January was a busy month for sustainability finance. Climate change and how it can be fought was a major topic of conversation at the World Economic Forum in Davos, Switzerland, and there was plenty of big funding and corporate sustainability news before and after that event as well.
In this roundup, we take a look at major moves by BlackRock and Microsoft, some big news out of Davos, and new happenings in the world of electric vehicles, new fund launches, clean energy project funding and much more.
Big Announcements from BlackRock, Microsoft
BlackRock CEO Larry Fink set the stage for Davos, releasing his annual “letter to CEOs” a few days before Davos convened. In it, he said that his firm, the world’s largest money manager, will make climate risk and sustainability key tenets of its investing strategy going forward. He also said BlackRock will no longer invest in thermal coal companies and will launch new sustainability-focused investment strategies. The announcements were met with widespread enthusiasm, since BlackRock’s size and influence makes it an agenda-setting company.
Not to be outdone, Microsoft also announced, pre-Davos, that it will become carbon negative — not carbon neutral, not net zero, but carbon negative — within 10 years. It’ll do that via means such as using 100% renewable energy, electrifying its entire vehicle fleet, extending its internal carbon tax to cover all scope 3 emissions, and creating a new Climate Innovation Fund, with $1 billion over the next four years, which will use project finance, debt finance, equity and debt capital to support the creation of carbon-reducing technologies.
What Happened in Davos?
With those two companies throwing their massive weight behind serious climate action, it’s little wonder that the meetings in Davos saw a tremendous amount of discussion about the climate emergency and what the world — the public and private sectors alike — can do to fight it.
Indeed, climate change “was by far the most discussed and actionable theme this year in Davos, from both a market and corporate perspective,” Haim Israel, head of thematic investments research at Bank of America, told Barron’s after the event.
And Huw van Steenis, chair of UBS’s sustainable finance committee, had similar words. “Investors and financiers can see the stakes are rising,” he wrote in Financial News after Davos. “Firms can see there is real money to be made by helping mobilize capital into financing the transition to a lower carbon economy.”
Some of the key takeaways from Davos:
- BlackRock’s Fink hosted a closed-door breakfast with the theme, “Climate change is investment risk,” van Steenis reported. Big money is now taking climate change seriously, he wrote: “Long-term investors are beginning to worry about how their portfolios may fare.”
- “We can expect to see substantial rapid and perhaps unexpected change in how companies are addressing climate change,” John Streur, CEO of Calvert Research & Management, told Barron’s. Corporate announcements included Bank of America saying it achieved carbon neutrality earlier than expected, Starbucks committing to a 50% reduction in carbon emissions, and com promising to plant a trillion trees over the next decade.
- The “climate solutions” market could double in size, from $1 trillion a year now to $2 trillion a year by 2025, according to Israel. That figure includes everything from renewable energy and electric vehicles to batteries and biofuels.
- The industry is making progress on data and standards around ESG issues, with pressure from BlackRock and other large institutional investors likely to push many more publicly traded companies to start disclosing ESG and related data in compliance with Sustainability Accounting Standards Board And, van Steenis said, “several major countries are on the verge of making climate-related disclosure mandatory for companies,” likely before the COP26 meeting in Glasgow in November.
- Divesting from fossil fuels is likely to become increasingly common, particularly in the wake of Blackrock’s own announcement that it will limit its coal investments.
Some other Davos news:
$500M Platform to Target SDG Investments: A coalition of organizations from both the private and public sectors have launched SDG500, an investment platform meant to help achieve the UN’s Sustainable Development Goals. SDG500 “will use debt and equity to bridge the financing gap between seed and growth stage for hundreds of businesses in emerging and frontier markets.” Geneva-based private equity firm Bamboo Capital Partners will manage the platform, which comprises six underlying funds with $500 million that will target sectors including energy, agriculture, finance, education and healthcare across Asia-Pacific, Africa, Latin America and the Caribbean.
Swiss Re Calls for Climate Change Adaptation “At Scale”: Adaptation ahead of the effects of climate change needs to happen much quicker around the world, said Veronica Scotti, chair of Public Sector Solutions at Swiss Re. Speaking on a panel at Davos, Scotti noted that average insured losses from extreme weather events has climbed more than 50% in the past quarter-century, due in large part to climate change. That figure is only going to increase further, which is why Swiss Re and other insurance and reinsurance companies have committed $5 billion to support climate resilience efforts in developing economies around the world. Much more is needed, however, she said.
