Cynics argue that banks’ new-found green credentials are primarily about protecting market share, while banks argue that without the latter there is unlikely to be a commitment to the former. Neil Tyler finds out which banks are setting the pace.
Leading institutions want to be seen as being environmentally and ethically aware and as a result are making efforts to improve their environmental credentials. Consumers too are looking at the track records of banks before deciding to open accounts or invest their money. Many want to be with banks that are making concerted efforts to invest in renewable schemes or that support environmentally friendly projects, while avoiding those whose lending practices may be contributing to environmental degradation or destruction.
For banks, their ethical standing is fast becoming a key differentiator with their competitors. Many are keen to assert a ‘green’ agenda and their annual reports are awash with words such as “environmental” and “sustainable”. But it is an easy subject to spin. Earlier this year ABN AMRO won the Financial Times’ Sustainable Bank of the Year Award, while simultaneously it fared badly in a Dutch Friends of the Earth list of environmentally damaging banks. Who should one believe?
Cynics argue that the banks are using their new found green credentials solely to attract more customers and shift more product. It has little to do with sustainability and protecting the environment and far more to do with protecting market share. However, banks would argue that there needs to be a balance between social responsibility and profit. For without the latter there is unlikely to be a commitment to the former.
The world’s financial giants such as Deutsche Bank, Citigroup, HSBC and ING all talk up their commitment to sustainable development and the role they can play in educating people. But for these institutions there has to be a balance between being socially responsible, making a profit and keeping their shareholders happy, and while sustainable development is important in terms of keeping and attracting customers, there is still no hard evidence that it brings additional profits.
While the banks may not be able to shake off allegations of ‘greenwashing’ – the advertising of positive environmental practices while acting in the opposite way – research from Geneva-based Covalence, which tracks the ethical reputation of multinationals, awarded banks the second best ‘ethical quote’ reputation score from June of last year to June 2007 when compared with nine industry sectors. Based on positive-minus-negative news stories cumulated from January 2002 to June 2007 and covering the 25 largest banks based on market capitalisation, HSBC came out first, followed by ABN AMRO, Bank of America, Citigroup and Barclays.
Energy efficient technologies
Across the board, banks are looking to improve their ‘eco’ reputations. Lloyds TSB, for example, has pledged to cut its carbon footprint by 30% by the end of 2012 while HBOS’s Green Miles initiative looks to cut corporate travel growth over the next 12 months. RBS is investing £55m (€80m) in energy reduction measures across its property portfolio and piloting a range of innovative energy efficient technologies.
Barclays recently issued a Barclays Breathe Card with the intention that 50% of the profits derived from the card would go towards projects aimed at reducing carbon emissions. Admittedly there was a mixed reaction to the launch, with critics accusing the bank of simply jumping on the environmental bandwagon with a view to gaining some good publicity while encouraging consumers to run up debts on their credit cards.
Corporate social responsibility (CSR) or sustainability has certainly come a long way since the early 1990s, when the UK’s Co-operative Bank was the first to launch an ethical business policy. From a fringe, niche pursuit it is now part of the mainstream and banks are competing fiercely to be seen as socially responsible and to raise public awareness of their activities.
An early mover, HSBC was the first to see sustainability as more than just a publicity stunt and rather a strategic issue. It was the first bank to go carbon neutral in 2005 and is donating £50m ($99.2m) to four environmental charities and groups. HSBC has also launched a ‘green’ option on its current accounts. Customers can decide whether they want to receive monthly paper statements, cheque books, letters or other paper mail relating to their accounts.
According to the Dow Jones Sustainability Index Guidebook, “corporate sustainability is a business approach designed to create long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments”.
The idea of sustainability is fast becoming integral to the way in which banks operate. Leading organisations are harnessing corporate responsibility to the market’s potential for sustainable products while at the same time looking to reduce and avoid sustainability costs and risks.
Bank of America, for example, has plans to launch an eco-friendly credit card, a rewards programme where customers can donate points to organisations that invest in greenhouse gas reductions, a green mortgage programme, and what it calls an environmental home equity programme. It forms part of a 10-year, $20bn initiative to support environmentally sustainable business activities and the bank is committing $18bn in lending, advice and market creation to help commercial clients finance the use and production of new products, services and technologies.
