Friday, October 27, 2006

Morgan Stanley Jumps on the Greenwagon

Morgan Stanley has become the latest big corporate titan to join the fight against climate change. It announced (see official press release) yesterday that it plans to invest about $3 billion over the next 5 years in the brokering of carbon emissions credits trading and in structuring and financing carbon reduction projects.

Morgan Stanley's announcement is just the latest in the string of events in what I perceive as a fundamental "green shift" in corporate America and Wall Street, spurred on by the following trends and factors, among others:

1. Sustained high oil prices created by geopolitical uncertainty and hurricane damage to oil rigs in the gulf region has created a money gusher for oil producers (see most recently Exxon and Shell) and infrastructure companies building additional refining and oil rig capacity;

2. The high oil prices have created a sense of political urgency for oil security, creating new investment opportunities in biofuels as an alternative to gasoline, and energy efficient cars like the hybrids (see earlier posting on hybrid cars);

3. Volatile swings in natural gas prices have wrecked the fortunes of multi-billion dollar hedge fund Amaranth, among others, highlighting symptoms of a bigger problem--the uncertainty of natural gas supply and its potential to create jolts in the world economy (see earlier posting on Russia's stronghold on natural gas supplies);

4. The "clean tech" sector has received a surge of venture capital funding, making it the third most invested VC sector after life sciences and software (see also cleantech's record breaking Q3);

5. Despite a lack of carbon emissions regulations in the U.S. at the national level, various states are forging ahead to create regional carbon markets (read about California joining forces with northeastern states)

6. The ratification of the Kyoto Protocol and as a result, the implementation of the EU-wide Emissions Trading System has created a market for carbon, providing financial players with opportunities to trade, broker and arbitrage;

7. The clean development mechanism (CDM) and joint implementation (JI) schemes under the Kyoto Protocol, both similar programs which allows a country to invest in carbon reduction projects in other countries and gain emissions credits that can either be traded or used to offset the country's Kyoto emissions quota, can creates opportunities for ecopreneurs to structure, finance and broker such carbon reduction projects (click here for a recent example of a CDM project brokered by Ecosecurities);

8. China, soon the be the world's dominant economy, is taking bold moves, amongst which is the investment of US$175 billion over the next 5 years in environmental protection, and conducting a "green accounting" of its national economy (see earlier post on China's Green GDP). When China moves, Wall Street and corporate America notices;

9. The recent Clinton Global Initiative has made green sexy, raising some $4 billion in commitments for a green technology investments highlighted by the Virgin Group's Richard Branson's $3 billion commitment and former World Bank head, James Wolfensohn's launch of his $1 billion green technology private equity fund.

These are just some of the many drivers which has created a green wave of corporate environmentalism (see earlier post), especially with respect to climate change issues. Morgan Stanley's foray into the carbon market comes in the heels of Goldman Sach's own carbon initiatives, and is important for its signal that Wall Street is ready to get involved in the fight against climate change in a big way. Details of how this $3 billion will be deployed by Morgan Stanley and about the source of these funds are scarce, but the rest of Wall Street will surely be paying attention.

Climate Change Capital, a boutique London-based investment bank, raises $1 billion for CDM investment fund (article); China dominates world CDM market (article).


At Sat Oct 28, 03:09:00 PM GMT-5 , Anonymous Helen Bar said...

Its about time that financial institutions start taking a leading role in facilitating solutions to reducing the very carbon footprints that they have created and financed in the century and half of industrilization. Hopefully the rest of the big financial sector will follow and see the gold to be made in the greens.


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