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Banking gets greener: not that long ago, banks were minor actors on the climate-change stage. Now, they are stepping up with major commitments and far-reaching goals.

Early in March, when there was merely a suggestion of spring greenery around its Charlotte, N.C., headquarters, Bank of America Corp. made a surprising announcement: it was making a $20 billion, 10-year commitment to "support the growth of environmentally sustainable business activity to address global climate change."

Even for the nation's biggest domestic bank, with well over $1 trillion in U.S. assets, $20 billion is hardly chump change. But as impressive as the dollar commitment was, the details of the bank's initiative were truly arresting. It addresses a huge sweep of environmental issues, from financing companies involved in energy-efficient technologies, to carbon emissions trading to a host of commitments to improving its own house through investments in promoting hybrid vehicles, environmentally progressive construction and reducing greenhouse gas emissions. And the list goes on.

"We see an opportunity for the growth of environmentally sustainable products and services, and we want to encourage those through financing and investment," says Bank of America spokesperson Eloise Hale. "We believe that healthy communities create good business opportunities."

Environmental advocates were understandably pleased. "Bank of America is getting out on the front end of this issue--developing innovative products and services that will flourish in a developing green economy while helping households, investors and businesses cut greenhouse gases," says Eileen Claussen, president of the Pew Center on Global Climate Change.

"I salute big and bold," says Eric Olson, vice president of client services at Business for Social Responsibility, a nonprofit that works with corporate interests to develop and promote socially responsible initiatives. While Bank of America has a substantial legacy in this area, he says, large organizations "have to have a material impact" when they commit to high-profile programs.

While its initiative is noteworthy in many ways, Bank of America's green program has been echoed widely in the financial services industry recently. That's striking, because it sends a loud signal to others in Corporate America that, even as an industry not directly linked to industrial pollution or raw material extraction, banks are choosing to take a progressive stand on climate change--and intend to lead through lending decisions and a form of moral suasion.

That's taking climate-change activism up a notch from that practiced by the major manufacturing and natural resources companies--General Electric Co., Ford Motor Co., Duke Energy Co., BP plc--that have been out front in recent years. For these companies, the fundamental message is about taking measures to do better. For banks, it's more about working to make better things happen. In a sense, they're endorsing the amber-alert message of former Vice President Al Gore's controversial film, "An Inconvenient Truth," and asking current and future customers to join them.

"You can think of these institutions less as banks and more as high-profile consumer brands" that have an image to uphold, says BSR's Olson. "For companies without smokestacks, consumers pour their expectations of good corporate behavior."

"There's a green wave that's sweeping America generally," says Christopher Davis, a partner in law firm Goodwin Procter's Environmental/Energy practice. "It's a combination of social responsibility and trying to seize on the opportunity and position themselves in the market."

Corporate Citizenship

In fact, much of the language coming from the financial services industry taps into a "corporate citizenship" ethos that appears to be part of an emerging zeitgeist. Charles Prince, Citigroup's chairman and CEO, wrote in the bank's 2006 Corporate Citizenship Report, "Our commitment as concerned citizens of the world [is] to address the environmental and social issues that lie outside the traditional scope of Citi. We want to be known not only for delivering success to our clients, but also for responding to the needs of people and the planet."

Bank of America's Charlotte-based rival, Wachovia Corp. (the fourth-largest U.S. banking concern), sounded a similar theme last year when in announced comprehensive commitments in the areas of forest protection and climate change. "This new strategy integrates our environmental principles and commitments in the way we do business, so Wachovia can make a positive and measurable impact on the environment," said Ken Thompson, chairman and CEO.

"A lot of this is like image advertising, but I do think that banks can make a big difference," Davis says. Investment banks, too: He noted in a recent report that Morgan Stanley has announced that it will dedicate approximately $3 billion to buying carbon credits and investing in low-emission energy projects, and Goldman Sachs Group has committed to fund up to $1 billion in renewable energy and energy-efficiency projects.

While it's relatively easy to set goals and talk the talk, walking the walk will prove challenging, for banks and for companies of all stripes pledging to act aggressively on climate change. For senior executives, including financial executives, issues of cost, strategy and potential effect will require serious study and debate. Striving for a leadership position carries clear financial and business risk.

Not that a backlash is likely. Apart from a handful of conservative voices--including the Free Enterprise Action Fund, which has challenged a number of huge corporations over how their green policies will help shareholders--environmental initiatives almost always garner strong public approval.

There's been widespread acceptance in recent years, in fact, of the concept of a "triple bottom line" of financial, social and environmental results. As Richard Koppes, governance specialist at law firm of Jones Day, noted in an April interview in The Wall Street Journal: "Environmental issues affect the bottom line, and how you're perceived as an employer."

Until a few years ago, many banks didn't tout much more than a financial bottom line. Then, responding to pressure from activist groups like the Rainforest Action Network (RAN), they agreed to look more closely at lending to groups charged with denuding the equatorial rainforests. From that came a series of "Equatorial Principles," issued in 2003 and governing lending in developing countries, which have been signed onto by most major international banks.

