Sustainable Finance

Why is Sustainable Finance the Next Big Commercial Opportunity?

This week, Goldman Sachs announced a target of $750 billion in sustainable finance initiatives that focus on climate transition and inclusive growth. “There is not only an urgent need to act,” Goldman Sachs Chairman and CEO David Solomon wrote in an op-ed in The Financial Times on Sunday, “but also a powerful business and investing case to do so.” John Goldstein, head of the firm’s Sustainable Finance Group, expanded on these efforts in an episode of the Exchanges at Goldman Sachs podcast: “This [commitment] is grounded in a core view of where the world is going,” he said. “It’s almost a market call that, fundamentally, these questions of climate transition and inclusive growth are going to be central, secular themes for the economy, for our clients and for ourselves.” The $750 billion will focus on nine key pillars, including clean energy, sustainable transportation and ecosystem waste. “Under climate transition, we see things that you’d expect to see, like clean energy, and things that you might not expect as much…like waste and materials [and] ecosystem services,” Goldstein said. “Inclusive growth looks at, ‘How do we have growth that works better for more people?’ Things like accessible, affordable education, accessible and affordable healthcare, investing in our communities.”

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Talks at GS with Blackstone CEO Steve Schwarzman
Above (L to R): David Solomon of Goldman Sachs and Steve Schwarzman of Blackstone

Blackstone may be one of the world’s leading investment firms, but its future was far from assured when Steve Schwarzman and Pete Peterson started the company in 1985 as an M&A advisory boutique. “Because we did this huge volume of M&A work [at Lehman Brothers] and other things, we figured you put out your shingle [and] the same clients just give you work because you’re so remarkable and wonderful and pleasant and funny. How can they not?” Schwarzman recalled in a recent episode of Talks at GS. “The answer is – they didn’t…. They were scared to give [business to] some no-name firm.” That changed when Blackstone received its first major commitment of $100 million from Prudential, and today the firm has more than $550 billion in assets under management. But the foundations that Schwarzman and Peterson established for Blackstone in its earliest days still define the firm, Schwarzman said. “We’ve been doing this since 1985 because knowledge is power. In finance, everybody thinks the same, more or less….You have to have knowledge other people don’t have. And to do that, you have to produce that knowledge and then you have to figure out, how do the pieces fit? How do you see something in one area that tells you what’s going to happen in another area?…It’s just information and seeing patterns, which lead you to opportunities.”

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The Long & Short of It: A Historic Year for Healthcare Tech

2019 has been a historic year for healthcare deal activity, according to Goldman Sachs’ Investment Banking Division, with nearly $32 billion in announced M&A and 12 deals larger than $1 billion. As technology and healthcare become increasingly intertwined through the implementation of machine learning, robotics and analytics, significant investment from outside players is growing. Over the past two years, companies like Amazon, Google and Best Buy have made material acquisitions in the healthcare sector. “Innovation is at the core for making healthcare sustainable for organizations,” says Jim Sinclair, a managing director in the Healthcare Group covering healthcare services and technology companies. “Healthcare technology offers the ability to increase patient access, enhance quality, and improve affordability over the long term.”

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Briefly…on Vietnam’s New Role in Chinese Tech

As tech firms from Greater China seek protection from trade tensions, many are adding manufacturing capacity in Vietnam to build everything from AirPods to TVs. To find out more, we spoke to Goldman Sachs Research’s Allen Chang, who recently visited industrial parks across Vietnam to interview the tech companies expanding there.

Allen, given China’s unrivalled role in tech manufacturing, what attracts Greater China tech firms to Vietnam?

Allen Chang: Vietnam is an appealing prospect for these firms because it offers lower labor costs, a reprieve from American tariffs and tax incentives for tech companies. Although several manufacturers we talked to already had a minor presence in Vietnam as early as 2008, Apple suppliers FIT Hon Teng and Luxshare both specifically cited US-China trade tensions as they near factory openings in Vietnam. Similarly, Hon Hai—better known as Foxconn—and its subsidiaries have invested in Vietnam even as a planned factory in Wisconsin nears completion, and TCL Electronics is adding TV assembly capacity in both Vietnam and Mexico specifically to serve the American market.

So should we expect a mass migration of production capacity from China to Vietnam?

AC: The labor costs aren’t quite that advantageous—direct labor makes up less than 5% of the cost of goods sold for equipment makers, and the level of automation in Vietnam is much lower compared with China and nearby Southeast Asian countries. Staffing and training can also be an issue—there are fewer English and Mandarin speakers in Vietnam than there are in mainland China, and several Chinese semiconductor producers also cite a lack of advanced engineering talent that could preclude any Vietnamese expansion. So for some companies, we think it will ultimately make more sense to bear the costs of the tariffs and rely on the ready-made domestic supply chain in China rather than absorb added costs for transportation, infrastructure and training in Vietnam. Our takeaway is that Vietnam most likely offers more value in back-end processes, like final assembly, than high-end manufacturing processes like component development, panel production or semiconductor fabrication—and we’re seeing that reflected in the companies choosing to make the move.

How is this affecting Vietnam?

AC: The shift is producing new trade and investment. In September, China’s exports of electronic products and components to Vietnam was up 24% from the prior year to US$3.2bn, while Vietnam’s exports of those products to the US market was up 77% year over year through September. Foreign direct investment continues to grow—in September, newly registered capital increased by 187% year over year while new FDI projects increased 34%. Some manufacturers we talked to predicted a broader shift away from centralized production in China towards a more regional focus to minimize political economic risks. In Vietnam at least, the government is already conscious of growing pains from such a shift, warning that severe power shortages could start from 2021 amid increased demand.

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Goldman Sachs Media Highlights

Bloomberg – December 11
Goldman Economist Jan Hatzius’s Top Predictions for 2020 

Bloomberg – December 11
Goldman’s Mehrotra on the Changing Trends in Shareholder Activism 

CNBC – December 10
John Waldron, COO of Goldman Sachs, on the market 

Bloomberg – December 10
Goldman Sees U.S. Economy Growing 2.5% in 2020 

The Wall Street Journal – December 10
Goldman Taps Startup to Explore Quantum Computing