Sustainable Banking The Greening of Finance Edited by Jan Jaap Bouma


	Sustainable Banking The Greening of Finance Edited by Jan Jaap Bouma, Erasmus University, Netherlands, Marcel Jeucken, Rabobank, Netherlands, and Leon Klinkers, Deloitte &Touche, Netherlands
	Published in association with Deloitte & Touche 480pp \| 234 x 156mm \| Hardback ISBN 1 874719 38 1 \| £45.00 US$84.00 \| March 2001

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THIS COMPREHENSIVE addition to the debate on sustainable development has been produced in order to take a global pulse on how the financial services sector is responding to the growing challenge of shareholder and stakeholder expectations on social and environmental performance. In the opinion of many commentators in this new book, given the intermediary role banks play within economies, their potential contribution toward sustainable development is enormous. Indeed, for banks, the conclusion that corporate sustainability has become an investable concept that increases long-term shareholder value is becoming difficult to deny. To date, banks have been relatively slow to examine their exposure to risk (the environmental and social performance of their clients) and the business opportunities of sustainable development (the products and services they offer). Not before time, Sustainable Banking concludes that this is beginning to change, with both risk and opportunity becoming established elements in banking policies towards environmental sustainability. In addition, banks have now begun to take notice of and address their own environmental performance. Through the use of case studies and detailed analysis, the book examines the environmental policies of banks, the importance of transparency and communication with their stakeholders, environmental and ethical investment funds, current practice by the providers of financial services with regard to environmental risk management and, finally, the key role of government, NGOs and multilateral banks in delivering sustainability. Sustainable banking has not, however, been achieved and nor will it be in the immediate future. As globalisation proceeds apace, Sustainable Banking argues that improvements are necessary in banks' attitudes toward transparency and accountability with regard to their lending policies. In addition, in order to promote best practice, the leading banks need to start measuring their customers' environmental performance in order to persuade polluting clients that minimum compliance to regulations will no longer suffice. The book finds many shining examples in the co-operative, mutual and social sectors for the big players to emulate. Environmental and ethical considerations in such loan portfolios have proven to be profitable and 'best-in-class' larger banks are now also reaping benefits. The unprecedented scope of the book has attracted contributors from four continents including Deloitte &Touche, Rabobank, The World Bank, The European Bank for Reconstruction and Development, The United Nations Environment Programme, The World Business Council for Sustainable Development, UBS, Henderson Investors, KPMG, The World Resources Institute and SAM Sustainability. . Back to the Top I think the editors have done a great job. The scope of Sustainable Banking is impressive with insights from various fields - science, advisory, banks, NGOs and governments - and various geographic regions all over the world. I hope this book can improve the dialogue within the financial sector and with their stakeholders and encourage many to envision a sustainable future. Hans N.J. Smits, Chairman of the Executive Board, Rabobank Nederland We are pleased to contribute to this book on Sustainable Banking. For years the 'environmental community' has cried out for the banking sector and financial institutions to partake in sustainability to help advance the sustainability agenda. This book testifies to the increasing response of the financial services sector to this call and provides an excellent overview of the achievements in recent years. Preben Sørensen, Global Director, Environment and Sustainability, Deloitte & Touche Back to the Top Reviews ... an informative and authoritative book which provides insight into the practices of a range (both in terms of size and geography) of banking organisations ... The contributing authors (as well as editors) are well known and highly regarded, so the excellent overall standard is no surprise and it is a book that one can dip into, without the need to read from cover to cover. *Corporate Environmental Strategy* ... essential for all those in the financial service sector and the academic community. For local authorities the book can be relevant in their role as bank owners and in