return2earth
eco networking and investment

 

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 sustainability.

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 on 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, Merrill Lynch and Royal Bank of Scotland.

Slightly more than half of the banks surveyed offer climate-specific funds and similar products, the report said.

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

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

RISK FACTOR

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," Gillander said, "because their earnings could very well be affected by events that are happening related to climate change."

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

Bear Stearns was not immediately available for comment. Franklin Resources and Legg Mason separately said they were reviewing the study.

Banks received points for a range of activities, including whether executive compensation was linked to the attainment of environmental goals.

A third of the points were based on managing greenhouse gas emissions, including whether the companies had set targets to reduce them for facilities, energy use and business travel.

The companies also got points for disclosure and how they accounted for greenhouse gas emission savings.

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