On the Baja coast of Mexico overlooking the Sea of Cortez, the Loreto Bay
company is building 6,000 homes.
Population shifts and the arrival of American buyers are putting unprecedented
strain on Mexico’s infrastructure in other beauty spots like the Yucatan
peninsula, where fresh-water supplies are already threatened. Loreto intends
to be different. All its electricity will be supplied by wind turbines and
it plans to produce more drinking water than it consumes. One of the
scheme’s backers is Citigroup, the world’s biggest financial-services
company.
The $3 billion (£1.5 billion) development is a small project for the banking
colossus – Citi manages assets worth more than $2,000 billion. But it is one
of several greener investments that Citi is targeting as part of a
multi-billion-dollar push into clean energy and alternative technologies,
according to an announcement it made last week.
Citi’s chief executive Chuck Prince said the bank is committing $50 billion to
address both the risk and rewards of climate change – the largest-single
commitment from any company to date.
Some $10 billion has been committed already, and a further $10 billion will go
to reduce the bank’s environmental footprint at its 14,500 offices
worldwide. Over the next 10 years about $31 billion will go to fund wind
farms, biofuels, solar panels and other eco-friendly technologies.
“We believe very strongly that addressing climate change is one of the most
important issues being faced by chief executives, investors and governments
today,” said Michael Klein, co-president of markets and banking. The
enormous sums are “just the beginning”, he added.
Klein had dinner with Gordon Brown in January and discussed green policies. He
also had several meetings with officials at the Department for Environment,
Food and Rural Affairs (Defra) and its secretary of state, David Miliband.
Addressing climate change will involve investing in developments that may be
“technologically capable but not yet commercially viable”, said Klein. “They
will require investments of billions of pounds, commitments that companies
and governments will have to make in energy, and infrastructure that will be
decades in the making and be in place for decades to come.”
If it all sounds a bit too altruistic to be true, you would be right.
Ultimately, the shade of green Citi is aiming for is that of the dollar
bill, not that of Body Shop.
Not everyone has been impressed. Privately, some bankers accuse Citi of
jumping on the eco bandwagon to hide other woes and they argue that, as a
percentage of Citi’s total business, the investments are still small.
Green groups say the investment is nonsensical given Citi’s financing of big
polluters such as oil companies and coal-fired power plants. “It’s as if
they are walking in to a burning building with a hosepipe in one hand and a
can of gasoline in the other,” said Michael Brune, leader of the Rainforest
Action Network.
For others, Citi’s announcement is a historic moment. Funding for eco-friendly
projects has been rising faster than greenhouse gas in recent years. But
this marks the moment when green went mainstream.
“It’s a very important announcement,” said Daniel Esty, director of the Yale
Centre for Environmental Law and Policy and co-author of Green to Gold, a
book that looks at the business opportunities climate change presents. “The
scale is so dramatic and it puts a lot of pressure on Citi’s rivals. I think
this is a tipping point.” AS oil prices continue to stay high,
renew-able-energy sources are starting to make business as well as
ecological sense.
In America, President George Bush has until recently denied the existence of
global warming, but across the country individual states have become
increasingly committed to green-energy policies.
With the Democrats now controlling Congress, many experts believe the pressure
on the federal government has reached a critical mass. America is about to
go green – or at least greener.
For the providers of carbon-friendly technology and their backers this could
be an enormous payday. Bank of America committed $20 billion toward green
investments in March. Most of Citi’s rivals, including Goldman Sachs and JP
Morgan, are targeting green funds. In America, venture-capital and
private-equity investment in clean-energy companies soared 138% last year
from $2.2 billion to $5.3 billion. THE former British Olympic skier Michael
Liebreich is in no doubt how fast green investment is growing. He has been
interested in the energy markets and alternative fuels since he was at
Cambridge, where he was awarded the Ricardo Prize for thermodynamics.
When he was setting up the London consultancy New Energy Finance in 2003,
“green fuel” was still a topic largely discussed by “hippies and people with
pony-tails”, he said.
Back then he estimated the market was worth about $30 billion a year. Last
year, New Energy Finance calculates, total financial transactions in the
clean-energy industry topped $100 billion – $70 billion in new money being
invested, the rest in mergers, acquisitions and refinancing. By 2009
Liebreich predicts new investments alone will top $100 billion.
