The Wall Street Journal-20080116-Banks Shift to Greener Policies
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Banks Shift to Greener Policies
Four years ago, it was almost impossible to get financial institutions to attend an investor summit on climate risk. Today, some of the world's largest banks have embraced the issue by focusing on research on the impact of global warming on investments, cutting their own greenhouse emissions and funding clean-energy projects, according to a report released last week by Ceres, a coalition of investors, environmental groups and other public-interest organizations.
However, a six-month study of the world's 40 largest banks also found that only a few are integrating climate risks into their lending practices, and setting targets to reduce greenhouse-gas emissions in their lending portfolios.
"We're seeing a different mindset across the board," says Mindy S. Lubber, president of Ceres, which published the report, Corporate Governance and Climate Change: The Banking Sector. "They've gotten more involved because the debate has changed," Ms. Lubber says. "This is a capital-market issue and a government issue."
The pressure to address global climate change is coming from clients, employees, government and the banks' own research, the study said.
"It absolutely affects their bottom line," Ms. Lubber says.
The study rated banks on their efforts to deal with global warming. The highest-rated firms were focusing on setting internal greenhouse- gas reduction targets, boosting climate-related equity research and increasing lending and financing for clean-energy projects. HSBC Holdings PLC received the highest score of 70 points out of a possible 100, followed by ABN AMRO Holding NV with 66. The highest-scoring U.S. firm was Citigroup, followed by Bank of America Corp., whose score was 56. The lowest-scoring firms included Lehman Brothers Holdings, which scored 26, and Bear Stearns Cos., which got a score of 0.
Bear Stearns said in a statement that "clearly we do not believe our score is indicative of the emphasis Bear Stearns places on environmental issues. In fact, we are proud that our world headquarters building was one of the first of any financial firm to receive Energy Star status." (Energy Star is a program sponsored by the Energy Department and the Environmental Protection Agency that sets energy-efficiency criteria and labels products that meet these efficiency standards.)
Many of the changes on the banks' stance toward global warming have come in the past 12 to 18 months. Among other things, the banks have issued almost 100 research reports on climate change. Twenty-eight of the banks disclosed their greenhouse-gas emissions from operations, and 24 have set internal reduction targets.
Additionally, 29 of the banks reported their financial support of alternative energy, eight of them have provided more than $12 billion in financing and investments in renewable energy and other clean- energy projects.
However, only 12 of the banks have board-level involvement. Additionally, only six said they are formally calculating risk from global warming in their loan portfolios. The report said Bank of America was the only bank to announce a specific target to reduce greenhouse emissions associated with the utility portion of its lending portfolio.
Ms. Lubber says none of the institutions have set policies to avoid investing in carbon-intensive projects such as conventional coal-fired power plants or Canadian tar sands.
The report recommended that climate change become a governance priority for company boards and CEOs, especially in the U.S. where there has been almost no board involvement. There also needs to be better disclosure about the financial and material risk posed by climate change.
"We're interested in climate change because it's an issue that impacts all our clients," says Pam P. Flaherty, director of corporate citizenship for Citi. "It's an issue that impacts all our employees."
At Citi, the topic has gone from a blip on the screen in 2000 to a commitment to green construction, investment and financing.
"If you're not addressing the issue, you'll have more risks and you may not be taking advantage of opportunities," Ms. Flaherty said.
Several other banks mentioned in the report didn't have any immediate comment.
A report released in 2007 by Oliver Wyman found that climate change "is creating new markets and new risks," but financial institutions are better equipped than most industries to address the changes because of their capital mobility.
