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One thing to start: as we went to press, BlackRock chief executive Larry Fink issued his annual letter to chief executives, warning that the failure of Silicon Valley Bank could trigger a “slow rolling crisis” in the US financial system, “with more seizures and shutdowns coming”. Yikes. (We will return to his thoughts on sustainability on Friday.)
Meanwhile, in today’s newsletter we look at the question of whether the sustainability movement was to blame for SVB’s collapse? To enthusiasts, that might seem like a ridiculous question to ask. But the US right has amassed a vast war chest of funds to attack “woke capitalism” and lob political missiles at the left. Indeed, at an NYU Stern conference on sustainability yesterday, I heard some participants guesstimate that around $30bn had already hit the coffers of the anti-environmental, social and governance (ESG) cause at state and federal level.
Paul Knopp, chair and chief executive of KPMG US, told the event he saw no sign that this anti-ESG movement had changed the behaviour of US business leaders in a significant way; although some are wary of talking about ESG in public, their (quieter) efforts to embrace sustainable causes are accelerating among the vast majority of companies, including those in “red” states, he told me.
But in one sign of how rightwing groups are already using that $30bn war chest, Republicans are waging war on “woke capitalism” and blaming it for SVB’s failure. Read our story below for some details. And then take note of a piece we ran on Monday that pointed out how peculiar these accusations seem, since if SVB had paid attention to “G” — ie governance — its risk management might not have been so dire.
Meanwhile, Kenza explains that the structure of SVB’s loan deals prevented sustainable start-ups (among others) from diversifying cash pools. As ever, let us know what you think, and/or pass on any more tips about SVB and its impact on the green world. (Gillian Tett)
‘There wasn’t much room for negotiation’
One way to look at the failure of Silicon Valley Bank is that despite its questionable management of interest rate risk, it deserves credit for backing plucky climate-critical companies that investment banks wouldn’t touch.
But, according to one venture capitalist backer of dozens of US climate start-ups, SVB deliberately kept these companies away from other potential backers. It did this by inserting thorny clauses into loan deals that prevented start-ups from holding deposits anywhere else — but that also had the effect of hiking SVB’s concentration risks.
“Either they [start-ups] had all their cash with SVB or none of their cash there, which obviously I think is in part what led to the panic leading up to the weekend,” Lindsay Luger, co-founder of climate tech venture investor Energy Impact Partners (EIP), which manages $2.5bn, told me yesterday during a panel at NYU’s event.
“Lots of our companies actually tried to negotiate away that clause, but it was the largest lender to the space,” Luger said. “They offered very competitive terms. And so there wasn’t much room for negotiation.” A large proportion of the EIP’s 75 portfolio companies banked with SVB.
And start-ups which have still not moved their money out are worried that if they do, they will be in breach of their legal obligations, she said. SVB did not immediately respond to a request for comment.
One start-up founder whose cash is tied up with SVB, and who did not want to be named, argued the clause, which is common among banks, is a red herring, given how tiny some SVB borrowers were. “A lot of companies didn’t even have a second bank account, which means people didn’t even have a place to transfer money TO,” he wrote in a WhatsApp message to me yesterday.
There is, however, a silver lining to the crisis: what quickly became clear from my meetings in New York this week — after the Fed said it would step in to guarantee all deposits — is that the tech community is determined to turn the situation to its advantage.
An extremely relieved boss spoke to me yesterday morning shortly after he had managed to access cash held with SVB, to pay his 45 staff members today. “The first priority was payroll . . . ‘do no harm’ was the rule here,” said BJ Johnson, chief executive at Illinois-based ClearFlame Engine Technologies, a start-up which redesigns diesel engines so they can run on cleaner fuel.
Johnson is now turning to the “slew” of emails he received over the weekend from investment bankers and private equity companies with offers of emergency credit. “Now is the time we start building relationships — every company in my shoes is thinking like that,” he said.
Dan Goldman, head of Clean Energy Ventures, was on Monday preparing to cover this month’s wages for some of the companies it backs because of a “confluence of trapped cash and a near-term payroll” he told me.
A rush of withdrawals from SVB has led to IT glitches in the past few days, but a micro-bailout by Goldman’s VC has not, so far, turned out to be necessary.
Instead, the VC has drawn up a list of best practices for avoiding inappropriate concentration of risk — a kind of crash course in sound financial management — to send round to its flock of start-ups. (Kenza Bryan)
SVB gets caught up in the ESG culture wars
As everyone points fingers at who is to blame for the run on Silicon Valley Bank, its implosion has landed squarely in the middle of the culture wars that have engulfed the world of ESG issues.
US Republicans have wasted no time pointing to the bank’s environmental and social priorities. Ron DeSantis, a known ESG adversary, joined the likes of Vivek Ramaswamy (whose op-ed we flagged earlier this week), telling Fox Business that the bank’s concerns with diversity, equity and inclusion “diverted from them focusing on their core mission.”
Anson Frericks, co-founder and president of Strive asset management, told Moral Money that the bank’s sustainability priorities could have distracted employees from scrutinising risks around interest rate, liquidity, credit and customer concentration.
Last year, SVB committed to provide at least $5bn in financing to cleantech businesses and others in the sustainability economy by 2027. However, even if the goal was realised, that would amount to less than 7 per cent of its current loan portfolio, according to its latest annual report.
Tariq Fancy, the former chief investment officer of sustainable investing at BlackRock, told Moral Money that he sees Republicans’ claims linking SVB’s failure to sustainability simply as feeding into the larger politicisation of ESG.
“It’s like a great chance to attack Biden and connect them to big business going into a recession”, Fancy said, “this strikes me as an extension of that.”
Gregory Hershman, head of US policy at the Principles for Responsible Investment, said that maybe if responsible investment were more widespread in the 2000s, someone would have seen the “house of cards” at play.
Investors are saying that they do care that their money is invested with “sustainable risks in mind,” Hershman said. (Kristen Talman)
Don’t miss our Energy Source colleagues’ write-up on the Biden administration’s final approval for new oil drilling in Alaska — which features quotes from an exclusive interview with energy secretary Jennifer Granholm. Though environmentalists were understandably upset about the new Willow project, the approval highlights the administration’s desire to keep gas prices low. This is likely to remain top of mind until the 2024 election.
“Notwithstanding howls from environmentalists”, said analysts at ClearView Energy Partners, “the greenlighting of Willow would appear to suggest the administration has not yet abandoned its wartime fossil fuel pragmatism”.
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
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