US rival Citi has announced that it will spend $50bn over the next 10 years to address global climate change through investments, financings and related activities to support the commercialisation and growth of alternative energy and clean technology among its clients, as well as within its own businesses and operations.
The $50bn target is based on market-based activities and transactions with clients as well as energy saving projects within Citi’s own operations. This target includes nearly $10bn in activities Citi has already undertaken to address climate change and includes investments to control its own environmental footprint.
According to Charles Prince, chairman and CEO of Citi, the scheme is “not a wish-list, but a realistic, achievable plan that serves a critical global need and responds to an emerging investment opportunity”.
Shareholder pressure
Banks are under pressure from their stakeholders to take environmental and sustainability issues seriously and they have a crucial role to play in terms of influencing and changing perceptions and behaviours, through their relationship with their customers, suppliers, clients, employees, government organisations or other stakeholders.
One of the key social goals is tackling climate change and it is a popular choice with many companies that are embracing green design, reducing the energy needs of their buildings and the way in which they process and recycle waste in an effort to become more sustainable. As a result, banks are developing a more strategic and focused use of their resources when it comes to their own property portfolios.
According to Mike Beaven, who leads Building Services and Environmental Engineering at Arup Associates, the architectural practice at Arup, sustainability in terms of its relationships with property is interesting in several ways: “It is about long-term thinking with governance in mind. In the US, following on from the collapse of Enron, banks are very keen to be seen doing the right things for the right reasons. Still making but not wasting money and using resources effectively. In that respect there are significant synergies with sustainable construction.”
To that end, the building industry has a major impact on the way people live and work and on the structures people inhabit and work in. The notion of sustainable development is gaining momentum and clients and architects are looking at re-assessing the fundamentals of projects, whether that is their functionality, structure or the materials used.
Sustainability is hard-edged topic and the building industry is working with clients to help them understand its basic principles. Mr Beaven says: “The role of banks in terms of enabling things to happen is immensely powerful. Banks could take a serious role in pushing forward and developing the sustainability agenda. Many banks are embracing that agenda. Some banks have been assessing their property portfolios looking at the potential to be greener and more sustainable. They get it.”
Sustainability is defined as “conserving an ecological balance by avoiding depletion of natural resources”, and to that end, sustainable design should be able to create products, places, processes and systems that optimise well-being now and into the future, without undermining the well-being of the planet. According to Paul Hawken, author of The Ecology of Commerce, energy use could be reduced by 80% with no qualitative reduction in quality of life. As Barclays has said, the greenest form of energy is the energy you do not use.
Recycling and waste management
Banks are increasingly aware that they need to manage the environmental impact their operations have and many have made good progress in terms of reducing energy use in offices and their branch networks, where there has been a focus on reduced energy consumption, recycling and waste management and where new programmes to eliminate the wasteful use of resources are under development.
According to Mark Nichols, head of corporate workplace, Bank of America: “It is about doing the right thing, and with over 200,000 associates worldwide and business in 37 countries we have a leadership role with a responsibility to lead.”
Bank of America has announced investments to offset the impact its own operations and associates have on the environment. It is committing $1.4bn to achieve the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) certification (the LEED system offers points for every sustainable feature incorporated into a building or process used to construct a building and is now the nationally accepted benchmark in the US) in all new construction of office facilities and banking centres, donating $50m from the Bank of America Charitable Foundation to support non-profit organisations focused on environmental activities, and is investing $100m in energy conservation measures at its facilities.
Green architecture is an exciting and very visible way for organisations to demonstrate their commitment to sustainability. Buildings are a major consumer of fossil fuels and natural resources. In the UK, buildings account for 50% of all the energy use – for example, construction uses upwards of 50% of all raw material used by industry.
“You just can’t stop building,” says Lee Polisarno, president of Kohn Pedersen Fox Associates. “You have to basically evolve and create strategies that are less consumptive in terms of energy. The fact of the matter is that most of the energy consumed in construction comes from the amount of embodied energy needed to create products and processes to create a building.”
