Peter Liu’s green education began at an oil company. He emigrated to the U.S. with his family from Taiwan when he was twelve, settling in South Los Angeles. His father opened an electronics-supply store, where his son worked after school. Liu attended the University of California at Berkeley, majoring in chemical engineering, and went to work for Chevron oil company. “I was very practical minded and put personal economics first,” he says. “I took the biggest offer at the biggest company.”
As a process engineer at Chevrons petrochemical plants, Liu helped design sites that met California’s stricter environmental regulations, as well as lower-cost facilities that satisfied looser rules in Louisiana, Texas, and other countries. “There are a lot of good people, great people, at Chevron, but external forces are really needed for advances to be made,” Liu says.
So Liu switched sides, joining California’s Air Resources Board and helped put into practice the states Clean Air Act. One object lesson: Executives at Chevron and other companies, who complained about proposed rules for clean gasoline, changed their tunes once the regulation was implemented. Ads trumpeted their products abilities to keep fuel lines clean and help cars run better. It became a marketing advantage, not a requirement, Liu says.
That experience led to a master’s degree in public policy at Princeton University, and eventually into the banking world at Chase Manhattan Bank and Credit Suisse First Boston. The direct impetus for New Resource Bank came in 2004, when Liu, along with software entrepreneur Bob Epstein and several others, was asked by California’s treasurer at the time, Phil Angelides, to help develop a green strategy for the states two huge public pension funds, an initiative dubbed The Green Wave. Eventually, the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) agreed to invest $1 billion in established companies that met environmental standards, and another $500 million in venture capital and private equity investments in clean technologies.
Liu says many of the entrepreneurs he met told him, “That’s all great, but the capital chain isn’t just about private equity. The real need for money is on the credit side.” In other words, in banking.
Liu and Epstein began shopping the concept for what they were calling The Sustainable Bank. One of their first meetings was with Peter Blom, CEO of Triodos Bank, established in the Netherlands in 1980, now with operations in the UK, Spain, Belgium, and Germany. Triodos had considered entering the U.S. market, but worried its model wouldn’t translate well. Europeans were willing to accept slightly lower interest rates to realize social returns, Blom says; Americans, at least until recently, weren’t. Likewise, Triodos was able to start in Europe with basic banking adding more services later. The U.S. market required a full menu from the start.
Blom was impressed by Liu’s research and analysis, and by his questions about Triodos’ operations. “He asked a couple of extra questions that were not so easy to get from the Internet,” Blom recalls. “We thought, Why do it ourselves if there was such a good partner?” New Resource Bank didn’t accept all the money Triodos’ principals wanted to put in; the initial round of financing exceeded the plan approved by bank regulators by 60 percent. Now, Triodos has a 10 percent stake.
Such interest from investors underscores what may be New Resource Bank’s greatest challenge—by now, everybody is going green. Some sixty banks worldwide have adopted the Equator Principles, setting out social and environmental guidelines for project financing. Citigroup vowed to provide $50 billion to environmental projects over the next decade, while Bank of America announced a $20 billion initiative to support sustainable businesses and turned its new 55-story, $1.2 billion Manhattan office into the world’s most eco friendly skyscraper.
Last year, when former U.S. President Bill Clinton launched a global energy efficiency building retrofit program, he quickly signed up five of the world’s largest banks, ABN AMRO, Citigroup, Deutsche Bank, JPMorgan Chase and UBS, each committed to arranging $1 billion in financing for cities and building owners to reduce energy consumption in existing buildings. If the money comes through, that will double the worldwide retrofit market.
Such global-scale investments are necessary if the world is to reduce emissions 30 gigatons by 2030, about half the projected output, if current trends continue, the radical step experts say is necessary to stabilize carbon dioxide levels and avoid catastrophic climate change. A few more solar rooftops and Prius drivers won’t be nearly enough.
A cap on carbon output, along with a market for carbon trading, will drive a booming market for clean technology, generating billions of dollars for investments that, in theory, could meet much of that challenge. In practice, however, it will take more than money and technology to realize the potential of the green economy. Equally crucial is leadership to coordinate multiple players and diffuse new practices to homes and businesses. That’s where institutions like New Resource Bank come in.
The city of Berkeley, California, for example, said last year it would become the first urban center in the country to finance the upfront cost of solar installations for homeowners who agree to pay back loans over twenty years through assessments on their property tax bills. The key to this entire program is to find a bank willing to provide the financing anticipated by the program, city staff members wrote in a report.
Likewise, Milwaukee and the Center on Wisconsin Strategy (COWS) are developing a plan to retrofit the city’s building stock, an ambitious effort called Milwaukee Energy Efficiency, or Me2. Under the plan, $500 million in private financing would be repaid by building owners through monthly bills for the retrofit work, guaranteed to be below the cost of current energy bills.
“I have not found finance to be a problem, per se,” says Joel Rogers, the director of COWS and a law professor at the University of Wisconsin-Madison, who hopes to launch a pilot program in January of 2009. “What the banks want to see is a demonstration of this working. They don’t want to fund an experiment. What they have all said is, ‘If you can guarantee payments, by getting this on a utility bill, with a penalty for non-payment, then Ill get you a very low cost of capital, below market rate.’ And I believe them.”
Liu says New Resource is committed to breaking down barriers and taking on such leadership. The banks solar-financing program packages government rebates, tax incentives and low-cost capital into twenty-five-year loans. Real estate developers who come in for financing can choose between two loans, one for conventional buildings and one for green construction, with a one-eighth percent discount and lower fees. For a $5 million loan, that could mean a savings of more than $60,000 over ten years.
With the financial crisis exposing the perils of business as usual, Liu is looking for unconventional opportunities. “The hurt for just doing the conventional things is getting greater and greater,” he says. As the markets revive, Green should be associated with better performance.
That’s in line with the advice Peter Blom of Triodos offered Liu in their meetings. “You really need to be the crazy guy when others say, ‘This is green enough,’” he told Liu. “You have to go the extra mile.” Liu has already taken New Resource Bank that extra mile, and now he’s going further.
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