authority/bank co-operations in local economic development. International Council for Local Environmental Initiatives ... contains 32 chapters and touches on many aspects of banking and sustainable development. As such, it provides a comprehensive overview of the topic and brings together many examples that illustrate what is being done and can be done. International Institute for Sustainable Development The book is packed with ideas and suggestions for differing options, policies, models and approaches which make it a superb potential tool for change. Corporate strategists and scenario planners will find this book particularly useful ... recommended for those needing full information on the actions of the sector and its developing policy direction ... *Eagle Bulletin* ... provides a valuable snapshot of where sustainable banking is ... and more importantly, it offers insight into where sustainable banking just might be headed. SocialFunds.com Sustainable Banking is an instructive and useful book for everyone who is professionally or personally interested in practices to reduce the burden of the economy on the environment, especially by bankers. Within a few years, the pioneering work described in this book might have become common property. *Ethics and Society* ... the book is well organised and provides a wealth of valuable and thought provoking information. *Tomorrow* The broad coverage including financial institutions and issues in Bangladesh, China, USA, Thailand and many European countries is commendable and increases the value of it. *Social and Environmental Accounting* Back to the Top Contents Forewords Hans N.J. Smits, Chairman of the Executive Board, Rabobank Nederland Preben Sørensen, Global Director, Environment and Sustainability, Deloitte & Touche Introduction Jan Jaap Bouma, Erasmus University, Netherlands, Marcel Jeucken, Rabobank, Netherlands, and Leon Klinkers, Deloitte & Touche, Netherlands 1. The changing environment of banks Marcel Jeucken, Rabobank, Netherlands, and Jan Jaap Bouma, Erasmus University, Netherlands 1.1 The role of banks 1.2 The environmental impacts of banking 1.2.1 Internal 1.2.2 External 1.3 Driving forces to take action 1.4 Actions taken by banks 1.5 The role of governments in sustainable banking 1.6 The dynamic and changing role of banks Part 1: The Environmental Policies of Banks 2. Sustainable banking at UBS Heinrich Hugenschmidt, UBS AG, Switzerland, Josef Janssen, Institute for Economy and the Environment, University of St Gallen, Switzerland, and Yann Kermode and Inge Schumacher, UBS AG, Switzerland 2.1 Investment banking: environment demands a long-term perspective 2.1.1 Environmental risk management processes in investment banking 2.1.2 What are the benefits? 2.2 Environmental opportunities in asset management 2.2.1 Efficient use of resources leads to economic and environmental benefits 2.2.2 The screening and evaluation process 2.2.3 The plausibility check: external analysis adds social corporate responsibility criteria 2.2.4 Broad diversification by sector and country generates attractive results 2.2.5 Eco Performance portfolios are attracting increasing attention 2.3 Future trends in banking: the Kyoto Protocol 2.3.1 The Kyoto Mechanisms 2.3.2 How will this affect the financial sector? 2.3.3 Remaining challenges 2.4 Conclusion 3. A green package to promote environmental management systems among SMEs Davide Dal Maso, Avanzi, Italy, and Carlo Marini and Paola Perin, Unicredito Italiano 3.1 The launch of 'Project Environment' 3.1.1 The analysis phase 3.2 Operation 'EMS Certification' 3.3 Future developments 3.4 Conclusions: a new role for the bank 4. Sustainable banking and the ASN Bank Michel Negenman, ASN Bank, Netherlands 4.1 A brief history of ASN Bank 4.2 Ethical assessment 4.3 Our (speciality) products 4.4 The role of ASN Bank in a sustainable banking sector 4.5 The role of ASN Bank in the future 5. Assessing the sustainability of bank service channels: the case of The Co-operative Bank Penny Street and Philip E. Monaghan, National Centre for Business and Sustainability, Manchester, UK 5.1 The Co-operative Bank partnership approach 5.2 Background to the service channel project 5.3 The Bank's service channels 5.3.1 Characteristics of service channels 5.4 Ecological and social impacts of service channels 5.5 Selection of ecological and social indicators 5.6 Summary of impacts and final set of indicators 5.6.1 Construction, maintenance and location of premises 5.6.2 Information and communication technologies (ICT) 5.6.3 Energy 5.6.4 Transport 5.6.5 Paper use 5.6.6 Use of plastic cards 5.6.7 Financial inclusion 5.6.8 Convenience and quality of service 5.6.9 Personal contact 5.6.10 Security and rights of privacy 5.6.11 Job security 5.6.12 Working conditions 5.6.13 Local economic development 5.6.14 Sound sourcing 5.6.15 Co-operative movement inclusion 5.7 Next steps 5.8 Conclusion 6. Grameen Shakti: financing renewable energy in Bangladesh Firoze A. Siddiqui and Peter Newman, Murdoch University, Perth, Australia 6.1 Why does Grameen Shakti focus on renewables? 