By now, the messages on banks' websites--where most of the language on environmental issues and climate change is found--are nothing if not forthright. "We believe that the United States must act now to create a national climate-change policy to avoid the economic, social and environmental damage that will result if GHG (greenhouse gas) emissions are not reduced," noted Citigroup in its "Position Statement on Climate Change," issued earlier this year.

But Citigroup added that its support is for a "market-based national policy" that reduces emissions and creates innovation. "Market-based" is often shorthand for a mechanism that eschews regulation--something no one in the business community wants. However, Citi does suggest that a "national legislative framework will be the most effective and economically efficient response for the U.S."--provided that it "leverage(s) market forces to establish price signals for GHGs to ensure that such emissions are reflected in the cost of goods and services."

A green image also may help counteract the broader climate-related risks that lenders face. "Are you lending to a business that would be severely impacted by bad weather, such as a builder who puts up houses in coastal flood plains?" asks Davis at Goodwin Procter. "That's more of a credit risk issue." That risk could also extend to lending to energy companies, particularly those with coal-fired power plants, if that technology falls under regulatory penalties and the companies suffer economic distress, he adds.

Davis believes that helping develop clean technologies may be more of a role for investment banks. "Commercial banks may be able to do the most on the public education function, with products like green credit cards. Things like that, along with building the consciousness of the public."

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Public consciousness is indeed at issue; if anything, the leading banks seem to be engaged in a "who's the greenest" contest. You can expect to see and hear more about banks' environmental concerns in a lot of ways: advertisements in newspapers and magazines, corporate sponsorship events--probably even in the checking account statements that arrive each month. You can practically bank on it.

RELATED ARTICLE: Behind the Bank of America Program

Bank of America's $20 billion initiative came out of quarterly meetings of its internal environmental council, which includes 25-30 senior executives, most of them subject matter experts, says spokesperson Eloise Hale. The council includes all lines of business, as well as the heads of corporate marketing and facilities operations.

Ninety percent of the stated dollar commitment BofA is making will go to lending, advice and market creation seeking to help commercial customers "finance the use and production of new products, services and technologies." These include:

* Customized solutions for financing customers developing and implementing environmentally sustainable designs, such as those with LEED (Leadership in Energy and Environmental Design) certification. LEED's Green Building Rating System[TM] is the nationally accepted benchmark for the design, construction and operation of high-performance green buildings. Also included are brownfield developments, smart growth and use of energy-related tax credits.

* Corporate and investment banking programs focused on financing and advisory services for companies developing energy-efficient or low-carbon technologies.

* Giving favorable consideration to lending opportunities involving clients creating and implementing environmentally sustainable products and services.

A fourth leg in this program is intriguing--it involves launching a capability of trading in carbon emission credits to enable clients to reach "carbon emission neutrality." This concept has generated a lot of buzz in recent months, and an active market is in place in Europe; in the U.S., the far smaller Chicago Climate Exchange is ramping up activity. "Carbon trading could be an area where [banks] could assume an important role as financial intermediaries," says Eric Olson, vice president for client services at Business for Social Responsibility.

Looking at its own operations, BofA is committing $1.4 billion to achieve LEED certification in all new construction of offices and banking centers and investing $100 million in energy conservation measures at all company facilities. Earlier, it had pledged to invest $1.5 billion to construct "environmentally progressive towers" in Charlotte and New York. (Wachovia Corp. is building a 1.2 million-square-foot tower in Charlotte it says will be LEED-certified.)

Bank of America has also pledged to:

* Reduce greenhouse gas emissions across the company by 9 percent by 2009 and 7 percent in the energy and utility portfolio by 2008. Hale says some of those goals can be met by better controlling energy usage in facilities like call centers.

* Cut paper usage further. From 2000-2006, the bank pared overall paper usage per employee by 40 percent, though Hale acknowledges that some of that is traceable to the general corporate movement toward putting documents online rather than on paper.

* Expand its program that gives $3,000 reimbursements to employees who buy hybrid vehicles in the U.S.

Hale says that customer response to the initiative has been "very positive," adding, "We have had the opportunity to touch a lot of different types of customers through this."

Christopher Davis, a partner at Goodwin Procter LLP (pictured at left), says, "BofA feels there will be a strong market in clean technology. This is a way for them to build market share, similar to what GE is doing" with its "Ecomagination" campaign. "Consumers will increasingly feel good that their bank is on the right side of the climate-change issue."

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RELATED ARTICLE: TAKEAWAYS

** The nation's largest banks have been busily publicizing climate-change and other environmental initiatives. Bank of America has committed to a $20 billion program over 10 years aimed at mitigating climate change.

** What's striking is both the scope of the initiatives and the fact that until relatively recently, banks weren't major players in the green movement.

** Observers say there is a lot of momentum in corporate circles for green programs, and that banks will be increasingly out to prove to current and prospective customers that they are committed to pro-environmental policies.
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Copyright 2007, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:SOCIAL RESPONSIBILITY
Author:Marshall, Jeffrey
Publication:Financial Executive
Article Type:Company overview
Date:Jun 1, 2007
Words:1963
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