A look at the London skyline and the host of new developments planned in and around the City over the coming few years, from Bishopgate Tower in the City of London to the London Bridge Tower, suggest that that demand for commercial space is set to increase. In fact one-sixth of the floorspace in the Square Mile is being redeveloped. While that might be the case, there are host of a new materials, techniques, systems and technologies available that can have a significant impact on the environmental impact these buildings will have.
Michael Pawlyn, associate director at architects Grimshaws, believes that while there is demand for high performance buildings developers, clients and engineers will need to take a longer term view if they are to reap the benefits from sustainable buildings.
“Too often, compromises and mistakes are made before designers get involved,” he says. “The wrong site can be chosen or a poor brief given. Super-efficient buildings could actually cost the same to build, but there still seems to be a fear of embracing change.
“If you are an early adopter you will gain the most. You will make money and build a better environment for your staff.”
While sustainable office design is about higher performance in terms of energy and other resource use, it is also about higher productivity in human terms. People will work better in offices that have natural lighting, cleaner and fresher air and where they have greater control over their immediate environment.
And that is becoming an increasingly important source of differentiation among banks competing for talent. People are becoming more discerning in terms of where they work and will judge a bank according to how it addresses sustainability. The best and brightest now demand to work for companies that are increasingly aligned with their own personal values and there is a growing debate around how institutions should shoulder a share of social and environmental burdens.
ABN AMRO’s global head of sustainability, Richard Burrett, explains how important sustainability is becoming as an issue among prospective recruits. “Sustainability is certainly becoming an issue. Perhaps only in the past few years, but graduate recruits now see ABN AMRO’s commitment to sustainability as a positive tipping factor with the benefits that brings to the business as a whole. There may still be a way to go but the issue of sustainability is certainly high among our staff.”
ABN AMRO is taking serious measures to make its office buildings and branches more environmentally sound. In the US, the headquarters of the bank’s US LaSalle Bank subsidiary in Troy, Michigan, and its West Loop office building in Chicago have both recently earned the LEED certification.
In Brazil, its Banco Real branch office in Granja Viana, São Paulo, is the first ABN AMRO office in the country to be built in a sustainable manner. The branch office was made out of alternative materials and makes more sustainable use of resources such as water and electricity, offering greater economic efficiency and lower environmental impact. The São Paulo engineering team spent months studying the best materials to use and coming up with solutions that would cause the lowest impact possible to the surrounding environment.
State-of-the-art construction
In New York, the Bank of America Tower at One Bryant Park, designed by Cook+Fox Architects, is set to be one of the most efficient and ecologically friendly buildings in the world. Construction is due to be completed in 2009 when Bank of America, the anchor tenant, moves in.
The finished building will incorporate innovative high performance environmental technologies to promote health and productivity, reduce waste and ensure environmental sustainability.
Mr Nichols explains: “There will be a state-of-the-art, onsite, 5.1 megawatt, combined cycle, co-generation plant providing clean and efficient power source for the building; a grey water system that will capture and reuse all rainwater and wastewater and the building has a pioneering filtered under-floor displacement air ventilation system and floor-to-floor air handling units that will allow for individual floor control and even more efficient heating and cooling.”
As pressure grows to make businesses more sustainable, many enterprises and organisations are questioning the underlying economics of such activities. But, according to Richard Pawlyn, managing director of Landmark Information Group’s Property and Environment company: “As the green agenda takes shape over the next few years, there will be a redefinition of what is considered ‘prime’ so we will see investors falling out of love with a lot of existing investment stock. Banks need to look hard at potential building obsolescence, driven by harsher environmental standards and fear of contamination, during the loan origination and risk assessment phase.”
Green principles should be integrated into a building’s planning and design from the start. Engineers and architects need to work more closely together but so do clients, developers and contractors if they are to balance capital and running costs on the one hand with energy use, environmental impact and ecology on the other.
Many critics believe that green building, energy use and recycling are the easy option for the banks to embrace. While they remain comfortable talking about their efforts to reduce their global footprint and yet more undergo green makeovers, few are actually dealing with the bigger issues at the heart of sustainability and ensuring their investments are sustainable or socially responsible.
Preserving the environment for future generations reflects an evolution in thinking on sustainability and the need to assess the impact of business over decades, not just years. It is vital that business, and banks in particular, take a more active approach in terms of business leadership and embrace the commercial opportunities arising from this change in thinking.
