February 25, 2006
Bank Policies Fail to Meet International Social and Environmental Standards, Report Says
by Bill Baue
The 39 banks assessed fall far short on global sustainability standards, and fail to disclose
enough information on implementation to even be assessed by NGO coalition BankTrack.
If banks were students, the majority would be failing the sustainability test. In a January 2006
report by BankTrack, a global nongovernmental organizations (NGO)
coalition including WWF-UK,
Friends of the Earth (FoE), Rainforest Action
Network (RAN), and the Berne Declaration, 21 of 39 banks' financing policies earn a failing
grade. The grading system ranges from 0 (no publicly available policy) to 4 (policy meets almost
all international standards), with average scores across 13 environmental and social categories
translated into letters corresponding to school grades.
Even more shocking than the
failure rate is the level achieved by the best performers: ABN AMRO (ticker: ABN) and HSBC Group (HBC) both earn the
highest overall average score of 1.31, which translates into a letter grade of D+. And top scores
of 4 within individual categories (which cover policies related to from human rights, climate
change and energy, indigenous people, extractive industries, transparency, and environmental and
social management systems) are exceedingly rare.
"In only two cases--Rabobank's [RABT.AS] adoption
of the UN Draft Norms on Human
Rights and HSBC’s adoption of the World
Commission on Dams standards--has any bank adopted policies that meet all or most of the
relevant international standards or best practices," states the report, entitled Shaping the
Future of Sustainable Finance: Moving the Banking Sector from Promises to Performance.
The report's methodology and findings met praise from respected observers of corporate social
"The report marks a new maturity and objectivity in the work of the
NGO community," says Paul Watchman, a partner at corporate law firm Freshfields Bruckhaus Deringer and author of a
report on the fiduciary duty of considering environmental, social, and governance (ESG) issues.
"The banks should not see this as a threat but rise to the challenge set out in this outstanding
"Looking at the highly rated policies of the leading banks in the key social and
environmental areas is a reasonable place to start," he adds. "However, more fundamentally it is
worth asking the question why 35 of the banks reviewed do not have a policy on the extractive
industries or 31 of them do not have a policy on human rights."
The report’s results
call into question the impact of the Equator Principles. Almost three-quarters (29 of 39) of the
banks rated are signatories of the Equator Principles (EPs), a set of voluntary sustainability
standards for project finance based on International Finance Corporation (IFC) social and environmental guidelines.
shows the Equator Principles clearly cannot be considered best practice," says Michelle
Chan-Fishel, head of the green investments program at FoE in the US.
Banks that have
adopted the EPs alone, without implementing other policies, earned an average score of 0.46 to rank
in the lowest possible category in the report's grading. Report authors seek to leverage these
dismal scores as an opportunity to call for a strengthening of the EPs. This is feasible because
the principles must be revised anyway due to the IFC’s adoption of newly revised social and
"The current revision of the Principles is an opportunity for the banks to convince
stakeholders they intend to be judged by their actions in a way that is transparent and
comparable," says Niall O'Shea, responsible shareholding analyst for the Co-operative Insurance
Society (CIS) in the UK, which invests in
about half of the EP banks.
However, judging banks' actions proved an elusive task for
BankTrack. The initial intention for the report was to assess both the policies of the banks
and their implementation, but this goal has gone unfulfilled
"Even where banks
have the best policies, little information is available about their systems or practices for
implementation," states the report. "It was therefore impossible to assess, let alone compare,
their efforts at implementation.
"At this point, policy development is still too
embryonic, and information about implementation too guarded, for us to determine whether the
banking industry has crossed the threshold into a promising new era of green finance--or merely
refined the discredited old tools of 'greenwash,'" the report concludes.