The failure of Silicon Valley Bank on Friday raised concerns about the potential impact on the climate technology industry, where SVB was heavily involved.
“They went out of their way to attract entrepreneurs, to attract companies in the technology industry. They were one of the first banks to have a dedicated sustainable clean energy finance department,” Mona Dajani, Global Head of Energy & Infrastructure at law firm Shearman and Sterling, he told ABC News. “They consciously developed this practice and were a well-known source – that’s where you could go because they were willing to lend to higher-risk new companies.”
Silicon Valley Bank has provided financing to more than 1,550 clients working on climate technology and sustainability, according to its website. As of December 2021, SVB had committed $3.2 billion to such projects. The bank also claimed to have led or participated in 62% of community solar financings since last March.
Dajani said many of her customers banked with SVB and that “despite having their money restored” there is a sense of scandal after the bank’s failure.
In the long term, he said SVB’s failure could mean some smaller air-conditioning technology start-ups could be cut off from credit lines if no other bank or entity takes over SVB’s portfolio.
While larger “cleantech” companies will likely move their operations to larger banks, Dajani said smaller companies and startups may struggle to meet the potentially tighter standards for loans, possibly leading to a “slight chilling effect.” industry.
Kiran Bhatraju, founder and CEO of Arcadia, a technology company focused on combating climate change, expressed concern about SVB’s decline on Twitter on Saturday, writing: “What’s missing from the narrative is that SVB is a climate bank”.
“They were strong supporters [of] Innovators in decarbonization and clean energy infrastructure – funding nearly 60%+ of the community solar market – alongside companies like Sunrun, Vivint, AES and Bloom,” continued Bhatraju. “Arcadia is fine and will make it. But my hope for the industry and our planet is that someone makes sure the funds keep flowing on Monday.”
In the wake of the bank’s failure, some Republican lawmakers blamed so-called “woke” policies, including ESG (Environmental, Social and Governance) and DEI (Diversity, Equality and Inclusion) for the decline.
“One point that seems to be getting lost in the debate surrounding SVB is the failure of the San Francisco Fed to monitor the risks that were mounting at Silicon Valley Bank,” Sen. Bill Hagerty, R-Tenn., a member of the Senate. The Banking, Housing and Urban Affairs Committee tweeted on Sunday evening. “It’s abundantly clear that SVB was terribly mismanaged. Its executives seemed to focus more on diversity and ESG than managing their risks. But why didn’t the SF Fed see this before it was too late? Was it because their CEO was on the SF Fed board? Or were these regulators just asleep at the wheel? We need answers.”
Banks using ESG policies take these aspects into account when assessing risk and opportunity, and many banks have some version of these policies, including Bank of America, JPMorgan, Wells Fargo and others.
While Silicon Valley Bank was seen as a startup-friendly bank in the climate tech space, climate-related startups did not make up the bank’s entire portfolio. SVB has had notable customers in various business sectors including fintech, life science and healthcare, enterprise software and others.
Sunrun, one of the solar companies working with SVB, released a statement detailing its report on Friday after the bank collapsed.
“SVB represents a small percentage of total hedging facilities, as measured by a notional value of less than 15%,” Sunrun said in a statement.
Following the news that the FDIC would protect SVB depositors, Sunrun CEO Mary Powell further commented to ABC News, saying, “We are pleased that the federal government acted on Sunday to stabilize the banking system, ensuring us access to the less than $80 million he had on deposit with SVB.”
“Sunrun has long-standing banking relationships with a large number of financial institutions, and we remain confident in our ability to replace SVB’s outstanding commitments,” Powell continued. “Sunrun has always believed in strength through diversification.”
In January 2022, the bank announced its commitment to provide “at least $5 billion by 2027” in financing sustainability efforts.
With the failure of the SVB, this commitment and a potential funding stream for climate technology projects is now void.
“The ones that will be hurt the most are the unsecured startups,” Dajani said. “But I think it’s going to make the clean energy space as a whole come out stronger because they’ve learned from it and they’re trying to strengthen their foundations to avoid another collapse and look at other options for financing, for capital. ”