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May 04, 2010
Despite More Widespread Adoption of Investment Policies, Banks Have Yet to Transition to Sustainable Practice
    by Robert Kropp

Report by BankTrack, the third in a series, finds that while that more banks have publicly available policies, most of the policies are inadequate.


All the environmentally disastrous undertakings for profit—the Canadian oil sands and mountain top removal, to name just two that have found their place among BankTrack’s list of dodgy deals—require financing, and in most cases corporations look to banks to provide it. According to BankTrack, “Banks are in the position to either help further entrench patterns of fossil fuel based energy production and energy use, or help catalyze the transition to a low/no carbon economy.”

Based in the Netherlands, BankTrack is a nongovernmental organization (NGO) whose member groups include the US-based
Friends of the Earth and the Rainforest Action Network. Its priorities include educating society about the effects of financial institutions on people and the environment, and engaging with the financial sector to encourage sound environmental and social practices.

In its third benchmark study of the investment policies of major global banks, entitled
Close the Gap: Benchmarking Investment Policies of International Banks, BankTrack reviewed the investment policies of 49 major global banks, including five based in the US: Bank of America, Citi, Goldman Sachs, JPMorgan Chase, and Morgan Stanley.

BankTrack found that more banks have publicly available policies than was the case at the time of its 2007 study, which was entitled
Mind the Gap. In 2007, for instance, 27% of banks had policies for military industry and arms trade in place; in 2010, 49% do.

In fact, bank policies for each of the seven sectors addressed in the report increased in the 2010 study. Likewise, the existence of policies addressing the nine issues surveyed by BankTrack increased as well. The study found that 57% of banks have policies addressing climate change, while 49% have policies on human rights. On the other hand, none of the banks surveyed have adopted policies for all of the sectors and issues that are covered in the report.

Seven banks were found to have no publicly available policies at all: Bangkok Bank, Bank of China, China Construction Bank, DekaBank, Industrial and Commercial Bank of China, and Kasikornbank.

“As investors,” the report stated, “Banks share a certain level of responsibility for the impacts of their clients’ operations.” Therefore, transparency in reporting is of critical importance. BankTrack did find that 44 of the 49 banks did publish externally verified annual sustainability reports, based on the reporting guidelines of the
Global Reporting Initiative (GRI).

BankTrack recommended that, as a first step in the development of effective polices, banks consider the adoption of collective standards and initiatives available to the financial sector. The study found that many banks are doing just that, as 42 of them are signatories to the
Carbon Disclosure Project (CDP). Overall, more than 70% of banks have committed to the Equator Principles, the UNEP Finance Initiative, the UN Global Compact, and the GRI, in addition to the CDP.

Jora Wolterink of BankTrack said of the increased adoption by banks of policies of addressing sustainability, “Despite the turmoil caused by the financial crisis, many banks have continued to develop more policies covering more sectors and crucial sustainability issues.”

Yet, Wolterink continued, “Notwithstanding some encouraging exceptions, the overall quality of policies still leaves a lot to be desired.”

According to BankTrack, “Close the Gap aims to stimulate large, international banks to develop stronger investment policies for a number of critical economic sectors and cross-cutting issues that are relevant to their business.” When the report went on to actually assess the effectiveness of the polices that banks have put into place, it found that “most policies do not meet the criteria for what BankTrack considers an adequate, let alone a good policy.”

BankTrack graded the banks by means of a scoring table ranking from zero to five. Banks with no policy in place for a sector or an issue receives a score of zero, while a score of five indicates that a bank meets all requirements for a good investment policy. “Only in a few cases do banks meet most of the requirements for a good policy,” the report found. HSBC’s policy on forests was awarded four points, while Rabobank's policy on agriculture was awarded three.

A look at the average scores for the sectors and issues covered by the report gives an idea of the significant room for improvement yet to be made. The two sectors with the highest average scores were mining, oil, and gas, and power generation, each of which had an average score of 0.83 (out of a possible five). The issue with the highest average score was indigenous peoples, with an average score of 0.94.

The overall poor quality of the banks’ policies is borne out by the grades BankTrack issued for climate change, an issue publicly addressed by a majority of banks. Despite the presence of many policies addressing climate change, BankTrack found that the quality of almost all the policies was below standard, “lacking for example clear commitments on phasing out financing of fossil fuel exploration and coal power plants.” The highest score for the issue was two; 46 banks received a score of one.

Rabobank, based in the Netherlands, received the highest overall score of the banks surveyed, but with an average of only 1.7. HSBC followed with a score of 1.2, and ING scored 1.16.

In a statement, Johan Frijns, BankTrack coordinator, said, "There are two big gaps that banks must close: one is between what is in now in place as policies and what is required to adequately deal with sustainability issues in a specific business sector. The other gap is between having well written policies in place and then putting them into practice in such a way that they make a real difference for local communities and the environment."

 

 
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