Wall Street Buys Into Climate Change
Air Date: Week of February 8, 2008
Pamela Flaherty, Director of Citizenship at Citigroup (Photo: Citigroup)
Global warming is making Wall Street investment banks adopt new environmental standards for their clients. These standards called "The Carbon Principles," will force those seeking financing for coal plants to consider energy efficient and renewable options first. Host Bruce Gellerman talks with Pamela Flaherty, director of Citizenship at Citigroup.
GELLERMAN: Well it’s cold hard cash that fuels the construction of coal power plants—and now Wall Street is getting worried about the real cost and risk of coal. So three of the nation’s financial powerhouses have developed a new set of principles to help guide their investments.
Pamela Flaherty is Director of Citizenship at Citigroup, it’s one of the megabanks that wrote the Carbon Principles. Ms. Flaherty, welcome to Living on Earth.
FLAHERTY: Thank you very much, I'm delighted to be here.
GELLERMAN: What are the carbon principles?
FLAHERTY: The carbon principles are a set of guidelines that enable financial institutions and their U.S. utility clients to evaluate the risks involved in financing various kinds of conventional power plants.
GELLERMAN: Conventional being coal.
FLAHERTY: Coal and other kinds of fossil fuels.
GELLERMAN: So what’s the first carbon principle?
FLAHERTY: Well the principles embody a portfolio approach. So we are talking about the need to first look to energy efficiency to do better with what we have. Secondly, to look at renewables. And thirdly, then, to look at conventional power, which would include coal, oil and gas. So all three of those have a role to play in delivering energy to consumers at reasonable prices in the United States. And we are looking to our clients to articulate that they have looked at all of these. They do in fact have a need for financing for a conventional power plant—that is a heavy greenhouse gas emissions plant. There is an enhanced due diligence process that is part two of these principles.
GELLERMAN: So you’re trying to recalibrate your risk for investing in the companies that produce carbon-based power?
GELLERMAN: Why now?
FLAHERTY: Because I think this is a point in time when both our clients and financial institutions are increasingly understanding that climate change is a critical issue and that this country and this economy are going to have to figure out ways to reduce the greenhouse gas intensity and that there is a high probably that some kind of legislation will pass in the future. So all of us are trying to understand how we asses that risk, how we price that risk, and how we work on it together.
FLAHERTY: Correct. And they would assign a price to carbon and that price needs to be figured into the risk. And one of the beauties of having three financial institutions and having several utilities and two environmental NGOs involved in this process is there’s a common understanding of what the principles are and what the enhanced due diligence is. So it isn’t a surprise to anyone and we hope that it will become an industry standard, if you will.
GELLERMAN: I know that Environmental Defense was part of your discussions.
FLAHERTY: Environmental Defense and NRDC both.
GELLERMAN: The NRDC. The National Resources Defense Council.
FLAHERTY: That’s correct.
GELLERMAN: There are environmental groups who say you’re not going far enough, that if you really wanted to do something about greenhouse gases you’d simply say ‘we’re going to set either strict limits or have very strong reduction targets.’
FLAHERTY: We understand that coal supplies over 50 percent of the electricity in the United States, and it’s expected by everyone who’s involved in this process that it will continue to play a role, what we’re trying to do in this process is to understand what those risks are, what that role is, and factor that into both the risk and the price.
GELLERMAN: Now because one of your principles, one of the top principles, is an emphasis on renewables—does that mean that Citigroup would be more inclined to lend to a renewable energy company?
FLAHERTY: I think all three financial institutions and certainly Citi is very interested in financing renewable opportunities. In fact, last May, we announced a 50 billion dollar ten-year commitment to invest and lend in renewables and clean technology. So we’re very interested in that. And in fact, I think many of our clients are as well.
GELLERMAN: What implications, if any, does this have for nuclear power and Citigroup’s financing of nuclear power plants?
FLAHERTY: I think all of the financial institutions and the utilities involved believe that nuclear power is an important option to consider in addressing climate change but we also all recognize that nuclear plants carry all sorts of other risks that financial institutions must consider.
GELLERMAN: Have other financial institutions beside Citigroup—JP Morgan, Chase, and Morgan Stanley—come on and said ‘oh, we want to sign on to the carbon principles, too’?
FLAHERTY: There are all sorts of active conversations going on right now with other financial institutions and we would be delighted to have them also adopt these carbon principles.
GELLERMAN: What’s been the reception from your clients—the people who come to you to borrow money to build the plants?
FLAHERTY: I think it’s mostly been very positive and in fact that’s why we went to such great lengths and spent ten months to make sure we consulted with our clients. So we understood what their concerns were. We explained what we were trying to do and got their involvement in it. And as I said from the beginning of this conversation, one of the most important things about both the principles and the enhanced due diligence is that it was created by such an interesting group that involved our clients, the financial institutions, and the environmental NGOs. And that, I think, is a real first, and a very important sign that we need to move beyond arguing with each other and come up with creative, positive solutions and I think that’s what this is.
GELLERMAN: Ms. Flaherty, thank you very much.
FLAHERTY: Thank you very much.
GELLERMAN: Pamela Flaherty is director of citizenship at Citigroup.
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