Green Banking – How Do The Big Banks Score?
So as promised back in February in my post about green investments, I have returned to the financial sector to take a look at more general green banking.
To be honest, I have found this to be one of the most difficult posts to write because of the scope of topics that I could incorporate and the lack of information given by certain financial institutions and I have spent the best part of 2 days reading corporate social responsibility reports and digging deeper into the less than sustainable investments that some banks make.
It’s been frustrating at times reading through what I, and many others, would call greenwash (as in a load of fluff designed to paint a better picture of an organisation’s green stance) but I hope that in the end my conclusions are based on as much fact as possible. There are undoubtedly different ways to score the banks depending on if you were to look at non-environmental issues such as tax avoidance and labour practices but I am going to focus primarily on green issues and those that are closely related.
While I have tried to keep facts at the forefront of my arguments, I’m not going to deny that my own feelings and opinions have also influenced my ratings. I have also decided to focus primarily on how the banks invest on behalf of their customers and less on the energy efficiency and waste of their branches, employees and head offices although I will mention these things in passing where appropriate.
So without further ado, let’s get down to business.
Click on a logo below to go straight to that bank’s write-up
The Equator Principles
Before we get to the banks themselves, I just want to touch on a couple of things, the first of which is a set of banking guidelines called the Equator Principles. If you really want to learn more about these then you can read the full document here but I’ll just give you an overview of what these are meant to do.
Any financial institution that lends money to projects that have total capital requirements of $10 million or more, in all industry sectors, should judge their lending by 10 guiding rules.
These 10 guidelines, in brief, assess the potential environmental damage of a project, create an action plan to monitor, manage and mitigate its negative effects, consult with communities and groups beforehand to ensure that their concerns have been adequately addressed, design a grievance mechanism for those who wish to raise further issues during the project and oblige borrowers to arrange independent review, monitoring and reporting of the whole process.
These principles should play an important role in preventing projects that cause widespread, irreversible environmental damage or those that put profit before people and communities but they have come in for a lot of criticism for being ineffective.
A lack of reporting and disclosure causes much of the disquiet since a lack of transparency effectively nullifies the whole Equator Principles approach. Indeed, in my investigation, I found little reference of many banks’ implementation of the principles and for those that did, the process seemed not to make a lot of difference.
For example, Santander state on their website that:
“During 2011, Banco Santander did not reject any financing transaction because of failure to comply with the social and environmental requirements established by the Equator Principles.”
HSBC, in their 2010 sustainability report, show that over 3 years (2008 – 2010) they declined just one loan out of 282 that they vetted according to the Equator Principles.
To me it seems like these principles aren’t really leading to much change in terms of projects being declined finance. Now I am not saying that the banks aren’t applying the principles, but I think it is likely that they are applying them in a less stringent way than they could be. I just struggle to believe that virtually no loans are declined – surely there are projects being financed that cause substantial environmental damage? I’ll look into that later in the post.
Dirty Finance Vs. Clean Finance
I want to make sure that my analysis of the big banks is a fair and balanced one so I’m going to weight up both sides of the story: the funding they provide to companies that are involved in heavy polluting industry and those that are involved in low/zero carbon sectors.
The trouble is, of course, that these banks do not give you a choice as a saver as to where you would like your money to go. You cannot say to your bank that you only want to fund renewables or that you would not like your money to go into coal power stations so in reality you have to look at the balance.
Throughout my assessment of the banks, I will refer to a report by BankTrack.org entitled “Bankrolling Climate Change” (I’ll refer to it as BCC). This report focuses solely on the coal industry, both mining and power generation, and examines the financing of this industry that comes from 93 of the world’s banks and other financial institutions (number 1 means most finance, number 93 means least finance).
Since coal is such a dirty fuel (as can be seen by the government’s official energy mix), funding its mining and subsequent energy generation is not a move towards an environmentally sustainable future and will count against the bank in question.
To The Nitty Gritty
I am rankings the banks and building societies in order of the total assets sitting on their balance sheet.
Remember, these are my own ratings based on the facts that I have found and the importance I lend to those facts. You might rank them differently but I have at least tried to give my references should you wish to make up your own mind.
Royal Bank of Scotland (RBS)
Total assets: £1.5 trillion
As a mainly state owned bank, you would hope that RBS would base some of their investment decisions on the governments own emission reduction targets and in some respects they are doing a good job. In other lights, however, RBS do not look so saintly.
