Three Key Points of the Carbon Principles

Carbon Principles pic

Carbon Principles
Image: morganstanley.com

As the vice chairman of investment banking at Wells Fargo Securities in New York, Eric Fornell helps clients maximize their return on investment. He largely works with clients in the energy and utility sectors and major Wall Street banks. Eric Fornell’s experience allowed him to contribute to the banks’ development of the Carbon Principles.

In 2008, three of America’s largest financial institutions worked together to establish the Carbon Principles. These guidelines provide a framework for determining which energy-sector projects are environmentally clean enough to finance and which ones may be too risky. In order to stay ahead of federal regulators and avoid risk, Citigroup, JP Morgan Chase, and Morgan Stanley agreed to three overarching commitments:

1. Encourage investments in renewable and cost-effective energy sources rather than fossil fuels. Clients should be encouraged to consider the value of reduced and avoided CO2 emissions in their investments.

2. Use the jointly established Enhanced Diligence Process to evaluate potential transactions. All three partnering institutions agree to use the same process for evaluating energy projects and for determining what terms can be offered to finance certain projects.

3. Foster environmental education within the financial world. Clients, regulators, and related professionals need to understand the new requirements for financing and how the Enhanced Diligence Process changes their responsibility to evaluate projects.

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What Are the Carbon Principles?

Carbon Principles pic

Carbon Principles
Image: morganstanley.com

A graduate of Oxford University and Amherst College, where he was a Rhodes scholar, Eric Fornell currently serves as the vice chairman of investment banking and capital markets at Wells Fargo Securities in New York. Eric Fornell’s past experience includes work at JP Morgan Securities in the area of energy and utilities, where he helped negotiate the Carbon Principles.

The Carbon Principles, announced in February of 2008, were a set of policies focused on the electric energy industry. Originally an agreement between Citi, JPMorgan Chase, and Morgan Stanley, the principles were later signed on to by Wells Fargo, Bank of America, and Credit Suisse. Several environmental groups were also involved in the development of the policies.

The Carbon Principles called for enhanced diligence in the financing of electric power projects that affect climate change. This diligence focused particularly on the industry’s use of low-carbon energy, renewable energy, energy efficiency, and advanced energy technologies. The principles addressed the growing concern of multiple coal-fired power plants that were being constructed and the carbon risks that stemmed from them, and recognized the need for private industry to take steps to protect the environment.

Guidelines of the Carbon Principles

 

Carbon Principles

Carbon Principles

Eric Fornell, vice president of investment banking and capital markets at Wells Fargo Securities, advises clients in the energy and utility industries. As one of the negotiators of the Carbon Principles, Eric Fornell worked with large banks and environmental groups to establish guidelines for financing coal-fired power generating plants.

The Carbon Principles focus on reducing carbon emissions by encouraging energy efficiency, renewable sources, and low carbon energy technologies. Banks who sign the principles agree to encourage clients to invest in cost-effective renewable energy solutions as well as support regulatory changes that remove barriers to such investments.

Three clear commitments that take into account the value of avoiding carbon emissions are laid out in the principles. They include encouraging clients to consider low carbon energy alternatives, evaluating the risk of financing fossil fuel generation, and educating others in the financial and energy industries regarding the additional diligence necessary in the financing of fossil fuel generation.

Big Banks Develop Carbon Principles to Protect Nature and Investments

Carbon Principles pic

Carbon Principles
Image: morganstanley.com

Eric Fornell develops financial strategies for Wells Fargo Securities as the company’s vice chairman of investment banking and capital markets. Formerly the vice chairman of JPMorgan Chase, Eric Fornell was involved in the creation of the Carbon Principles.

The Carbon Principles are environmental guidelines put in place by three top Wall Street banks. Citigroup, JPMorgan Chase, and Morgan Stanley came together in 2008 to meet about climate change, environmental responsibility, and the roles that financial institutions should play in protecting the environment.

The principles include strict environmental standards for coal-burning power plants and similar environmental threats. Projects that do not meet these standards will not receive financing from the three banks, creating tremendous pressure to design clean plants or refrain from new construction altogether.

The Carbon Principles grew out of a time of political uncertainty. Congress was considering various bills to roll out new environmental regulations. Financial institutions had little guidance regarding possible changes, and did not want to risk losing money on plants that would not conform to standards. The principles allowed banks to create clear, consistent guidelines.

Carbon Principles – Understanding Carbon Risks in Power Investments

Carbon Principles pic

Carbon Principles
Image: morganstanley.com

Financial professional Eric Fornell has worked on a variety of projects throughout the United States and Canada as part of his banking career. Eric Fornell helped to negotiate the Carbon Principles, an agreement among Citi, JP Morgan Chase, and Morgan Stanley, and a handful of the world’s most influential power companies. Several environmental groups, including Environmental Defense and the Natural Resources Defense Council, were also involved in the process.

The Carbon Principles agreement marks the first time that power companies and financial institutions have come together to understand and respond to carbon-related risks in power investments. The Carbon Principles include energy efficiency, renewable and low carbon distributed energy technologies, and conventional and advanced generation.

This collaboration between carbon companies and banks was designed to positively impact the ways in which financial institutions finance coal-fired power plants. Additionally, the agreement is meant to encourage investing in safe, affordable, and widely available sources of energy in a manner that assists with job growth.

More information about the Carbon Principles is available here: www.morganstanley.com/press-releases/leading-wall-street-banks-establish-the-carbon-principles_6017

An Overview of the Carbon Principles

An experienced financial executive, Eric Fornell serves as vice chairman of investment banking and capital markets at Wells Fargo Securities, where he focuses much of his work on the energy and power sector. Eric Fornell’s past activities include serving on the Secretary of Energy’s National Petroleum Council and playing a key role in negotiating the Carbon Principles.

Established in 2007, the Carbon Principles are a set of guidelines designed to help banks assess the risks associated with providing financial support to new coal-fired power plants. Institutions that have adopted the principles and their accompanying Enhanced Diligence Process commit to taking a portfolio approach to energy investment, prioritizing renewables and energy efficiency, and addressing the future cost of CO₂ emissions in their financing.

The principles were developed through a partnership with several leading financial institutions, power companies, and environmental groups. The organizations involved in their creation included Citigroup, JPMorgan Chase, Morgan Stanley, American Electric Power, CMS Energy, and the National Resources Defense Council.