Environmental Considerations Affecting Investment Decisions

1. Environmental
Considerations Affecting
Investment Decisions
ERIC FORNELL

2. Environmental Considerations Affecting
Investment Decisions
A Rhodes Scholar, Eric Fornell earned his bachelor’s degree in economics and English from
Amherst College in Massachusetts before matriculating at Oxford University in the United
Kingdom. Currently the vice chairman of investment banking and capital markets at Wells Fargo
Securities, Eric Fornell was involved with a Carbon Principles agreement, negotiated with several
large banks and two large environmental groups, that governed the way the banks financed
coal-fired power plants.

3. Environmental Considerations Affecting
Investment Decisions
Individual and institutional investors alike must carefully consider a host of variables beyond
simple market performance when making investment decisions. For example, in 2013, coal-fired
electricity plants provided nearly 40 percent of the nation’s electricity. However, those plants
also contributed significantly both to air pollution and to the accumulation of greenhouse gases
in the atmosphere. Concern about these emissions is not limited simply to the ideals of
environmentally conscious investors, though.

4. Environmental Considerations Affecting
Investment Decisions
For years, the U.S. Congress has been considering a broad range of legislative and regulatory
approaches to reducing the emissions of carbon dioxide and other greenhouse gases into the
atmosphere. Investors must be aware not only of the considerations, but also of the actual
progression of various rules and regulations, for the purpose of determining the impact of such
legislation and regulations on investment targets.

5. Environmental Considerations Affecting
Investment Decisions
When deciding to invest either in an existing coal-fired plant or one to be built, investors must
consider not only the plant’s compliance with existing standards, but also its ability to come into
compliance with new emissions regulations. These costs need to be included in the investor’s
calculations, as well as the contingency costs of non-compliance, including fines and other
penalties.

6. Environmental Considerations Affecting
Investment Decisions
In an interview in 2008, Eric Fornell discussed the efforts of investment banks to formalize these
concerns by routinely addressing these issues with utilities prior to lending them money. He also
pointed out that because of the additional risks associated with coal, investors would like to see
utilities consider using renewables and promoting energy conservation measures as alternatives
to constructing new coal plants.