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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 responsibility (CSR).

"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 report."

"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.

"This report 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 environmental standards.

"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.

 

 
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