Consumers are demanding ‘green’ products from what they consider to be responsible companies. Large buyers (notably Wal-Mart), are demanding higher environmental standards from their suppliers in order to reduce costs and socially responsible business practices to burnish their image and avoid bad press. Now banks and insurance companies are giving companies another reason to go green and sustainable: Liability.
In Lenders Back Off of Environmental Risks, Tom Zeller Jr. writes for the New York Times, “After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.”
Zack Phillips of Business Insurance recently wrote about a parallel development: environmental law suits aimed specifically at company directors and officers: “At the same time, disclosure requirements related to greenhouse gas emissions are increasing, legal observers say. An Oct. 27 bulletin from the Securities and Exchange Commission reversed a previous agency rule and allows shareholders to request information about financial risks from social and environmental issues, including climate change.”
The bottom line? Just as customers and large buyers want to reward businesses for green and responsible behavior, banks and insurance companies do not want to be liable – financially or otherwise – for negative environmental and social practices.
Here’s a further excerpt from the New York Times piece discussing how Wells Fargo, Credit Suisse,Morgan Stanley, JPMorgan Chase, Bank of America, Citibank, Royal Bank of Canada and others are pulling back from businesses whose operations may be creating environmental hazards – and therefore liabilities – for lenders.
“In the most recent example, the banking giant Wells Fargonoted last month what it called ‘considerable attention and controversy’ surrounding mountaintop removal mining, and said that its involvement with companies engaged in it was ‘limited and declining.’
The bank was a small player in the sector, representing about $78 million in bonds and loan financing for such companies from 2008 to April of this year, according to data compiled by the Rainforest Action Network, an environmental group tracking the issue.
But the policy shift by Wells Fargo follows others over the last two years, including moves by Credit Suisse,Morgan Stanley, JPMorgan Chase,Bank of America and Citibank, to increase scrutiny of lending to companies involved in mountaintop removal – or to end the lending altogether.
HSBC, which is based in London, has curtailed its relationships with some producers of palm oil, which is often linked to deforestation in developing countries. The Dutch lender Rabobank has applied a nine-point checklist of conditions for would-be oil and gas borrowers that includes commitments to improve environmental performance and protect water quality.” For the full piece by Tom Zeller Jr. for the New York Times, please click here.
Institute for Sustainable Development