachs sold its first ESG bonds earlier this year, valued at more than $3 billion at its peak—more than half of the bond went to ESG accounts.

“We do think the size of our ESG bonds will grow over time,” Halio told Bloomberg. “We think investors value the liquidity in the benchmark size issuance.”

Image courtesy Joshua Mayo on Unsplash

The bonds will play a role in funding projects that meet green criteria set by the lender. These include clean energy, sustainable transport, and financial inclusion.

“The more issuers come and the more prominent those issuers are, only helps further the message that we are looking at things in a different way,” Stephen Liberatore, head of fixed-income ESG and impact investing strategies at the firm, told Bloomberg. “That’s a real positive and should help borrowers that maybe aren’t sure what they need to do.”

The Goldman Sachs announcement comes after JPMorgan Chase & Co., another blue chip, launched a similar initiative earlier this year. It predicted 2021 would be the year of ESG investing. 

“[ESG investing] is going to be the fastest-growing sustainable instrument that we have if we extrapolate what we’ve seen already,” said Marilyn Ceci, global head of ESG debt capital markets at JPMorgan.

A recent report from Morningstar points to the booming ESG investing trend. And it’s becoming big business: in the first quarter of 2021, ESG funds hit more than $185 billion.

“2021 began where 2020 left off with record demand for sustainable investment options across the globe,” Hortense Bioy, global director of sustainability research at Morningstar, said in a statement.

According to Morningstar, Q1 2021 was up 17 percent over Q4 2020. Interest is being driven by European markets, which accounts for more than 79 percent of funding flows. U.S. funds brought in more than $21 billion, setting a new record—it’s more than double from 2020’s $10.4 billion and nearly five times the size of ESG funding in Q1 of 2019.

Green funds

Another blue chip, Bank of America, is also committing $1 trillion toward green finance by 2030 as part of its efforts to increase sustainability initiatives. The $1 trillion budget builds on $300 billion it first pledged to low-carbon initiatives in 2019.

“The private sector is well-positioned to ensure that the capital needed — at the scale it is needed — can drive the transition to a low-carbon, sustainable economy,” Bank of America Vice Chairman, Anne Finucane, who leads the company’s environmental, social and governance (ESG), sustainable finance, and public policy efforts, said in a statement. “We will meet our commitment by working with clients to provide lending, capital raising, advisory and investment services, and to develop financial solutions and drive innovation to ensure the transition to a sustainable economy.”

The green funding, which now totals more than $1.5 trillion, aligns with the United Nations Sustainable Development Goals. Alongside the $1 trillion toward climate-related financing, more than $500 billion in funding will support social inclusive development, scaling capital to advance community development, affordable housing, healthcare, education, and promotion of racial and gender equality.

Image courtesy Geran de Klerk on Unsplash

“We stand alongside our clients in helping drive the transition in sustainable lending, investing, and markets activity,” said Chief Operating Officer Tom Montag, who co-chairs Bank of America’s Sustainable Markets Committee. “Bank of America will continue to mobilize players across the entire financial system to increase the flow of capital.”

The announcement comes after the nation’s second-largest bank said last February that it would target net-zero greenhouse gas emissions before 2050.

Bank of America first launched its Environmental Business Initiative in 2007 and has since distributed more than $200 billion to a variety of low-carbon and sustainability initiatives including clean energy and power, and transportation.

Since 2013, Bank of America has helped customers raise more than $300 billion in ESG bonds. In 2020, it became one of the country’s biggest issuers of bonds supporting coronavirus front-line workers, distributing more than $1 billion to social efforts. It also launched the first-of-its-kind $2 billion equality progress sustainability bond focused on advancing racial equality, economic opportunity, and environmental sustainability.

“The more issuers come and the more prominent those issuers are, only helps further the message that we are looking at things in a different way,” said Liberatore. “That’s a real positive and should help borrowers that maybe aren’t sure what they need to do.”

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