Saving The Environment, One Transaction At A Time

Can you be an environmentalist and a business supporter at the same time? Environmental groups believe it’s possible, even after decades of litigation and open warfare with business interests. 

But a multi-billion-dollar deal in the works in Texas suggests that a new era may be dawning, with the private sector finally willing to take important measures to protect the environment.

            Two private equity firms – Texas Pacific Group and Kohlberg Kravis Roberts – have proposed to buy the giant Texas utility, TXU Corporation.  When completed, the $45 billion purchase would be the largest leveraged buyout in U.S. history.  But aside from price, the consummated deal would make history because of the role that environmentalism played in completing it.  In future years, the TXU buyout could be seen as the “poster child” for business transactions that prove we can protect the environment without hurting either the economy or our lifestyle.

           TXU has long been the bane of Texas environmentalists, most recently for its proposal to build 11 new coal-fired power plants statewide without the controls needed to curtail carbon dioxide, a greenhouse gas widely seen as the chief culprit in global warming. Houston and Dallas, the two largest cities in the state, joined with other municipal governments and environmental organizations to fight Texas Gov. Rick Perry’s plan to fast-track approvals for these new power plants. The consortium opposing the plants scored a significant victory when a state court in Austin ruled that Gov. Perry did not have the power to accelerate the approvals process, and the stage appeared set for years of courtroom battles and substantial legal costs before either side would prevail.

            That’s when the power of the private sector changed everything. The equity firms recognized that TXU’s plan to build these plants was unpopular and depressing the utility’s share price, and might result in large costs if the federal government moved to regulate carbon dioxide emissions. When the equity firms said they would abandon TXU’s plans to build eight of the 11 plants and commit to broad environmental remediation at the remaining three, environmentalists gained something that even years of litigation might not have provided. In short, market forces had gift-wrapped a business deal that appealed to both environmentalists and industrialists alike.

            Slowly, quietly, many large corporations are making serious changes in how they do business – and the net effect bodes well for the future. Shareholders and the general public have shown how they can hurt the bottom line of any company that commits “environmental harms.” At the same time, education campaigns have raised awareness in large companies about how environmental impacts, such as climate change, are bad for business as well as society overall.

Lloyd’s of London, one of the original companies in the London Climate Change Partnership that was launched five years ago, has implemented guidelines for lending and insurance in the developing world that take account of how potential transactions could affect global climate change. Goldman Sachs, which has made a point of doing business in a “greener” fashion, may have been instrumental in the environmental deal associated with the proposed TXU buyout.

            All of this is excellent news for the environment and for the public. Though government has a clear role in setting and enforcing environmental standards, the TXU buyout and other high-profile corporate commitments show that much can be accomplished through partnerships and collaborations that yield as many dividends for environmentalists as they do for corporations. Harnessing the power of capitalism to assist in environmental protection won’t work in every situation – but when it does work, the public sector gains a powerful tool to protect and enhance the environment.

            Who knows? With a few more deals like the TXU buyout, we just might be able to save Mother Earth – and read about the news in corporate annual reports.  

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