Greed is Green

In his book Swimming with Sharks, Joris Luyendijk describes the banking sector as ‘a plane without a pilot’ and with no moral compass. His conclusion however is that the problems which created the financial crisis are not personal, but systemic and if we want a stronger system, we must change the incentives rather than wish for nicer guys. With billions now becoming available for sustainable investments, bankers’ incentives are getting aligned with a greener, more sustainable world. Following this green money, the financial industry has a major opportunity to regain the trust of society.
“Money is not an obstacle; there is plenty of it available for green investments”, Jonathan Drew, HSBC’s Managing Director Global Banking and Markets recently said at the Congress of the Business Environment Council in Hong Kong. It was at the eve of the COP21 conference in Paris, where two long weeks later, a historic climate treaty was agreed by 196 countries. One of the main characteristics of COP21 was the enthusiasm with which businesses are embracing a more sustainable economy, led by the likes of Bill Gates, Mark Zuckerberg and Jeff Bezos. All slightly nerdy nice guys who are genuinely interested to contribute to a better world. And now bankers are joining the fray?
In the 1980’s, they were chronicled in the movie ‘Wall Street’, attacking civilized capitalism, with the infamous Gordon Gekko proclaiming that ‘Greed is good, greed is right, greed works …. and greed will save America, which has become a second-rate power’– Gekko’s speech never fails to fascinate, as you can see here again. It feels at least if not more relevant today as it did in 1987. Thirty years later, Leonardo DiCaprio stars as the successful coke-snorting stock broker in ‘The Wolf of Wall Street’. Wall Street remains consistent theatre for high-earning, amoral men over three decades.

The thing is that distrust of bankers is not just based on the movies and indeed, it reached its peak just after the 2008 financial crisis; allegedly the result of reckless risk-taking by the highest paid salary men in the world. This distrust has not dissipated. In a 2014 survey conducted by GlobeScan in 24 countries, the finance sector is near the bottom of the rankings.

And now bankers are interested in a more sustainable economy, but do they honestly believe in it? “It wasn’t easy to convince the brass”, Mr. Drew admitted in the Q&A session; apparently it took him a year to get them to agree to set up a green bond fund. An important incentive was that the Agricultural Bank of China already issues green bonds and HSBC does not want to miss out on the vast developing green investment opportunity in China.
More good timing, in November Goldman Sachs, traditionally a bad boy of Wall Street, released a very bullish report: An Equity Investor’s Guide for the Low Carbon Economy 2015-2025. The report summarizes the sustainable economy as follows: (1) A low carbon footprint attracts regulatory incentives and investments; (2) R&D and rapid-volume growth deliver cost reductions and performance improvements; (3) This transforms niche applications into viable alternatives to incumbent technology, which (4) drives customer acceptance and allows continued scaling. In turn, this (5) reinforces regulatory support and drives further cost reductions.
Are you still with me? I hope so. This is good old boring stuff again and a boring banker is a good banker. If you are sceptical of the post-COP21 results, just follow the money. Goldman Sachs pictures a fresh USD600 billion a year revenue opportunity, including USD240 billion for electric cars. In the past 5 years, USD1 trillion has been invested in solar and wind energy and this will further accelerate. Simultaneously, the four largest US coal mining companies lost 90% of their market capitalization in 2015.

If you want just one good investment advice for 2016, copy Goldman Sachs and invest in green solutions. And maybe, the next Wall Street movie will feature nicer, more ethical men and women, riding green bulls.
To explore this topic further, read our blog series ‘Seven Years On From The Financial Crisis’ or read our Future of Finance report, released in partnership with The Center for Responsible Business (CRB) at the Haas School of Business, University of California— Berkeley and supported by five leading financial institutions—BBVA, Barclays, Citi, Goldman Sachs, and TD Bank Group. One of the core findings from this study was that culture change was the most important element, something Wander explores here in this post.