6.2 How does Grameen Shakti achieve its goals? 6.2.1 Programmes 6.2.2 Financial credit policies 6.3 The programmes: progress to date 6.3.1 Solar home systems programme 6.3.2 Wind power programme 6.3.3 Hydro power programme 6.3.4 Biodigester programme 6.3.5 R&D and technology transfer programme 6.3.6 Training programme 6.4 Conclusion 7. Assessing the 'triple bottom line': social and environmental practices in the European banking sector James Giuseppi, Henderson Global Investors, UK 7.1 'Best-in-class' banks 7.2 The model bank 7.3 Environment 7.3.1 Sustainable banking 7.3.2 Good housekeeping 7.4 Overseas operations 7.4.1 Human rights 7.4.2 Burma 7.4.3 Third world debt 7.5 Community involvement 7.5.1 Access to banking 7.5.2 Charitable giving and community involvement programmes 7.6 Business practices 7.6.1 Disclosure in general 7.6.2 Money laundering versus secrecy laws 7.7 Disclosure case study: retrospective liabilities 7.7.1 The role of European banks in their dealings with the Nazis 7.7.2 Summary of case study 7.8 Conclusion 8. Sustainable banking in Austria Christine Jasch, Institute for Environmental Management and Economics (IOeW), Austria 8.1 Austria's route to sustainable banking 8.1.1 Kommunalkredit AG 8.1.2 Raiffeisen Landesbank Wien (RLB) 8.1.3 Oesterreichische Nationalbank (OeNB) 8.2 Conclusion 9. Environmental attitudes of banks and financial institutions Judit Barta, GKI Economic Research Co., Hungary, and Vilma Éri, Centre for Environmental Studies, Hungary 9.1 Financial institutions and the environment 9.2 The banks' impact on environmental performance of businesses 9.3 Conclusion 10. Banks and environmental practices in Bangkok Metropolitan Region: the need for change Willi Zimmermann and Beatriz Mayer, Asian Institute of Technology, Thailand 10.1 The survey 10.1.1 Environmental management in Thai banks 10.1.2 Environmental credit risk assessments 10.1.3 Green products and services 10.2 A lack of environmental drivers 10.3 The changing scenario 10.4 Conclusion Part 2: Transparency and Communication 11. Reporting on the environment: current practice in the financial services sector Kaisa Tarna, KPMG, Finland 11.1 Introduction 11.1.1 Reporting guidelines 11.1.2 Scope and method of the study 11.2 Why report and to whom? 11.2.1 Communicating with stakeholders 11.2.2 Target groups 11.3 Reporting practices: issues reported and forms of reporting 11.3.1 General information 11.3.2 Environmental management 11.3.3 Operating ecology 11.3.4 Product ecology 11.3.5 Financial management 11.3.6 Stakeholder management 11.4 Conclusions and future trends 12. Making the link between environmental performance and shareholder value: the metrics of eco-efficiency Björn Stigson, President, World Business Council for Sustainable Development, Switzerland 12.1 Banks look beyond liability to opportunity 12.1.1 Growing economies sustainably 12.1.2 Measuring eco-efficiency 12.1.3 Pilot programme 12.1.4 Cross-comparable indicators 12.1.5 Sustainability as an 'investable' concept 13. Transparency and the green investment market Walter Kahlenborn, Ecologic, Germany 13.1 A definition of 'green investment' 13.2 The ecological usefulness of green investment 13.3 Green investment: the size and development of the market 13.3.1 Market development up to the present 13.3.2 Future development in the market 13.4 Transparency and visibility 13.4.1 Market visibility 13.4.2 Market transparency and the 'claim' of being green 13.5 Instruments to convey information on investments 13.6 Labelling 13.7 Conclusion 14. The corporate environmental performance-financial performance link: implications for ethical investments Celine Louche, Erasmus University, Netherlands 14.1 The environmental-financial link: the theory 14.2 The environmental-financial link: empirical analysis 14.2.1 Data and methodology 14.2.2 Findings 14.2.3 Pitfalls in assessing corporate environmental performance 14.2.4 Case study: Triodos Added Value Investment Fund 14.3 Conclusion Annexe 1: Empirical analysis Annexe 2: Triodos Added Value portfolio Part 3: Sustainable Investment Funds 15. Sustainable development funds: progress since the 1970s Stefan Schaltegger, University of Lüneburg, Germany, and Frank Figge, University of Lüneburg, Germany/Pictet & Cie., Switzerland 15.1 Why are investors relevant for sustainable development? 