CHRISTOPHER DAVIS – Increasingly important issue
Greenbacks for green results.
Shareholders, banks and other lenders are showing a greater interest in seeing environmentally friendly and sustainable returns for their dollars. Officially, regulators have yet to tackle how environmental sustainability gels with lending compliance issues.
But plenty of other pressures are pushing financial institutions to go “green.”
“For banks, the reputational risk would counsel them to look at this issue and maybe take additional steps,” said Christopher Davis, an environmental partner at the Goodwin Procter law firm in Boston.
An environmental lawyer counseling clients in the real estate and financial service industries for 26 years, Davis has worked on projects ranging from hazardous waste cleanups to global warming. In the past four years, policies regarding climate change have become more important among his clients, he said.
“It’s something an increasing number of our clients are recognizing that it’s an issue they need to do something about,” Davis said.
For banks, that can mean strengthening environmental requirements before lending money on a given project, he said. For example, Davis noted, lenders could start showing preference to projects with Leadership in Energy and Environmental Design (LEED) certification, a designation established by the U.S. Green Building Council.
“I think banks could make a really big difference that way,” Davis said. “If you can’t borrow money, you can’t build too much.”
One initiative launched as a means to encourage both environmentally and socially responsible projects is the 4-year-old Equator Principles in Washington, D.C. Fifty-one financial institutions, most recently Toronto-based TD Bank Financial Group – whose subsidiaries include TD Banknorth Inc. – have opted to voluntarily adopt the principles.
The document spelling out the terms of the principles states that the adopters of the policy have done so “in order to ensure that the projects we finance are developed in a manner that is socially responsible and reflect sound environmental management practices.”
“By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately,” continues the agreement. “We believe that adoption of and adherence to these principles offers significant benefits to ourselves, our borrowers and local stakeholders through our borrowers’ engagement with locally affected communities. We therefore recognize that our role as financiers affords us opportunities to promote responsible environmental stewardship and socially responsible development.”
‘A Broad Discussion’
Because the principles deal mainly with projects in the developing world, TD Bank Financial Group did not see an immediate relevancy to its business, according to spokesman Nick Petter.
“But after considering the principles in full detail and having a broad discussion about them, we saw that we had an opportunity to endorse a valuable set of guidelines, and we wanted to lend our support as a complement to our broader commitment to the environment,” Petter wrote in an e-mail to The Commercial Record. TD Bank Financial Group adopted the principles in April.
“Adopting them also puts some formality around what we already do, and keeps us in the loop of discussion and ideas that adopters of these principles will generate,” Petter added.
The bank’s broader environmental commitment includes its Friends of the Environment Foundation, launched in 1990, which supports various environmental programs across Canada.
Another adopter of the principles, Charlotte, N.C.-based Bank of America, announced its own environmental initiative earlier this year. The 10-year, $20 billion effort is designed “to support the growth of environmentally sustainable business activity to address global climate change,” announced the company, through “lending, investing, philanthropy and the creation of new products and services.”
“Under its environmental initiative, Bank of America will emphasize the business opportunities created by ‘green’ economic growth by providing critical financing to encourage the development of environmentally sustainable products and technology; accelerate the deployment of existing technology; and increase energy efficiency,” the company said in a statement.
Investors also are getting involved, bringing pressure through well-financed investment funds.
“A group of institutional investors representing about $3.7 trillion under management known as the Investors Network on Climate Risk has demanded greater attention to and disclosure of climate-related risks by publicly held companies across various industrial sectors, including financial services institutions,” wrote Davis in a newsletter for his law firm.
Another institutional investor collaboration, the international Carbon Disclosure Project – representing about $41 trillion under management – requests climate risk and emissions management data from U.S. companies, Davis noted.
“The institutional investors have gotten together and demanded that pressure be brought to bear on these companies,” Davis said in a recent interview with The Commercial Record. “They have really vaulted this issue into the corporate boardroom.”