Europe still lags behind America when it comes to venture-capital investment.
Last year investment actually fell 2%, from $2 billion to $1.9 billion,
according to New Energy Finance.
But London has become a key centre for green technology firms looking to raise
money by selling shares on the stock market. Next month, the solar-panel
maker PV Crystalox plans to raise £50m with a London listing – and not on
AIM, London’s junior stock market, but the main stock exchange.
Activity on the Continent is also picking up. Germany – not a country famous
for its sunshine – has become a world leader in solar technology. Hefty
state subsidies have led to Teutonic fields full of solar panels, and German
taxpayers are footing the bill. The country is now the world’s largest
importer of solar panels and the biggest customer for a number of solar
firms, including PV Crystalox. In the long term, some worry that this solar
obsession will be unsustainable.
The investment demand for all things green and the political appetite for
finding environmental solutions are in danger of creating a “green bubble”
in the short term, according to Dan Bakal, a director of the Boston-based
consultancy Ceres.
He said areas such as biofuel were attracting a lot of hype and overvaluations
and there was a danger that companies would crash.
“But if you look at the trends, climate change is a greater issue than
short-term corrections,” said Bakal. “There are ‘peak oil’ [the theory that
oil production is about to peak then decline] energy-security issues around
the world. These are matters that are not going to go away.
“If you look back at the dotcom bubble you could now see it as a correction.
The internet is here to stay,” he said. “And so is climate change.”
Liebreich has seen first-hand how bubbles can pop. He was once UK managing
director of Groupe Arnault, the investment arm of the LVMH fashion magnate
Bernard Arnault. It helped to bankroll Boo.com, the online fashion firm that
came to represent the excesses of the dotcom era.
“The analogy I would draw is with the mobile-phone industry, not the dotcoms.
A lot of dotcoms had zero potential value and what we have here is a real
market. Telecoms went through an enormous value surge but it also created
enormous value,” he said.
The road ahead will prove rocky for some firms and investors, but in the long
term, argued Liebreich, energy is going to have to be renewable, green and
carbon-neutral. The firms that get it right are going to make billions.
But as all this money pours in, some environmental activists argue that
companies are failing to address the real issue. Brune said he was
unimpressed by Citi’s investment or the attitude of most of the big banks.
“If you want to be a leader in climate change, don’t continue to fund dirty
projects,” he said.
Bankers who payroll green projects are also just as happy to keep making
profits from polluters, he said.
“Every time a coal-fired plant starts up, that’s like taking 1m cars on the
road,” said Brune. “They would do more good by not funding those projects.”
Citi’s Klein said that his bank was making investments on a “basis that
reflects the absolute reality of a global economy that is growing at the
most rapid rate in history. We have had four years of record growth and
eight years out of ten of record global growth. That requires a tremendous
amount of capital, energy, human resources, commodities and so forth.”
As a participant in that global economy, he said Citi could “make the capital
available for these changes to occur”.
“We don’t see this as a bubble. It’s a critical issue, a necessity, a growing
market and a driving force. We consider it to be one of the greatest single
risk-and-reward issues we face today.”
MONEY POURS INTO CLEAN ENERGY
WORLDWIDE investment in clean energy has more than doubled in the past three
years, rising from $27.6 billion (£13.9 billion) in 2004 to $49.6 billion in
2005 and $70.9 billion in 2006, according to figures from the consultancy
New Energy Finance.
Record demand and continued turmoil in the Middle East have driven up the
price of traditional fuels. In 1998 oil prices hit a low point of $11 a
barrel after increased production from Iraq coincided with the Asian
financial crisis and reduced demand. By the end of 1999 the price had more
than doubled as Iraq cut supply. The upward trend has continued ever since
and a barrel now costs more than $60.
In the past few years several significant reports have underlined fears about
climate change and fossil-fuel depletion. Climate change is now accepted as
a fact by most world leaders.
Generation of electricity from renewables (excluding large hydroelectric
plants) represented just 2.1% of the world’s electricity supply in 2004,
according to the International Energy Agency (IEA). This is expected to grow
to 9.6% by 2030.
Biofuels, made from corn, sugar cane and other crops, account for about 1% of
transport fuel worldwide today. The IEA predicts it will reach 7% by 2030.
