As global investments in clean energy sank 11 percent to $245 billion last year, banks found a new opportunity: funding, advising and leading the initial public offerings of renewable-power investment firms called yield companies.
Yieldcos, as they’re known, grow by purchasing the solar, wind and other power plants that supply utilities under long-term contracts. From a trickle a few years ago, they’ve raised more than $3.8 billion since 2013 as of mid-September, Bloomberg Markets magazine will report in its November issue.
Buoyed by their work for this expanding industry, Royal Bank of Canada and New York–based Goldman Sachs Group Inc. moved into the top five in Bloomberg Markets’ ranking of the world’s greenest banks.
The results come as more than 120 heads of state gather today in New York for the world’s largest summit on climate change. United Nations Secretary-General Ban Ki-moon is urging business leaders to shift from fossil fuels and reduce carbon emissions and to pressure their governments to commit to a global climate pact.
“There is no plan B because there is no planet B,” Ban said during a Sunday march in New York that organizers said drew more than 310,000 people to protest inaction on climate change.
Toronto-based RBC was No. 4 in the ranking after helping raise more than $400 million for British wind-power firm Greencoat U.K. Wind Plc and $242 million for sun-energy company Foresight Solar Fund Ltd. No. 5 Goldman assisted NRG Yield Inc. in its $431 million IPO in July 2013.
Investors -- especially banks -- like yieldcos because utilities pay the firms a steady stream of cash for the electricity produced by their solar and wind installations. NRG Yield, which last year assumed control of the solar and wind assets of parent NRG Energy Inc. in Princeton, New Jersey, has delivered a 2.9 percent dividend yield. NRG Yield’s shares have more than doubled from the IPO date through Sept. 22.
“We’ll see a lot more of these coming because they fill a desire for both conservative and sustainability-minded investors,” says Nathaniel Bullard, an analyst at Bloomberg New Energy Finance in Hong Kong.
European banks dominated the annual ranking. Spain’s Banco Santander SA regained the top spot it lost to Citigroup Inc. last year. No. 2 BNP Paribas SA of France, No. 3 UniCredit SpA of Italy, No. 7 HSBC Holdings Plc of the U.K., No. 9 SEB AB of Sweden and Credit Suisse Group AG of Switzerland, which tied for 10th place with JPMorgan Chase & Co. of the U.S., all converged in the top 10.
U.S. banks didn’t fare as well. One big reason: The tax credits for wind projects that helped propel them in last year’s ranking expired, sending development plunging 92 percent. U.S. lenders also fell as Bloomberg’s ranking considered a bank’s coal investments as a liability for the first time.
Geeta Aiyer, who helps manage more than $2 billion at Boston Common Asset Management LLC, says investors should hold lenders accountable for their dirtier investments.
“We don’t want banks to ignore the risks that come with having coal plants and mining companies in their portfolios,” says Aiyer, whose fund has owned shares in Citigroup, HSBC, JPMorgan and Mitsubishi UFJ Financial Group Inc.
Aiyer says she invests in these banks partly to prod them to consider the hazards of fossil fuels in their financing plans.
“We want them to do a pre-screening on climate risks before a deal is even contemplated,” she says.
Citigroup, which helped provide about $1.77 billion in funding for the global coal industry, didn’t place in this year’s top 20. The New York bank aided Switzerland’s Glencore Plc on its $29 billion takeover of Xstrata Plc to form the world’s largest exporter of coal.
“We have directed $54 billion toward climate-positive activities since 2007,” says Citi spokesperson Kamran Mumtaz. He says the bank surpassed its $50 billion target three years early.
China led the world in coal investments. It also topped renewable-energy development, with $61.3 billion in spending last year.
The U.S. followed, with $48.4 billion. Japan was third after increasing its clean-energy funding 56 percent to $35.4 billion on the heels of the Fukushima nuclear disaster.
Santander returned as the greenest bank after big moves in wind and solar. It helped Seville, Spain–based Abengoa SA, the world’s largest builder of generators that gather heat from the sun to spin steam turbines, sell shares in the U.S.
Santander also financed wind farms in Australia and Uruguay. And it helped refinance the world’s largest offshore wind generator, the $2.9 billion London Array, whose turbines began supplying power to about 500,000 U.K. homes in July 2013.
Santander stuck to its clean-power agenda by taming its own carbon output. It cut greenhouse gas emissions by purchasing 47 percent more renewable energy for offices worldwide and investing in the credits produced by such carbon-reduction projects as reforestation in Brazil.
That’s the way global lenders should behave, Aiyer says. “The banking industry can and should become the leading catalyst to a low-carbon world,” she says.
How We Crunched the Numbers
To rank banks’ environmental records, Bloomberg Markets looked at their investments in clean energy and efforts to reduce their own waste and carbon footprints.
Bloomberg teams gathered material from annual and corporate-social-responsibility reports, websites and other public documents covering the banks’ 2013 fiscal years. We supplemented that with follow-up research and verification.
We considered banks that were members of prominent national stock indexes and that had market values of $10 billion or more as of Sept. 15. We eliminated those with insufficient data on their environmental activities.
In the clean-energy investments category, which accounts for 70 percent of the score, we assessed support for clean-energy projects such as wind, solar, geothermal, hydro, biomass/biofuels and related technologies.
We divided the efforts into public- and private-equity investments, debt issuance, advisory services and tax equity. We ranked the projects from highest to lowest based on the total installed electricity-generating capacity of the investments in megawatts, total dollars invested and total deal count.
The second consideration, reducing environmental impact, accounts for 30 percent of the score. We looked at the banks’ reductions in air emissions and water use and at gains in energy efficiency.
We used a three-year-momentum approach, with the most-recent data receiving the greatest weight. Banks with more-aggressive and more-mature programs and with measurable, multiyear declines in greenhouse emissions and water and energy consumption earned the most points. Banks that disclosed more data got more credit.
This year, we introduced a coal energy component. We tallied the number and value of a bank’s deals in coal industry projects. We included equity and equity-linked investments, bonds and loan financings. We assigned four levels of penalty points to reflect a bank’s involvement with coal and adjusted the overall score to reflect the negative points.
Throughout the ranking, each data point was ranked against its peers on a scale of zero to 100. For example, in underwriting activities, the banks reporting the highest-dollar-value deals received the highest scores. Those scores were multiplied by the weight assigned to that category to determine the overall value in the section. This was done for every grouping to determine a total score for the clean investments and environmental impact categories.