- loaned more than any other UK bank to renewable energy projects in the UK in 2011
- provide more finance to wind power than any other type of energy project (31% of their investment in the energy sector was for wind while a further 14% was for solar and 13% for biomass)
- only around 3% of their total lending is to the energy sectors (oil, gas, power and renewables)
- loaned more than $1.78 billion to companies in the US who are involved in renewable energy (not 100% clear over what period this is)
- have cut the carbon footprint per member of staff (FTE or full time equivalent) excluding business travel by 3% between 2010 and 2011
- have targets to cut CO2 emissions a further 15% from 2011 levels by 2014 (per FTE)
- according to BCC, RBS have financed the coal industry to the tune of almost €11 billion between 2005 and 2011 placing them as the 7th highest financer
- According to a recent Friends of the Earth Scotland report, they were involved in arranging loans of more than £40 billion to fossil fuel related companies and projects in the first 6 months of 2012 – either these figures are wrong or RBS have changed their approach since 2011
- do still provide small amounts of funding to companies involved in the extraction of fossil fuel from oil sands (this is widely accepted as a highly polluting method of oil extraction)
- around another £40 billion in finance for transport projects – not necessarily a bad thing because infrastructure is essential but I’ve labelled it in the bad section because there is a very good chance that they have financed the vast expansion of the aviation industry and it’s obvious excesses
- no clear reporting of their Equator Principle process
Green Steve’s Opinion RBS:
If the BCC and Friends of the Earth reports are to be believed, there are various stains on RBS’s green credentials which were actually looking quite good up to that point. Their leading role in renewable investment in the UK is commendable, but without clear transparency in their energy sector investment, I cannot be 100% sure whether they are acting responsibly or not. The coal question also remains and it’s not easy to find verifiable data on this.
Overall, the percentage of investment in green projects represents a tiny fraction of their total assets and I would like to see some rapid progress in this respect.
Total assets: £1.49 trillion
Obviously wanting to be seen to be green, Barclays sponsor the bike hire scheme in London but are their true green credentials up to scratch or are Boris bikes merely a PR play?
Main source: http://group.barclays.com/home
- in 2010 they were involved in over £7 billion of transactions in the clean energy sector – my question is what does “involved” mean – they say they were involved in a £2 billion IPO and advised in a £581 million acquisition but I’m not sure these are necessarily achievements they should be shouting about – a little greenwash maybe?
- Barclays Natural Resource Investments show evidence of at least some deals involving wind and solar although amounts are unclear
- they do have some evidence of Equator Principle reporting
- the worst of all UK banks in the BCC report ranking 5th from the 93 listed, financing coal to the tune of €11.5 billion from 2005 – 2011
- labelled as the biggest speculator on food prices in the world which leads to higher prices for basic food staples and millions going hungry – nominated for a Public Eye “shame award” on these grounds
- their own emissions are up considerably on 2008 and 2009 but they only shout about how they have reduced them by 4.5% on 2010 – no figures per employee
- described by Vince Cable as the “market leader in tax avoidance schemes” – not as important to me but might be to some people making decisions about who they bank with
Green Steve’s Opinion on Barclays
Such huge financing of the coal industry, pointless speculation on food prices for profit and poor explanation of their £7 billion involvement in clean energy means it’s hard to score Barclays particularly well. Nothing particularly green in anything they do as far as I can see.
Total assets: £971 billion
I have a special interest in Lloyds TSB as they are who I bank with and have a mortgage with currently but is their symbol of a black horse roaming free over lush green countryside one that they truly believe in or not?
- lent more to renewable projects in 2011 (£413 million) than any other bank in the UK – it may seem like this claim is contradicting the RBS claim but it seems that much of Lloyds TSB’s financing has gone to projects in Germany and the US so it’s a matter of how you look at things.
