Posted in GreenBiz
February 9, 2022

Funding the transition: A tale of two banks


Two very different banks have made recent, similar pledges to step up their investments in climate tech and clean economy transition projects.  

Silicon Valley Bank (SVB) has committed to $5 billion in loans, investments and other financing by 2027 to support sustainability efforts. Meanwhile, JPMorgan Chase Asset Management is investing $150 million through a new sustainability-focused investment team as an initial step toward its previously announced target of $2.5 trillion of sustainable investments over the next 10 years.

There, the similarities end. The differences are striking and well-illustrate the new, rapidly changing dynamics of finance related to climate issues.

For SVB, the pledge is an expansion of the San Francisco Bay Area bank’s historic practice of providing support to hundreds of companies at work in the energy transition. Given its location in the heart of tech world, that is hardly surprising but it is still as innovative as the companies it supports.

“Over the last 12 years, our Climate Tech and Sustainability and Project Finance teams have supported hundreds of companies that are working to accelerate the transition to a more sustainable, low carbon world,” said Greg Becker in a statement. “Our ability to make a meaningful difference for people and the planet, and to address the systemic risk that climate change presents, is magnified by the outsized impact our innovative clients make.”

SVB walks the talk

That’s a bold claim, but the bank has the proof of walking its talk. SVB’s Climate Tech Report is chock full of data and insights about emerging climate technologies and investment trends. It features in-depth looks into several key developments such the exponential rise in VC investments and the decrease in costs of deploying clean tech. And the bank is transparent about the strategies to capitalize on these developments. Last fall, SVB Financial Group, the parent of Silicon Valley Bank, announced a new tech investment banking team, SVB Leerink, to expand and build on SVB’s core capabilities. For SVB, it’s all connected: climate, tech and investing.

Here’s how it works: SVB’s Project Finance team “specializes in construction financing, back-leverage debt financing and syndication financing” while the firm’s Climate Tech and Sustainability team “works with hundreds of companies across sectors innovating for positive environmental change.” This is the legacy platform that is being expanded by the new commitment to ramp up lending and investing to serve more climate-positive projects.

Opportunities for profit while making progress toward the Paris Agreement seems to be SVB’s brightly shining North Star.

The “projects” the bank favors are those companies at work on innovative tech to decarbonize the energy industry and move along the transition to a net zero emissions economy. The list of activity areas is a wide-ranging list that covers the gamut of innovative climate action, from resilience to renewables and GHG emissions mitigation.

If this sounds like a heavy lift for a bank, SVB doesn’t think so. With $191 billion in assets, $61 billion in loans and $371 billion in deposits and investments, the nearly 40-year-old firm has the financial heft to move the sustainable investment market.

Opportunities for profit while making progress toward the Paris Agreement seems to be its brightly shining North Star. Investment advisory The Motley Fool agrees, including SVB on its short list of “3 Bank Stocks to Buy in 2022,” noting that “the juggernaut in the industry for many years in catering to the startup and tech banking sector” is well positioned for continuing outperformance as it moves deeper into climate tech.

And, to be internally consistent with its investing mission, SVB has also pledged to achieve carbon neutral operations and 100 percent renewable electricity by 2025. What’s not to like in this bank’s story?

The JP Morgan Chase HQ in NYC

Behind JPMorgan’s latest green finance move

The pledge by JPMorgan Chase comes with a very different back story.

Called the world’s worst “fossil bank,” JPMorgan Chase contributed $51.3 billion in fossil fuel financing last year, and a total of $317 billion from 2016 to 2020, according to a report by the Sierra Club and Rainforest Action Network, “Banking on Climate Chaos.” This made the bank the leading player in the $750 billion invested globally in 2020 in fossil fuel funding, and in the $3.8 trillion provided by the world’s 60 largest banks since 2016, following the Paris Agreement. (Many of these same banks pledged to back the Paris climate accord and cut their financing for fossil fuels.)

Since October, when JPMorgan joined the global alliance to achieve net-zero emissions from finance, it has underwritten $2.5 billion in bond deals for oil and gas companies, about the same amount for the same period in previous years, according to Bloomberg. Like other banks, JPM argues that polluters need the capital to fund their transition to new sources of energy. That means redirecting trust in progress on climate to the likes of Shell and ExxonMobil — a rather large leap of faith, based on the evidence of history.

With that background, and as the largest U.S. bank, with $2.87 trillion in assets, JPMorgan makes a fat — and fair — target for those who argue that the banking industry is having a negative impact on efforts to make progress toward mitigating climate change, and that its sustainability talk is just hot air polluting the climate finance sector. It certainly invites skepticism about the bank’s recent announcement.

However, in April, it took a significant step in announcing a new Green Economy team, dedicated to “providing services to private entities in need of capital that are poised to benefit from the transition.” The governing idea is to support “organizations that can play a role in decarbonizing other companies and industries.” The unit is part of the bank’s commercial banking division and includes dedicated bankers who are tasked with accelerating the flow of capital toward clean tech, among other sustainable businesses.

And just last month, JPMorgan hired Ben Ratner from the Environmental Defense Fund, where he spent almost 10 years leading a team that worked with investors and energy companies to cut GHG emissions. Described as an executive director in the bank’s D.C. office, Ratner is charged with advising clients on reducing their carbon footprint. This personnel move adds some major cred to JPMorgan’s commitment.

Even more noteworthy are details of the JPMorgan’s new private equity team. The firm has hired Tanya Barnes, formerly of Blackstone and Goldman Sachs, as co-managing partner of the team. Also named to the team’s investment committee is JPMorgan’s senior climate scientist and sustainability strategist, Sarah Kapnick, who joined the firm last year from the National Oceanic and Atmosphere Administration, where she served on NOAA’s Small Business Innovation Research Program. Prior to her graduate studies, she spent two years as an investment banking analyst with Goldman Sachs covering financial institutions. These are heavy hitters, and their experience and expertise make a strong case for JPMorgan’s seriousness in executing its lofty commitment.

Of course, the bank also cites the opportunity: “The new sustainable growth private equity team sits within J.P. Morgan Private Capital, a growth equity and private credit investment platform established to tap into the continued growth of private markets and significant pre-IPO value creation opportunities.” That’s bankspeak for “there’s money to be made.”

Banks of all sizes and missions will play a bigger part in the energy transition going forward. Look for more announcements about investing in sustainable development as more financial institutions step up their activity, both to protect their downside and to cash in on potential profit opportunities. The bottom-line question will be, can we believe that their commitment to execution is as bold as the wording in their press releases?

February 9, 2022 at 04:21PM

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