Banking on Change(A)
It’s hard to imagine a place farther removed from Wall Street than the ecologically rich, remote swatch of Amazonian rainforest where the Nahua, Nanti, and Kirineri people live. These semi-nomadic indigenous groups live in voluntary isolation on a state reserve established by the government of Peru to protect their way of life. Yet increasingly, people like these in the remotest parts of the globe are finding their lives turned upside down by decisions made in the conference rooms of investment banks in New York, London, and Hong Kong. In the case of the Nahua, Nanti, and Kirineri, Citigroup provided financial advice to a consortium of companies seeking to develop a major gas pipeline through the area. Representatives from the consortium illegally contacted the tribes, exposing them to Western diseases to which they have little immunity. The fate of the pipeline is still up in the air. Over the last month, the Export-Import Bank of the United States and the Inter-American Development Bank have twice delayed votes on whether to help fund the project because of concerns raised by environmental and human rights groups. In response to developments like these, shareholder advocates and environmental groups have been stepping up the pressure for investment banks to consider the social and environmental risks posed by their financing decisions…and have begun to win some important victories.
Advocates have long focused on the destructive role that the World Bank and other multi-lateral development banks play in financing large infrastructure projects like dams, mines, and logging projects that hurt the environment and local people in some of the world’s most biologically and culturally diverse areas. But increasingly, private investment in developing countries dwarfs the funding provided by the World Bank and similar institutions. In 2002, a net total of $108 billion flowed from private investors in developed countries to the developing world, compared with net flows of $12.6 billion from the World Bank and other multi-lateral funders. In 2002, Citigroup alone provided 10 percent as much money to fund infrastructure projects in the developing world as the World Bank’s total loans that year.
Some of this private financing supports new businesses that provide jobs and services for people that desperately need them in poor countries. But far too much finances environmentally destructive projects that enrich a privileged elite at the expense of thousands of ordinary people who may lose their homes, livelihoods, and way of life to make room for new dams, mines, refineries, and logging operations. And unlike the World Bank, investment banks often have no policies or process in place to consider the environmental and social impacts of their financing decisions.
In the late 1990s, Trillium Asset Management helped form a partnership of leading socially responsible investment firms, religious investors, and environmental groups like Friends of the Earth and the International Rivers Network to raise these issues with investment banks. The coalition initially focused its advocacy on financial institutions that helped fund China’s infamous Three Gorges Dam, which will require the resettlement of 1.9 million people and destroy unbelievable environmental and cultural treasures along more than 350 miles of the Yangtze River. (Even the ardently pro-dam World Bank eventually refused to fund Three Gorges Dam because of the social and environmental destruction the project will cause, but that did not stop a number of U.S. investment banks from underwriting bonds to help fund the dam.) Over the past several years, our advocacy efforts have broadened beyond the specifics of Three Gorges to press some of the world’s largest financial institutions to address the environmental and social impacts of their financing decisions overall.
At the same time, a growing number of environmental and social justice groups from around the world have also increased the pressure on investment banks and other financial institutions. The United Nations Environment Program developed a Statement by Financial Institutions on the Environment and Sustainable Development that commits companies to incorporate environmental considerations in all aspects of their operations, which more than 200 banks worldwide have signed. Earlier this year, a coalition of over 100 groups from around the world released the Collevecchio Declaration on Financial Institutions and Sustainability that advocates six principles financial institutions should follow in moving towards sustainability. And over the past two years, Rainforest Action Network launched an aggressive activist campaign targeting Citigroup for funding environmentally damaging projects. RAN put the campaign on hold in April 2003 to engage in negotiations on new policies Citigroup may adopt on global climate change and funding projects that threaten endangered ecosystems. RAN and Citigroup have extended their deadline for negotiations once already, and the two groups are now working to reach an agreement by September 2003.
Facing these growing demands, some leading banks are beginning to respond. Michelle Chan-Fishell, Green Investments Program Manager at Friends of the Earth observed, “Although we are a long way away from meeting the principles in the Collevecchio Declaration, major US investment banks are beginning to respond the pressure that groups like Friends of the Earth and Trillium are putting on them to recognize their role and responsibility in advancing sustainability.”
Our shareholder group has met extensively with Citigroup over the past three years, and helped push the bank to adopt a significant set of new policies. These included Citigroup’s Global Corporate and Investment Bank Environmental Policy Statement, which includes commitments to “Integrate sustainability considerations into the day-to-day operation of our business worldwide,” and to “Identify, quantify, and control environmental and social risks as part of the risk assessment process in underwriting and financing.” Citigroup’s 2002 Corporate Citizenship Report provides four mini-case studies of how this policy has influenced its lending, such as a decision to not finance a $45 million project to log an area of tropical old growth forestland in Asia and create a palm oil plantation there.
In 2003, Citigroup played a major role in developing the Equator Principles, a set of voluntary principles that commit banks to follow the World Bank’s environmental and social guidelines when financing large infrastructure projects. For the most sensitive projects, banks will require their clients to conduct environmental assessments, solicit input from affected groups, and take steps to mitigate their impacts as a condition of their financing. Citigroup is the only U.S. company to sign the Equator Principles so far, but about a dozen large multinational banks base in Europe and Canada have adopted the Principles. Our shareholder group provided input into the development of the principles. While we have concerns about the Equator Principles’ limited scope and whether banks can implement them effectively, we do see the Principles as an important recognition by private banks that they need to take accountability for social and environmental issues of the large infrastructure projects they finance.
Our influence has not been limited to Citigroup. After negotiations with our shareholder advocacy coalition, Morgan Stanley created its first Environmental Policy last year committing to “do business in an environmentally responsible way.” The company also created a new high level Environment Committee of key senior managers to guide the bank’s environmental efforts. The Environmental Policy makes a specific commitment that “in connection with our underwriting and financing activities, we will endeavor to identify, quantify, and encourage control of environmental risks.” We are also in the early stages of negotiations with J.P. Morgan Chase & Co. and are encouraged by an apparent new willingness from the bank to begin to consider how to address these issues.
The pace of change is slow and far more needs to be done to hold these private institutions accountable for the impact of their financing decisions on some of the world’s most vulnerable ecosystems and communities. But our advocacy efforts have also made impressive gains in the past few years that we’ll be working to build on in the years to come so that money isn’t the only thing on Wall Street that’s green.