Asset Managers Must Lead on Climate, Fidelity Int’l Boss Says: Active asset managers can, and must, push the companies they invest in to improve their efforts regarding climate change, said Anne Richards, the CEO of Fidelity International. Active stock pickers are best placed to engage with their portfolio companies and to get them to change their behavior, she said at Davos.
Other recent sustainability and green finance-related news items, outside of Davos:
Electric vehicles
UPS Orders 10,000 Electric Delivery Vans, Takes Equity Stake: UPS has ordered 10,000 electric delivery vans from UK-based EV manufacturer Arrival and also is taking an equity stake in the fast-growing company. UPS expects to start deploying the vans on streets across North America, the UK and Europe starting later this year. The contract is worth €400 million ($527 million) to Arrival, and UPS has an option to order another 10,000 vans. UPS’s equity stake in Arrival is thought to be around €100m ($110 million), which is how much South Korea’s Hyundai and Kia invested in the company earlier in January. Arrival has a valuation of about £3 billion ($4 billion), giving it unicorn status.
NY, NJ Boost Support for EVs: State governments in both New York and New Jersey are taking steps to increase the adoption of electric vehicles. In New Jersey, consumers can get tax rebates of up to $5,000 if they buy an EV, as well as smaller incentives for installing at-home charging stations. In New York, the governor is calling for a program to “promote responsible electric vehicle charging station deployment.” More than 20,000 drivers have received approval for rebates of up to $2,000 for the purchase or lease of an electric car, the state says.
ARPA-E to Fund $55 Million in Electric Aviation Research: The federal Department of Energy’s Advanced Research Projects Agency-Energy, or ARPA-E, will put up to $55 million into two programs aimed at developing low-cost electric engine technology and powertrain systems for the aviation sector. The agency wants to help the private sector develop commercial-class electric aviation technology so airlines and others in the industry can reduce their overall greenhouse gas emissions.
Fiat Chrysler Looks to Make EVs with Taiwan’s Foxconn: Automaker Fiat Chrysler is in advanced talks regarding a joint venture with Taiwanese manufacturer Foxconn that would have the two companies making electric vehicles within about two years. China would likely be the primary market for the EVs, at least at first.
Funding News
Warburg Pincus Commits $300 Million to Microgrid Startup: Private equity firm Warburg Pincus committed up to $300 million to Scale Microgrid Solutions, a New Jersey-based distributed clean energy and microgrid platform. The company focuses on commercial and industrial customers across North America, and this year will emphasize what it calls the “Rapid Response Modular Microgrid,” which it developed to help California businesses deal with wildfires and related power outages. “North America needs to rebuild its energy infrastructure in a far more sustainable way, which requires flexible and reliable behind-the-meter power solutions and access to efficient financing for customers,” CEO Ryan Goodman says.
Almond Milk Producer Raises $225 Million: Los Angeles-based Califia Farms, the third-largest plant-based milk company in the country, raised $225 million from investors in a funding round led by the Qatar Investment Authority. Other investors included Temasek Holdings, Calridge, Green Monday Ventures and a Latin American family that has large holdings in coffee and other consumer goods. Califia had previously raised $115 million and says it will use the latest funding to launch more plant-based milks and expand its line of oat-based products.
This news comes as Starbucks says it intends to grow the number of plant-based options it sells, as it migrates “toward a more environmentally friendly menu.”
Other Noteworthy News
$39B Pension to Fire Asset Managers that Ignore Climate Change: The Brunel Pension Partnership, a UK system that invests money for several local pensions, says it will fire asset managers whose investments don’t meet climate targets, including moving toward carbon-neutral investments by 2022. The $39 billion pension will also stress-test investment products through an environmental lens before committing any money. “We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change,” CIO Mark Mansley says.
Lloyds Bank Preps Green Products Amid Carbon Cuts: The UK’s Lloyds Banking Group says it will cut in half the carbon emissions from projects it finances by 2030, and will launch a number of green finance products for both commercial and personal banking customers this year. Details haven’t been disclosed, but the bank says the focus will be on helping companies improve the energy efficiency of their buildings and invest in low-carbon technologies. The bank says it has already reduced its own carbon footprint by 63% over the past 10 years through renewable energy, energy efficiency and low-emission transportation. The bank has also begun to divest from coal.
Climate Change Could Bring “Green Swan” Events: Climate change could cause a systemic financial crisis that could be termed a “green swan,” as opposed to a “black swan” event, the Bank for International Settlements is warning. The Basel-based bank — described as the “central bank for central banks” — says financial institutions, including central banks around the world, need to do more to make sure international finance systems are properly considering, and taking action on, risks stemming from climate change.