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Banks Target ‘Greener’ Lending

Several large commercial lenders including Wells Fargo, Morgan Stanley, and Citibank, say they are starting to shift their involvement away from industry practices that they see as risky to their reputations and bottom lines, reports The New York Times. These include investments in oil and gas development, nuclear power, coal-fired electricity generation, oil sands development, fuel pipeline construction and forestry.

As an example, Wells Fargo recently said its involvement with companies engaged in mountaintop removal mining would be “limited and declining,” according to the article. However, the bank was a small player in the sector, representing about $78 million in bonds and loan financing for these companies from 2008 to April 2010, according to the Rainforest Action Network.

But Wells Fargo’s policy shift follows other lenders including Credit Suisse, Morgan Stanley, JP Morgan Chase, Bank of America and Citibank that have increased their evaluations of lending to companies involved in mountaintop removal or have stopped lending to them, reports The New York Times.

The Rainforest Action Network, which has led a campaign to highlight financial institutions with connections to mountaintop mining, has said that the policy shifts were reducing the financing to these companies.

But mining associations and companies involved in mountaintop removal mining told the newspaper that they aren’t having any trouble getting financing for their projects.

Other banks including HSBC and Rabobank are also curbing their relationships with companies based on environmental performance. As examples cited in the article, HSBC is cutting its relationships with some palm oil producers because of their link to deforestation in developing countries and Rabobank has developed a nine-point checklist of conditions for oil and gas companies that include commitments to improve environmental performance and protect water quality.

Banking analysts have told the newspaper that the debate over climate change, water quality and other environmental considerations is forcing lenders to take a closer look at their lending practices.

Karina Litvack, the head of governance and sustainable investment with F&C Investments, said in the article: “It’s one thing if your potential borrower is dumping cyanide in a river. But if they’re dumping carbon dioxide into the air, which is not exactly illegal — what do you do? Banks are in kind of a quandary, because they are competing for business, and if they get holier-than-thou and start to play policeman, they risk allowing other banks to take that business.”

Most recently, the Royal Bank of Canada had to respond to pressure from environmental advocates that denounced the bank’s financing of oil sand projects by hosting a “day of learning,” on the environmental issues surrounding the oil sands.

Over the past few years, the focus by lenders on a company’s environmental impact has led to the development of best practices and voluntary standards such as the Carbon Principles, which Citigroup, JPMorgan Chase and Morgan Stanley helped form, and the Climate Principles launched by Credit Agricole, HSBC, Munich Re, Standard Chartered and Swiss Re.

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