- their 2011 lending will lead to 2,210 MW of energy production capacity which is enough to power 3 million homes
- Scottish Widows, as part of the Lloyds group, manage specialist ethical and environmental funds worth £470 million
- Scottish Widows have also launched a sustainability strategy among their £8 billion property portfolio which includes an aim to reduce the energy use of landlord run properties by 10% by the end of this year against a 2009 baseline
- utility provider Good Energy, who procure only renewable energy, chose Lloyds TSB saying “We did a lot of due diligence about changing banks; it’s not something we took lightly at all”
- target of 30% energy reduction across the business by 2020 against 2009 baseline – achieved 7% by end of 2011
- achieved the Carbon Trust standard across their own operations
- even when ranked 42nd out of the 93 financial institutions on BCC, close to €1 billion was lent to coal mining and power generation projects/companies
- no clear reporting of their Equator Principle process
Green Steve’s Opinion on Lloyds TSB
Fairly decent green credentials it seems with plenty of investment in renewables all over the world. The Scottish Widows arm also seems to be doing some good work with regards to green investing. They too need to cut their investment in coal down massively.
In total though, we once again see a bank that invests a tiny percentage of their total assets in sustainable projects so the score is a bit deflated because of this.
Total assets: £857 billion
Since they claim to be the world’s local bank, one would hope that HSBC take their social responsibility seriously no matter what country their investments are in but will that come across in their policies?
Main source: http://www.hsbc.com/1/2/sustainability
- their forest policy says that clients involved in forestry are considered compliant when at least 70% of their activities are certified sustainable by a third party
- they will also not finance any crop plantations that have been converted from natural forest after 2004 unless independently certified or confirmed as not having adverse impacts on HCVF (High Conservation Value Forest)
- in the case of palm oil, they say they have a preference for clients who seek certification under the Roundtable on Sustainable Palm Oil – although they do not state that they wouldn’t work with those who are no certified
- won’t provide financial services to new or expansions to coal fired power plants in developed countries with intensity of 550g CO2/kWh or more (requires carbon capture from start of operation)
- no specific figures for renewable investment but some evidence including a 49.5MW wind farm in China
- have provided in detail reporting of the Equator Principles commitment
- 20th out of 93 on BCC – €4.4 billion in total financing for coal industry between 2005 and 2011
- will finance coal fired power plants in developing world with intensity of up to 850g CO2/kWh which I don’t think is encouraging sustainable development in these countries
- do not rule out investment in projects involving extraction oil from oil sands
- responsible in my eyes for some of the worst greenwash among all banks in their “5 year journey” – they may have invested $100 million (which as we have seen is small fry compared to their coal industry investments) but it seems like much of what they take credit for was completed by third parties such as WWF
Green Steve’s Opinion on HSBC
The most disappointing part of my research into HSBC is the fact that they do not disclose just how much they have put up as finance for renewable projects. They are also happy to finance dirty coal fired power plants in the developing world while refusing to do so in the developed world – don’t they realise that the source of the emissions is irrelevant with climate change and that everyone should be building to the lower carbon standard?
Total assets: £298 billion
They’ve become a big player on UK high streets over the last decade or so with their takeover of Abbey National, Alliance & Leicester and Bradford & Bingley but can the Spanish bank demonstrate their sustainable approach?
- awarded Carbon Trust Standard in 2010
- offset 9,520 tonnes of CO2 from the head office operations – this does equate to just 8.7% of total emissions though
- mentions Equator Principles although did not decline any finance in 2011 based upon them
- 30th on the BCC report, providing over €2 billion on finance for coal
- poor transparency on what companies/projects they invest in
- have $66 million invested in Total – one of the largest oil companies in Europe
- loaned €227 million to Freeport McMoran, a mining company that owns the Grasberg mine in Indonesia. This mine reportedly dumps 230,000 tonnes of polluted rubble into the nearby Aghawagon river system each and every day meaning locals can no longer use it for drinking water or fishing (source: http://banksecrets.eu/#/en/Banks/Banco%20Santander)
Green Steve’s Opinion on Santander
The most disappointing thing about Santander was the fact that they did not seem to mention any finance that they provide to the clean energy sector (or any other green sector for that matter). The only mention that I could find was the proposed financing of controversial hydroelectric dam in Chile.
I really had to scrape together their “good” points from the scraps they give on their website and no mention of renewable investment leaves them in joint last place.
Total assets: £189 billion
Green Steve’s Opinion on Nationwide
I included Nationwide because of their high street presence and their well known brand but because they are a building society, and thus use the majority of the money saved through them to lend out in the form of mortgages, they can be considered a fairly neutral choice for green savers. They are neither here nor there when it comes to being green but as a mutual, the company is owned by and run on behalf of its members so that should be some comfort.
Total assets: £82 billion
I had very high hopes for the Co-op as they scored so well on the supermarket sustainability front but does their banking arm stack up against those high standards?