15.2 Sustainable investment: the banks' perspective 15.2.1 Investment procedures and products in an opportunity-threat scenario 15.2.2 Historical development of sustainable investment products 15.2.3 Product differentiation and integration into general policy 15.3 Outlook 16. The transition from environmental funds to sustainable investment: the practical application of sustainability criteria in investment products Andreas Knörzer, Bank Sarasin & Co., Switzerland 16.1 Development of environmental funds 16.1.1 Volume trends 16.1.2 Performance trends 16.1.3 Summary 16.2 Transition from environmental to sustainable investments 16.2.1 The underlying concept 16.2.2 Sarasin environmental assessment 16.2.3 Sarasin social assessment 16.2.4 Analysis steps 16.2.5 Conclusion 16.3 Outlook 17. The Dow Jones Sustainability Group Index: the first worldwide sustainability index Alois Flatz, Lena Serck-Hanssen and Erica Tucker-Bassin, SAM Sustainability Group, Switzerland 17.1 What is different about sustainability investment? 17.2 The stock selection process: building a quantifiable concept 17.2.1 Corporate Sustainability Assessment methodology 17.2.2 Corporate Sustainability Assessment criteria 17.2.3 Corporate sustainability evaluation 17.2.4 Corporate Sustainability Monitoring 17.3 The index characteristics: a favourable risk-return profile 17.4 Conclusion 18. The Green Fund System in the Netherlands Theo van Bellegem, Ministry of Housing, Spatial Planning and the Environment, Netherlands 18.1 The GFS mechanism 234 18.2 Finance company involvement in the environment 236 18.3 The origin of the GFS 237 18.4 The workings of the GFS 238 18.4.1 Founding a Green Fund 238 18.4.2 Arrangement of loans and designation of projects 238 18.4.3 How Green Funds get their money 238 18.4.4 Auditing in the GFS 239 18.5 The roles of the various stakeholders in the GFS 239 18.5.1 The public 239 18.5.2 Financial companies 240 18.5.3 Government 240 18.6 Types of project 240 18.6.1 GFS projects abroad 243 18.7 The future of the GFS 244 18.8 Conclusions 244 Part 4: Environmental Risk and Banks' Products 19. Providers of financial services and environmental risk management: current experience Andrei D. Barannik, International EA Adviser, USA 19.1 Types of environmental and associated risk 19.2 Environmental liability 19.3 Risk evaluation criteria 19.3.1 Character of environmental risks 19.3.2 Character of a customer 19.3.3 Character of environmental legal framework 19.4 Risk evaluation approaches 19.4.1 The standard ERM process 19.4.2 ERM tools 19.4.3 The role of environmental risk manager 19.5 Trends 19.6 Challenges ahead 20. Environment-induced systematisation of economic risks Frank Figge, University of Lüneburg, Germany/Bank Pictet & Cie., Switzerland 20.1 Risks in investment decisions 20.2 Risk characteristics 20.2.1 Differentiation by decision period 20.2.2 Differentiation by interdependencies 20.2.3 Development of a risk matrix 20.3 Risk management instruments 20.4 Characteristics of environment-induced economic risks 20.4.1 Example: the greenhouse effect climate change 20.5 Instruments for managing environment-induced economic risks 20.5.1 Information instruments 20.5.2 Reserve accumulation 20.6 Conclusion 21. Estimating the financial effects of companies' environmental performance and exposure Robert Repetto and Duncan Austin, World Resources Institute, USA 21.1 The approach explained 21.1.1 Building environmental scenarios for the US pulp and paper industry 21.1.2 Assessing firm-by-firm exposure to priority environmental issues 21.1.3 Analysing scenario-specific financial impacts 21.2 Example: control of nitrogen oxide (NOx) emissions 21.2.1 Scenarios 21.2.2 Exposures 21.2.3 Financial impacts 21.3 Deriving overall financial results 21.4 Are these exposures already incorporated into market valuations? 21.5 Potential applications 21.6 Policy recommendations 22. The Environment Handbook: a Danish tool for including environmental aspects in credit evaluation Dan Atkins, Deloitte & Touche Environmental Services, Australia, and Charlotte Pedersen, Deloitte & Touche Environmental Services, Denmark 22.1 The reason for an environmental handbook for banks 22.2 Structure of the handbook 22.3 Uses of the handbook 23. Corporate environmental assessment by a bank lender: the reality Andrea B. Coulson, University of Strathclyde, UK 23.1 Lloyds TSB: environmental commitments 23.1.1 Public environmental policy 23.1.2 Endorsing sustainable development 23.1.3 Reporting on commitments 23.2 The lending reality 23.2.1 Internal policy and procedural guidance 23.2.2 Expertise in lending contingencies 23.2.3 Policy modelling 23.2.4 Environmental credit risk assessment 23.3 Conclusion Part 5: The Role of Government, NGOs and Multilateral Banks 24. The World Bank's environmental assessment policies: review of institutional development Andrei D. Barannik, International