Goldman Sachs Group Inc plans to channel investments totaling $40 billion over the next decade into renewable energy projects, an area the investment bank called one of the biggest profit opportunities since its economists got excited about emerging markets in 2001.
Goldman executives said this week that demand for alternative energy sources will grow with global energy demand, and as big manufacturing countries, including China and Brazil, set more aggressive targets for reducing emissions. The bank plans to finance deals with clients' money and, to a lesser extent, its own funds.
Goldman, which plans to announce the new target at its annual meeting on Thursday, already invests in clean technology. In 2011, it helped finance $4.8 billion in clean technology companies globally, and co-invested more than $500 million in that area. The new target would average out to $4 billion a year, leading some analysts to minimize the target as more of a "charm offensive" than a new initiative.
In 2005, Goldman pledged to invest and finance $1 billion of environmentally friendly projects. By the end of 2011, the company had exceeded its goal, arranging $24 billion worth of financing and investing $4 billion into such projects, said Kyung-Ah Park, head of environmental markets at Goldman.
The bank's new $40 billion target applies to investments and financings for solar, wind, hydro, biofuels, biomass conversion, energy efficiency, energy storage, green transportation, efficient materials, LED lighting and transmission.
Goldman has also pledged to reduce its own net carbon emissions to zero by 2020.
Stuart Bernstein, head of Goldman's clean technology and renewables investment banking group, compared the opportunity to technology investments in the 1990s or investing 10 years ago in fast-growing countries like Brazil, Russia, India and China, for which Goldman economist Jim O'Neill coined the term "BRIC" in 2001.
"This is another emerging opportunity we think will be quite large," Bernstein said.
Enthusiasm for renewables was high in 2006 and 2007 as oil prices soared. But enthusiasm waned after the financial crisis cut energy demand and cash-strapped governments reduced subsidies for alternative energy programs.
The use of hydraulic fracturing technology to access abundant supplies of natural gas in the United States and elsewhere has also undermined alternative sources of energy.
"Obviously we recognize this is not the easiest of times in the clean energy market but nevertheless the underlying thesis as to why cleaner and more sustainable forms of energy need to scale up still holds true," Park said.
Analysts and experts said Goldman may also be looking to score public relations points for a relatively small investment.
The bank has been on a charm offensive in recent months, after a former employee wrote a scathing opinion piece in the New York Times in March accusing Goldman of ripping off clients regularly. That was the latest in a series of blows the bank's image has suffered since the financial crisis.
"It's forcing a firm that had its roots in being private for a very long time to have to go out there and defend itself," said Michael Carrazza, a former Goldman banker who is now CEO of the private equity firm Solaia Capital Advisors. Promoting these sorts of initiatives makes sense, to show that the bank does some good, Carrazza added.
(Reporting By Lauren Tara LaCapra)