The elevation of Hank Paulson to the top job at the US Treasury provided a boost for all those interested in how environmental concerns are having an impact on the world of finance.
While at Goldman Sachs, Mr Paulson was known for his passionate interest in environmental matters and was instrumental in overhauling some of the bank’s policies to give it a more environmental slant.
This move towards “sustainable banking” has been repeated across the finance sector. As with a growing band of top-level bankers, Mr Paulson is interested in issues of “sustainable development”, most commonly defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. In other words, economic development that does not damage the environment, or parts of it.
Financial institutions have begun to take action on environmental issues such as climate change, pollution, water shortages and biodiversity. More than 40 banks have now signed up to the Equator Principles, which bind their signatories to standards governing the environmental and social criteria by which a project applying to the bank for funding should be judged.
In part, banks have been driven by fear of reprisal from environmental groups if projects they finance turn out to be damaging, and by an increasing awareness of “green” issues among mainstream consumers. But they have also seen opportunities in areas such as renewable energy and low-carbon technology, and they are aware that the tide of government regulation is flowing in a “green” direction.
Lars Thunell, executive vice-president of the International Finance Corporation, the private sector arm of the World Bank, says: “Increasingly, banks understand the benefits of including sustainability in their business strategy – that is, identifying environmental and social risks as well as market-based opportunities.”
As well as promising to abide by certain standards in their lending, many banks have invested sizeable amounts in green projects. For instance, at Goldman Sachs, Mr Paulson allocated an investment pot of up to $1bn (£531m) for renewable energy and energy efficiency projects and introduced measures to ensure that its suppliers are vetted for their environmental practices. Other banks, such as ABN Amro and Citigroup, have also boosted their investments and expertise in fields such as renewable energy.
Insurance companies, too, are taking note. Mindy Lubbers, president of Ceres, an investor coalition focusing on lobbying companies to take account of climate change, says global warming is now one of the biggest issues for insurers.
Elsewhere, HSBC – which won the inaugural FT sustainable banking awards last year – became “carbon neutral”, at a cost of about $3m. It has reduced carbon emissions, mostly from its use of energy and transport, then “offset” those that remained. Companies can offset emissions by investing in green projects, such as wind farms or solar energy installations.
Jon Williams, head of group sustainable development at HSBC, says: “When I was asked to do this job three years ago, it started off as occupying a corner of my desk.” The company now has 22 people involved in sustainable development.
ENTER THE SUSTAINABLE BANKING AWARDS
Now in their second year, the Sustainable Banking Awards, created by the FT and the IFC, include five categories of prizes: sustainable bank of the year; emerging markets sustainable bank of the year; sustainable bankers of the year; sustainable deal of the year; achievement in carbon finance. In addition, there will be new awards for regional leadership in emerging markets.
■The deadline for entries is February 28 2007. Enter at www.ft.com/sustainablebanking
