Banks Go for Green

By Matthew Yeomans

It's every corporation's nightmare: a throng of rowdy activists gathers outside company buildings to demonstrate against alleged environmental and human-rights abuses. That was the scene in New York City and Chicago last month as dozens of people in white haz-mat suits converged on the offices of JPMorgan Chase to protest what they claimed was the bank's underwriting of illegal logging in Indonesia and human-rights abuses tied to a Chase-funded mining operation in Peru. Oil companies and industrial giants may be accustomed to such treatment, but not JPMorgan Chase, the second largest bank in the U.S. Two weeks later, the company announced that it would introduce policies to promote sustainable forestry and indigenous people's rights and would block funding that could be used for illegal logging. It also promised to reduce its carbon emissions and those of its clients. Chalk up another victory for environmentally and socially responsible finance.

Ten years ago, big private banks were not featured on environmentalists' hit lists. Activists focused on large corporate polluters in the oil and timber industries. Over time, though, green groups have realized that one effective way to halt destructive practices is to take on the institutions that bankroll them. "The private financial sector more than any other has the ability to begin the ecological U-turn modern society so desperately needs," says Ilyse Hogue, director of the global-finance campaign at Rainforest Action Network (RAN), which led the fight against JPMorgan Chase. Yet even as they have publicly confronted big financial institutions, green groups--many of which belong to a loose collection of nongovernmental organizations (NGOs) known as BankTrack--have privately collaborated with banks to jointly tackle environmental and social concerns.

The direct action and dialogue are paying off as banks begin to set green goals. HSBC has promised to cut carbon emissions, while Bank of America has pledged to shun investments in logging operations in the world's most sensitive forests. Even more important is the introduction of new industry standards, such as the Equator Principles, which "promote responsible environmental stewardship and socially responsible development" by evaluating the threats that projects pose to forests, natural habitats and indigenous populations.

Thirty major private banks, including U.S. giants Citigroup, JPMorgan Chase and Bank of America, and European powerhouses ABN Amro, Barclays, HSBC and ING, have so far signed on to the principles. The guidelines cover some 80% of the global-project-financing market, according to Jon Williams, head of sustainability risk management at HSBC. "Everyone is interested in the balance between sustainability and economic development," says Williams. "We believe you can do well and do good."

In terms of overall lending, project financing is a small part of most banks' operations--from 5% to 10% at HSBC, for example--but lending that is environmentally and socially sound can have a huge long-term impact. Underwriters such as Citigroup point to the World Bank--backed pipeline running from Chad's oil fields through Cameroon to the Atlantic. Extensive environmental-impact assessments were carried out before the work got the green light, and oil companies like ExxonMobil have provided compensation and health care to local people whose lives and livelihoods were disrupted. A trust fund designed to give all Chadians--not just a well-connected elite--a share of the profits is another improvement, even though green groups such as Friends of the Earth say the project hurts the environment and exacerbates social problems and human-rights abuses.

Veteran green campaigners have been surprised by the speed with which banks have embraced change. "I think that many activists may have assumed that bankers were priests of the Church of Greed," says Steve Kretzmann, director of Oil Change, a Washington group that specializes in tracking project finance. "But many bank representatives have a sophisticated and advanced sense of the environmental, social and reputational risks."

Just ask Citigroup. In 2000, U.S. environmental activists from RAN began campaigning against the bank's funding of old-growth logging projects and a controversial new oil pipeline through an Ecuadorian ecological preserve. RAN placed a full-page advertisement in the International Herald Tribune labeling CEO Sandy Weill an environmental villain. Citigroup started meeting with RAN and last year announced that it would apply the Equator Principles to its business. The bank committed to banning investment in firms that logged primary tropical forests, and it pledged to invest in renewable-energy projects.

Don't expect the campaigning to stop just yet, though. In a scathing report published last year, "Principles, Profit or Just PR?", BankTrack accused many companies of failing to deliver on their lofty principles. The report highlighted the decision by nine Equator Principles banks--including ABN Amro, Italy's Banca Intesa and Citigroup--to fund BP's controversial Baku-Tbilisi-Ceyhan (BTC) pipeline, which will run through Azerbaijan, Georgia and Turkey to bring Caspian Sea oil to the West. The project, argued BankTrack, violates the Equator Principles in key areas, notably in regard to protection of indigenous peoples. BankTrack suggested the Turkish government might use the new pipeline as an excuse to crack down on ethnic Kurds living along its route. Banca Intesa withdrew from the project last December, but both Citigroup and ABN Amro rejected BankTrack's criticisms and stayed on. "BTC is a complex and challenging transaction, but we felt on balance that it did meet the Equator Principles," says Richard Burrett, ABN Amro's managing director for sustainable development.

Just last month another Equator Principles member, Credit Suisse First Boston, found itself the target of new global protests for its decision to underwrite Shell's controversial Sakhalin II pipeline in the northern Pacific, a project that environmentalists say threatens the endangered western gray whale. Without adequate transparency and monitoring of sensitive projects, NGOs fear, the Equator Principles will become meaningless. "What good is a series of principles like this if you can't verify that they are being applied on a project-by-project basis?" asks Oil Change's Kretzmann. "Equator banks are saying to people, 'Trust us,' but they are not allowing any independent verification. That's a problem."

Despite those differences, banks and NGOs are likely to keep working together. The reason is simple: socially and environmentally responsible investment makes good business sense. HSBC, Citigroup and ABN Amro all say green issues are increasingly important when they consider funding global projects. "[In the future], the Equator Principles will be seen as a catalyst for how banks conduct themselves in other areas of their business," says ABN Amro's Burrett. If that happens, activists in haz-mat suits will have to find another target.