Stanford Energy is brought to you by the Precourt Institute for Energy
By Kate Gibson
The European Union’s proposed Green Deal could be a tipping point for addressing climate change, said Anne Finucane, vice chairman of Bank of America.
The EU’s plan calls for net-zero carbon emissions by 2050. It may spur action from multinational companies in their operations outside the EU, as well as from other countries, Finucane said Sept. 15 in a virtual fireside chat with Richard Kauffman, chairman of Generate Capital. Their discussion on sustainable energy finance was part of Stanford University’s Global Energy Dialogues series, and also covered the role of banks and other investors driving the energy transition.
The EU is “the crucible here. Once they create this law, it forces focus,” said Finucane.
As for the role of her employer in all this: “Banks make things happen. They can underwrite activity. They can finance the future.”
The Green Deal still needs EU approval, but Finucane is confident that it will pass.
“I absolutely believe it’s inevitable,” she said. Addressing “climate, greenhouse gas emissions, methane, etc. – this isn’t political in Europe. It’s uniquely political in the U.S.” Rather than fighting the Green Deal, the European business community is figuring out how to do it. Even Britain, which is in the process of leaving the EU, has pledged to adopt similar targets.
By putting Europe on a path to climate neutrality by 2050, the Green Deal has the potential to create a fast trajectory toward climate action, said Finucane. Banks would be required to rethink their lending practices once responsible for reporting on their clients’ emissions. Multinational companies will more than likely change their operations worldwide, rather than having one set of practices in Europe and another in other countries. In fact, she thinks the United States and China will ultimately adopt similar measures in response to the plan.
The day after Finucane spoke, the U.S. Business Roundtable said it “supports a goal of reducing net U.S. GHG emissions by at least 80 percent from 2005 levels by 2050.”
While optimistic about the energy transition, Finucane stressed that change will not be easy. “Whether it’s an evolution or a revolution, it’s going to happen. We’re going to get to a world where we’re going to have many more renewables and fewer fossil fuels,” she said.
Banks can and should be facilitators of changing market demands that drive positive change, Finucane said, but they can either be reluctant facilitators or active ones. “Better that we take a lead (and help our clients with this transition) than just react."
One way for banks to facilitate change is to underwrite green bonds funding low-carbon projects. These programs are not sexy, said Finucane, but can have a real impact. For example, a green bond issued by Bank of America funded Los Angeles’ switch to LED street lights, saving money for the city and reducing emissions.
Bank of America’s portfolio includes fossil fuel companies, and it would be a mistake for the bank to stop lending to them, Finucane said. Instead, banks can help fossil fuel companies finance their transition to cleaner fuels. BP and Shell have pledged to become net zero by 2050, for example, signaling they will transition away from the fossil fuel business.
“We feel that we have an obligation to the marketplace to help those companies transition," she said in an interview after the event.
ESG investing — which considers companies’ records on environmental, social justice and governance factors — may create an inflection point for investors, said Finucane. ESG metrics have real value, and research shows that companies that have adopted ESG practices have done better than those that have not. They have a higher relative value, are less likely to go bankrupt and are more appealing to their customers and employees. The missing link toward greater ESG adoption, particularly around climate change, is investors.
“Shareholder return is still the number one indicator of success,” said Finucane, but if pension funds and other investors “start to really push for certain behaviors, then game over.”
At the same time, the ESG reporting ecosystem is too complex, with ratings organizations offering different and often contradictory performance metrics. Companies struggle to know which evaluations matter, Finucane explained. Instead, she would like to see a simplified and agreed-upon ESG metric, perhaps modeled on the global Leadership in Energy & Environmental Design green building certification program. LEED certification levels are certified silver, gold and platinum. She pointed out the effort being undertaken by the World Economic Forum’s International Business Council, chaired by Bank of America CEO Brian Moynihan, around Measuring Stakeholder Capitalism as a key component in realizing that ambition. The IBC includes about 130 companies committed to tying disclosure of ESG metrics aligned to specific Sustainable Development Goals.
Asked what individuals can do to foster sustainable energy finance, Finucane encouraged employees to ask their companies about their ESG practices. Investors can check their 401Ks, mutual funds and other accounts to make sure they are investing in companies abiding by sustainability principles.
Finucane’s talk was hosted by Arun Majumdar, director of Stanford’s Precourt Institute for Energy and professor of mechanical engineering, and Alicia Seiger, managing director of Stanford’s Sustainable Finance Initiative. The session was dedicated to Jim Mahoney, the strategy & public policy executive at Bank of America, who passed away in August as the result of injuries sustained in a cycling accident last year. Mahoney spearheaded the partnership with Stanford's Strategic Energy Alliance and, within that, championed the Stanford Sustainable Finance Initiative to develop financial innovations that will attract more capital to renewable energy initiatives.
Stanford Global Energy Dialogues are free and open to all. Registration is required. The next session will be on Wednesday, Sept. 30, and will feature a dialogue on importance, opportunities and challenges of atmospheric carbon removal at the gigaton scale.
The Global Energy Dialogues are funded by the Stanford Global Energy Forum.