A Race to the Top? (A)

Critics of globalization often point out the dangers of a “race to the bottom,” as companies and governments lower their environmental and social standards to stay competitive globally. Grocery chains try to cut worker health benefits to stay competitive with Wal-Mart. Companies outsource more and more production overseas until it seems that everything bears the label “Made in China.” Movies, TVs, and music rely on violence and sex to appeal to a lowest common denominator global mass market.
It’s true that in many ways, the global marketplace is eroding long-standing social programs and environmental protections. Yet there are some hopeful indications that the racecourse may run both directions. Our advocacy in the financial sector provides a welcome example of a “race to the top” emerging, as banks across the globe begin adopting best practice standards to reduce the harmful environmental and social impacts of their lending.
In the last month, I’ve met with senior executives at four of the largest U.S. banks about environmental and social issues associated with their lending. Their attitudes have shifted dramatically from five years ago, when Trillium Asset Management and other shareholder groups began raising these issues. At that time, few if any banks admitted they should be held accountable for the impacts of their investment decisions. A small number had environmental programs, but these were largely focused on paper recycling and energy conservation within the bank, and ignored the far greater impacts of the funding they were providing for large dams, mines, and oil drilling projects.
In the space of a few short years, banks have taken significantly more responsibility for their financing decisions. Over the last two years, 31 banks from the U.S., Europe, Japan, and Brazil have committed to the Equator Principles, a set of voluntary standards for banks to ensure that the large infrastructure projects they finance are subject to environmental reviews and have environmental management plans in place. The banks involved represent 80 percent of total project finance lending globally. Citigroup, J.P. Morgan, Bank of America, and Wells Fargo have announced new initiatives to increase their investments in renewable energy and environmental technologies. All these banks have pledged to reduce their own energy use, and Bank of America and J.P. Morgan have also pledged to work to encourage some of their large industrial customers to cut their own energy use and greenhouse gas emissions. European banks like ABN AMRO and HSBC have broken new ground by establishing their own environmental standards for financial clients in sensitive industries like forestry and the chemical sector. Among the largest global banks, those that aren’t working to address environmental issues are becoming the exception rather than the rule. And some of those are now planning to announce their own environmental initiatives soon to catch up with the pack.
This relatively quick turnaround in the conservative, slow-to-change banking industry reflects hard work and persistent negotiations by a coalition of shareholder groups that Trillium Asset Management helped organize, effective campaigning by groups like Rainforest Action Network, and leadership and vision from some key leaders within the banking industry. It also reflects the tendency for large companies facing tough questions to play “follow the leader” and quickly adopt good practices of their competitors. We saw similar developments after Home Depot and Staples adopted endangered forest policies that soon became standard for their industry sectors.
Of course, making these pledges is one thing, and effectively implementing them is another. There’s still much work to be done with banks to make sure they are doing what they’ve promised. But we hope that as companies race for the top, they’ll find it crowded at the finish line.