The Heat Is Online

Banks Criticized For Slow Response to Climate Change

Lifting The Lid: Banks Urged to Address Climate Change, Jan. 14, 2008


WASHINGTON - A handful of the world's biggest banks are starting to look at the risk that climate change poses to their businesses, but investors and environmentalists say they need to do more.


Necessary measures for the banks include raising targets to reduce greenhouse gas emissions at companies in their portfolios, according to Ceres, a coalition of investors and groups that promote corporate responsibility.


Ceres, whose members collectively hold more than US$4 trillion in investments, also wants banks to make the issue a priority in corporate governance and to increase disclosure of the risks associated with climate change.


"We are certainly seeing more action at banks than five years ago," said Ceres President Mindy Lubber. "But the reality is, if we are going to have an impact on one of the greatest economic challenges of our times, we need the most powerful institutions impacting the economy doing as much as they can be doing."


According to a report released Thursday, a handful of banks have developed specific climate-related policies or strategies, while some have created working groups and executive positions to focus on the issue.


Commissioned by Ceres, the report looked at 40 of the world's largest publicly traded banks and financial services companies, including Goldman Sachs Group Inc, Merrill Lynch & Co Inc and Royal Bank of Scotland Group Plc


Slightly more than half of the banks surveyed offer climate-specific funds and similar products, said the report, which was authored by RiskMetrics Group.


Ceres also found a number of banks, including Royal Bank of Canada and Wells Fargo & Co, are formally calculating the risk they take when lending money to companies that could be affected by carbon dioxide regulations.


But the study said banks should explain how they are factoring carbon costs into their financing and investment decisions, especially for energy-intensive projects that pose financial risks as environmental regulation increases.


"Climate is one of the most underestimated risks out there," said Lubber. "The subprime (mortgage lending) problem really overall is a situation where everyone underestimated the risk of what might happen."


So far, Bank of America Corp has been the only bank to announce a specific target to reduce greenhouse gases emissions associated with the utility portion of its lending portfolio.




Bruce Gillander, Florida's director of the Division of Treasury, said that as an investor, the state wants to know the extent of climate-change risk in the corporate bonds it buys.


"We look at their governance related to environment and climate change as a tool of analysis in what their future earnings might be because their earnings could very well be affected by events that are happening related to climate change," Gillander said.


Of the banks surveyed, HSBC Holdings Plc, ABN AMRO Holding NV, Barclays Plc, HBOS Plc, Deutsche Bank AG, Citigroup and Bank of America ranked the highest in their approaches to climate change.


The report laid out a list of "best practices" in the financial sector and evaluated the companies in terms of board oversight, management execution, disclosure, accounting for greenhouse gases and strategic planning.


Bear Stearns Co Inc was rock bottom. Legg Mason Inc and Franklin Resources Inc ranked among the lowest.


Bear Stearns said it did not believe the score was "indicative of the emphasis" the firm places on environmental issues. Legg Mason said it was committed to providing investment products that address environment, social and governance concerns.


Franklin Resources said it was reviewing the study.


Banks received points for a range of activities, including whether executive compensation was linked to the attainment of environmental goals and whether companies had set targets to reduce greenhouse gas emissions.


The California Public Employees' Retirement System, whose funds hold roughly US$245 billion in assets, termed the report significant.

"This may be a small step for Calpers and other investors," "but it represents a quantum leap for banks toward developing a blueprint that incorporates meaningful environmental factors in prudent long-term investment programs," Russell Read, the pension fund's chief investment officer, said in an e-mailed statement.