- a £1 billion commitment to fund renewables – £500 million committed so far and the rest by 2013
- including £100 million for small scale community energy projects
- have withheld over £1 billion in funding from projects and activities that go against its ethical policies since 1992
- aside from direct involvement by their banking sector, the Co-operative are also green and ethical in many other ways that I will not detail here but suffice to say their other operations are equally as respectable and funding them should not be a concern
- their ethical policy states “We will not finance any business whose core activity contributes to global climate change, via the extraction or production of fossil fuels” and yet several of their available unit funds have BG Group among their top 10 holdings, a company whose main focus is “on understanding, building and supplying natural gas markets around the world” – I have contacted the Co-op regarding this and am awaiting a reply but it seems as if something has gone awry here
- furthermore, their funds also have holdings in JPMorgan Chase and Citigroup who are number 1 and 2 on the BCC list of lenders to the coal industry – is it not a bit hypocritical to say they won’t lend to fossil fuels and yet invest in companies who are at the forefront of this dirty energy industry? Again, I’ll let you know what the Co-op say when I quiz them about this
Green Steve’s Opinion on the Co-operative
While I want to give them full marks for their commitment to renewable energy, until I get clarification on their holdings in the 3 environmentally questionable companies mentioned above, they will have to be scored lower than expected.
There Are Other Options
I have only covered 7 of the largest financial institutions here but there are obviously a lot more out there. If you want to be confident that you are not promoting lending to unsustainable projects then a building society is a safe bet but if you want to put your money somewhere where it will proactively go to green projects and community causes, the Co-operative are still a very good bet (despite the iffy dealings that I am investigating).
However, there are a few other options out there for savers and investors alike:
What I like best about Triodos Bank is that they give perfect visibility with regards to who they lend money to with an interactive map showing projects in your local region that have benefited from their financing.
While they are not exclusively green orientated, they have provided credit to many renewable energy projects, they support organic farming and the conservation and restoration of the British countryside. They also operate overseas where their ethical stance is equally as strong.
They offer a variety of savings accounts, ISAs, fixed term bonds and accounts for children. The only downside is the limit on penalty-free withdrawals on their highest rate savings account which might put some people off if they move their money around a lot (like me unfortunately).
Ecology Building Society
If you want your savings to go exclusively to projects that benefit the environment then Ecology Building Society is the place to go. Their lending decisions are based on environmental and social impacts above all and while I cannot find a database of all their lendings like Triodos offer, they have some examples on their website.
The only issue with both Triodos and Ecology is that they only offer savings products and not a current account. This is not a massive issue, especially for those who just want to put their savings somewhere and leave them but it would be nice to have a linked current and savings account sometime in the near future even if it’s in partnership with someone like the Co-op.
There have been 2 issues of so called eco bonds in the UK from energy company Ecotricity. These bonds go directly into renewable energy production here in the UK and have offered fixed returns for investors. Unfortunately Ecotricity do not have a bond on offer right now but you can sign up for notification of when their third issue goes live.
Another UK green energy supplier, Good Energy, was reportedly planning a bond issue but I could not find any official word on their website so I’ll keep my ear to the ground and let you know what I find out.
What I’d Like To See
The biggest problem with the banking sector in general is the inertia among account holders who simply don’t want the hassle of switching banks or building societies (I myself have been a Lloyds TSB customer for more than 10 years despite not getting the best rates). This means that no matter how green an alternative is, the majority of savers will not bother to switch accounts.
The solution is a simple one in my eyes. Every bank or building society in the UK should offer their customers the option for their savings to go only towards investments in green, sustainable or community projects. If it were as simple as ticking a box on a form or even online, more people who become ethical savers and more projects that benefit the environment would get the funding they need.
Whether this is a viable solution in practice is another matter but I’d certainly choose the green option if Lloyds offered it to me.
In the meantime, I am going to open a current account with the Co-operative and a savings account with their subsidiary Britannia. The main reason I am not going with Triodos is their penalties on regular withdrawals – I transfer money between my savings account and current account every month to pay my rent. I am also going to say no to Ecology at this time because they only offer online banking subject to special T&Cs. A linked account between two Co-op accounts is just more convenient for me at this time.
Are you surprised by anything I have revealed here? Are you now planning to switch to a greener bank? Leave your comments below and let me know.
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