March 14, 2006
US Banks Sink to the Bottom of the Barrel on Latest Sustainability Ratings from Oekom
by Bill Baue
Most US banks fail to disclose enough information on their social and environmental performance to
qualify for analysis, and only four of 21 analyzed earned above D-level grades.
The top-performers and the bottom of the barrel share the spotlight in the latest report from oekom research on the
sustainability performance of global banks. Oekom is a Munich-based socially responsible investment
(SRI) rating firm. Coming in first with a B grade is Australia-based Westpac (ticker: WBC.AX), followed
by five banks earning a B-: UK-based Northern Rock (NRK.L) and Lloyds TSB Group (LLOY.L),
Switzerland-based UBS (UBS),Germany-based HVB Group (HVMGY.PK), and
National Australia Bank (NAB).
"Of the 77 banks and
financial service providers we looked at, the leading institutions have seen which way the wind is
blowing, and we can recommend these to people looking for an investment based on environmental and
social criteria," said Dietrich Wild, the oekom analyst that authored the study. "We still see a
great need for improvement in the US companies, which, in a worldwide comparison of responses to
sustainability issues, in this rating once again occupied the bottom slots."
17 banks earning F grades because they did not even disclose enough information to qualify for
oekom's in-depth analysis, 11 are based in the US. This number includes supposed sustainability
leaders such as Goldman Sachs (GS), which trumpeted its new
environmental policy, Merrill Lynch (MER), which issued a report on
climate change in the auto sector, and Wells Fargo (WFC), which recently reported on
Over half (six of 11) of the banks earning grades in the D range are
US-based. Only four of the 49 banks earning C-level or higher grades are based in the US: Fannie
and State Street (STT), which earned flats Cs, and
JPMorgan Chase (JPM), which earned a C-.
To burnish their corporate social responsibility (CSR) images, many banks have enlisted in
voluntary sustainability initiatives such as the Equator Principles (EPs), a set of standards for project finance based on
International Finance Corporation (IFC)
"However, the adoption of the Principles has not prevented several Equator
Banks from financing some of the most environmentally and socially risky projects that have sought
support from international project finance markets in recent years," states Mr. Wild in the report.
"Prominent examples are the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Nam Theun II dam in Laos."
"Consequently, observers have concluded that the Equator Principles are an insufficient
response to the challenge of sustainable finance," he adds. "Therefore, sector-specific guidelines
for project finance in substantive areas such as forestry and paper, dams and hydropower, resource
extraction and related infrastructure, as well as agriculture and fisheries were included in the
The report points out that only a few companies--such as ABN AMRO (ABN), HSBC (HBC), Citigroup,
Bank of America (BAC), and JPMorgan Chase have
implemented sector-specific guidelines. However, even these are not necessarily being implemented
comprehensively. For example, the environmental policies recently adopted by JPMorgan Chase and
Bank of America address forestry and biodiversity issues in detail, according to the report, but
oekom could find no information on the companies' positions on resource extraction and hydropower.
On the positive side, oekom noted strong performance from Westpac on helping to shatter
the glass ceiling, as the proportion of women in management positions there has increased from 14
per cent to 42 per cent over the last ten years. However, when looking at the sector as a whole,
oekom found mixed results on equal opportunity.
"Most of the companies have established a
policy covering non-discrimination in recent years, but executive boards are still places clearly
dominated by men (with some rare exceptions such as Lloyds TSB and FöreningsSparbanken)," states
Mr. Wild in the report.
The report also identifies some other positive trends.
"In terms of its customer and product responsibility, the sector is piloting initiatives in the
areas of discrimination-free access to financial services, management of customer over-indebtedness
and transparency in the voting behavior of investment funds," states Mr. Wild. "Furthermore, some
banks are playing an increased role in microcredit programs by providing equity and loan capital to
specialist microcredit organizations."
Counterbalancing these are some troubling trends
identified in the report.
"However, the sector is still exposed to criticism because of
the frequent lack of transparency in its product and contract design as well as the lack of care in
its customer relations," Mr. Wild continued. "This is also reflected in the numerous
controversies, for example the late-trading and market-timing activities of many investment funds,
which have allowed professional investors to secure profits, almost risk-free and with the
acquiescence of the fund management companies, at the expense of ordinary savers."