Banks Seek To Protect Against Climate Change Risk
Three major U.S. banks -- Citigroup, JP Morgan-Chase, and Morgan Stanley – recently established new guidelines for assessing climate change risk when asked to fund power plant-related projects. The banks' "Carbon Principles" recognize the economic value of low carbon emissions and encourage clients to lower those emissions by investing in renewable energy and implementing low-emissions technologies. Also, potential borrowers will need to demonstrate their commitment to cleaner technologies and to evaluate more carbon-friendly alternatives when seeking financing for power plant projects. The principles were devised with input from both energy companies and environmental groups, and all involved seem satisfied with the outcome.
The principles are further evidence that the marketplace increasingly sees eventual regulation of carbon emissions as inevitable. Recognizing that their clients will eventually have to incorporate carbon emissions costs into their business models, the banks wisely have developed these guidelines to minimize the risks of investing in carbon-intensive projects. Nothing drives corporate behavior quite like the need to please those with the money, so these guidelines have a good chance of having a significant effect on the development of more carbon-friendly power plants.
Posted by David J. Petersen, partner practicing in the Sustainability and Real Estate & Land Use Practice Groups.
