Goldman's Green Streak Is Questioned As Two Investors Seek Focus on Profit [WSJ]
Donation of Tract To Chilean Preserve Is Called Wasteful
By KATE KELLY and ANN DAVIS
March 27, 2007; Page C3
Goldman Sachs Group Inc. has developed a reputation for being Wall Street's most environmentally friendly investment bank. Two gadfly shareholders plan to put that reputation in the spotlight at the securities firm's annual meeting today by complaining that one of its grand environmental good deeds, donating land for a nature preserve in Chile, is a waste of money.
Whether that one was a waste or not, Goldman's green gestures are driven by a love of greenbacks.
Goldman bought Horizon Wind Energy, an alternative-energy company, two years ago for less than $1 billion. Now, after the company spent a few hundred million dollars developing new wind farms, Goldman is expected to sell it for as much as $2.5 billion, according to SparkSpread.com, a Web site that tracks energy deals. Goldman also made money helping to structure the proposed $32 billion buyout of the utility company TXU Corp. in a way that lowered its future greenhouse-gas emissions.
'Huge Profit' In It
Goldman also is a player in the buying and selling of permits to emit carbon dioxide in a trading market designed to create incentives to reduce pollution and global warming. The value of its minority stake in Climate Exchange PLC, which operates a U.S. marketplace for voluntary carbon-emissions trading, has roughly tripled on London's AIM stock market since Goldman invested in September.
There are "huge profit opportunities" in environmental business endeavors, says Andrew King, an associate professor of business administration at Dartmouth College's Tuck School of Business.
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Wall Street firms routinely get pressured to stop funding business activities that harm the environment. Last month, the advocacy group Rainforest Action Network demonstrated outside several Merrill Lynch & Co. offices to protest the firm's involvement in raising $11 billion for TXU for a planned group of new coal-fired power plants in Texas. (Much of the plan was later scotched.)
Merrill says the protestors' concerns would have been better addressed to Texas state officials who had the authority to veto the deal. Separately, the firm says it has taken steps, including purchasing credits, to offset its carbon emissions.
It's Not All Green
Not everything Goldman does is environmentally savvy, either. The firm makes billions as an owner and a banker in an industry often targeted by green lobbyists: power-generation plants. Goldman owns full or partial stakes in 19 plants around the U.S. that emit millions of tons of gases thought to cause global warming. Some burn coal, one of the worst polluting fuels. The plants bring in hundreds of millions of dollars a year in revenue. Goldman also trades some of their electricity output on its commodities desk.
"The reality right now is the economy runs on fossil fuels, so it would be hard to find a major financial institution that wouldn't have some investment in the energy sector," says Glenn Prickett, senior vice president for business and government relations at Conservation International, an environmental organization in Arlington, Va. Goldman spokesman Lucas van Praag adds: "Electricity is an essential part of life."
Paulson's Passion
Goldman's green push started during the tenure of Henry Paulson Jr., chairman and chief executive of the company before his departure last June to become Treasury secretary. The firm has burnished its environmental credentials in big and small ways. It uses a private-car service with hybrid vehicles for its New York City employees. It has invested at least $1.5 billion in alternative energy. In 2006, it was the lead investor in an equity-financing effort for SunEdison LLC, a company based in Baltimore, Md., that sells solar energy to institutions.
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The firm also has expanded into stock research that looks for investment opportunities in areas like alternative energy in addition to tracking companies' environmental records.
The purchase of 640,000 acres of sub-Antarctic land on Chile's southern tip (an area known as Tierra del Fuego) was one of Goldman's most high-profile green moves. The firm ended up with the title on the land as part of a package of defaulted mortgages it bought in 2002. Rather than allowing the land to be logged, Goldman donated it to the Wildlife Conservation Society. Goldman took a $30 million tax deduction for the donation, says someone familiar with the matter. Goldman won't say what it paid for the land.
The donation has become the hobbyhorse of Steve Milloy, who runs a money-management company called the Free Enterprise Action Fund, with $11 million under management. Mr. Milloy uses the often-small stakes he owns in companies to push his agenda. He owns a Web site called junkscience.com that disputes the rationale behind global warming.
Waste of Money?
Mr. Milloy argues that the donation was a questionable use of shareholder money. He says Goldman could have generated $150 million a year by logging the land, while fulfilling its commitment to the environment by replanting trees along the way.
Goldman executives contend replanting would be environmentally harmful by replacing some of South America's oldest trees with rapid-growth pine.
Mr. Milloy has asked shareholders to vote to force the firm to review whether its green projects will benefit the environment over the long term.
Goldman's board has recommended shareholders vote down his request and a similar one from the National Legal and Policy Center, a government and corporate watchdog group that also has a small stake in Goldman. The Center believes charitable donations like the Chile grant squander corporate assets.
"From a social and a business perspective, our environmental policy makes sense," says Mr. van Praag, the Goldman spokesman. |