EA Adviser, USA, and Robert J.A. Goodland, The World Bank, USA 24.1 1970-1984 24.1.1 Policy 24.1.2 Management 24.2 1984-1989 24.2.1 Policy 24.2.2 Management 24.3 1989-1993 24.3.1 Policy 24.3.2 Management 24.4 1993-1998 24.4.1 Policy 24.4.2 Management 24.5 1999-present 24.5.1 Policy 24.5.2 Management 24.6 Findings 24.7 Next steps 24.8 Postscript 25. International financial institutions and the Three Gorges hydroelectric power scheme Kate Kearins and Greg O’Malley, University of Waikato, New Zealand 25.1 Financing electricity projects in China 25.1.1 The Three Gorges Hydroelectric Power Scheme 25.2 The Export-Import Bank of the United States 25.3 Analysis of the Ex-Im Bank decision 25.3.1 Rethinking risk assessment 25.4 The role of stakeholders 25.5 The precautionary approach to environmental risk 25.6 In the wake of the Ex-Im Bank decision 25.7 Conclusion 26. The Hungarian Environmental Credit Line Zsolt Pásztor, Deloitte & Touche, Hungary, and Dénes Bulkai, European Bank for Reconstruction and Development 26.1 The EBRD 26.2 Central and Eastern European overview 26.3 Creation of the Environmental Credit Line 26.3.1 Background 26.3.2 Budapest Bank 26.3.3 Goals and conditions of the ECL 26.4 Operation of the credit line 26.4.1 Sub-loan approval procedures 26.4.2 Environmental appraisals 26.5 Appraised projects 26.6 Case studies 26.6.1 Case 1. Gas production company: installation of a modern gas production facility 26.6.2 Case 2. Plastic waste processing company: collection and recycling plant 26.6.3 Case 3. Waste-processing plant: construction of iron-containing waste processing plant 26.7 Conclusions 27. The Growth and Environment Scheme: the EU, the financial sector and small and medium-sized enterprises as partners in promoting sustainability Marc Leistner, European Investment Fund, Luxembourg 27.1 Scope of the scheme 27.2 Operation of the scheme 27.3 Environmental eligibility 27.4 What has been achieved so far 27.5 Conclusion 28. An environmental fund with the WWF label: the importance of appropriate communication tools Sabine Döbeli, Zürcher Kantonalbank, Switzerland 28.1 Environmental research process for Swissca Green Invest 28.1.1 Exclusion criteria 28.1.2 Environmental performance analysis 28.1.3 Social criteria check 28.2 Communication tools 28.2.1 Brochures and other information material 28.2.2 Feedback link on the Internet 28.2.3 Environmental reports and questionnaires 28.2.4 Watchlist 28.2.5 Regular meetings with the Advisory Council 28.3 Conclusions 29. The role of the United Nations Environment Programme and the financial services sector Mike Kelly, United Nations Environment Programme, Geneva, and Ari Huhtala, United Nations Environment Programme, France 29.1 The motivation behind the initiative 29.2 The objectives of the UNEP initiatives 29.3 UNEP's involvement in cleaner production: a case description 29.3.1 Constraints to CP investments 29.3.2 Possible solutions 29.3.3 UNEP's project 29.3 Conclusion Annexe 1: UNEP Statement by Financial Institutions on the Environment and Sustainable Development Annexe 2: Signatories to the UNEP Statement by Financial Institutions on the Environment and Sustainable Development 30. Directing investment to cleaner energy technologies: the role of financial institutions Norbert Wohlgemuth, UNEP Collaborating Centre on Energy and Environment, Denmark 30.1 Why promote CETs? 30.2 Barriers to CETs, and instruments to overcome them 30.3 The 'RET/EE Investment Advisory Service' 30.3.1 Purpose and objective 30.3.2 Activities 30.3.3 Why focus on the finance sector? 30.3.4 Examples 30.4 Conclusions 31. Sustainable finance for sustainable energy: the role of financial intermediaries Glenn Stuart Hodes, Princeton University, USA 31.1 Financial barriers to the commercialisation of renewable energy 31.1.1 Current trends in development assistance for energy 31.1.2 Market conditions for renewable energy in developing countries 31.1.3 Barriers to implementation 31.1.4 PPAs, government policies and renewable energy enterprises 31.2 Surveying the landscape of development assistance 31.2.1 Philanthropy 31.2.2 Overseas development assistance 31.2.3 Multilateral development banks 31.3 Financial intermediaries: advantages, case studies and future prospects 31.3.1 Comparative advantages of financial intermediaries 31.3.2 Weaknesses and constraints of financial intermediaries 31.4 Conclusion 32. Can financial institutions contribute to sustainability? Stephen Viederman, Former President, Jessie Smith Noyes Foundation DOWNLOAD OR VIEW THIS CHAPTER ONLINE 32.1 Reducing the dissonance between what we value and how we behave 32.2 What does 'sustainability' really mean, and how does it impact on banking and finance? Bibliography List of Abbreviations Author Biographies Index