Banks and Environment Protection - an Assessment

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Courtesy of oekom research AG

Only Average Results in the Environmental-Rating of Europe‘s Forty Most Prominent Banks

Switzerland is one of the world‘s most important places for banking. That the Swiss banks are also ahead of their competitors in the area of environmental protection is just one of the findings of an international Environmental-Rating survey published today by oekom research. With grades of C+ each, the two major Swiss banks UBS and Credit Suisse came in as the current environmental leaders in the European banking business. Best results for German banks were achieved by the HypoVereinsbank and the Commerzbank with grades of C+ and C respectively, the Deutsche Bank coming in close behind. The only one of Germany‘s ‘big four‘ banks not to participate in the survey was Dresdner Bank. The banks from southern Europe are all clustered in the lower ranks of the Environmental-Rating ranking list; UniCredito Italiano is the industry laggard with a D– . The grade scale ranges from A+ to D–.

Is the Environmental Account Balanced?

Until recently, environmental protection in the banking sector was hardly a subject of public concern. But taking a closer look soon reveals that the banking sector‘s environmental account is everything other than balanced. For one, the scale of paper and energy consumed by financial institutions is often underestimated. In addition, a bank‘s investment and lending decisions can have substantial impacts on the environment. One of the survey‘s emphases was therefore the assessment of banking products and services from an environmental point of view, particularly the lending business, asset management, deposit business and insurance activities.

It is positive that nearly all of the banks rated are including environmental risk screens in their credit assessment process, although this is primarily a business necessity in order to reduce financial risks from bad debts. Also, investments into environmental protection measures and projects usually only receive favorable credit conditions when government subsidies are involved. In these cases, banks often only act as intermediaries e.g. when the European Investment Bank provides funds for the financing of environmental projects. The results of the survey in the area of asset management are not convincing either: although a number of banks offer ethical funds where environmental criteria play a role, these funds are really only niche products as their volumes compared to total assets under management is often negligible. The same is true for environmental factors in traditional stock research: their influence on a company‘s financial performance is still largely ignored. This of course removes the incentives for companies to adopt sustainable business practices.

First Steps Towards Green Futures

One of the survey‘s positive findings was that some of the banks have already implemented wide-ranging environmental management structures. A number of the surveyed banks have also signed the UNEP Statement by Financial Institutions on the Environment and Sustainable Development , thereby demonstrating a commitment to environmental affairs. Given the banking sector‘s large influence on the economy and society, it would be good if banks took on more responsibility for sustainable development. For example if banks showed more diligence in assessing the environmental consequences in project finance decisions, or included environmental factors in investment decision-making more systematically, then the path towards sustainable business would already be a little smoother.

Participants in the Environmental-Rating in Alphabetical Order

Abbey National (UK), ABN AMRO Holdings (NL), Argentaria Caja Postal y Banco Hipotecario (ES), Banco Bilbao Vizcaya (ES), Banco Comercial Português (PT), Banco Santander Central Hispano (ES), Bank Austria (AT), Barclays (UK), Commerzbank (DE), Credit Suisse Group (CH), Credit Lyonnais (F), Deutsche Bank (DE), FöreningsSparbanken Swedbank (SE), Halifax (UK), HypoVereinsbank (DE), ING Groep (NL), Julius Bär Holding (CH), Lloyds TSB Group (UK), MeritaNordbanken (SE), National Westminster Bank (UK), Royal Bank of Scotland Group (UK), Sanpaolo IMI (IT), Skandinaviska Enskilda Banken (SE), Svenska Handelsbanken (SE), UBS (CH), UniCredito Italiano (IT)

Banks that did not take part in the Rating

Allied Irish Banks (IE), Banca Commerciale Italiana (IT), Banca di Roma (IT), Banca Intesa (IT), Banco Espírito Santo & Comercial de Lisboa (PT), Banque Nationale de Paris (F), Den Danske Bank (DK), Dresdner Bank (DE), HSBC Holdings (UK), KBC Bank and Insurance Holding (BE), Mediobanca-Banca DI Credito Finanziario (IT), Paribas (F), Société Générale (F), Unidanmark (DK)

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