The Wall Street Journal
J. P. Morgan Adopts 'Green' Lending Policies April 25, 2005
By JIM CARLTON
Following pressure by ecological activists and shareholder groups, J.P. Morgan Chase & Co. Will adopt sweeping guidelines that restrict its lending and underwriting practices for industrial projects that are likely to have an environmental impact.
The New York banking giant -- third largest in assets in the U.S. -- is expected to issue a 10-page environmental policy today that takes an aggressive stance on global warming, including tying carbon-dioxide emissions to its loan-review process for power plants and other large polluters. The bank also plans to calculate in loan reviews the financial cost of greenhouse-gas emissions, such as the risk of a company losing business to a competitor with lower emissions because it has a better public standing.
And J.P. Morgan plans to lobby the U.S. government to adopt a national policy on greenhouse-gas emissions, becoming the first big American bank to pledge that kind of activism on such a contentious issue, according to shareholder activists.
The bank's move, on the heels of activist campaigns that produced similar pledges from Citigroup Inc. and Bank of America Corp., suggest that a shift in tactics by the environmental movement is paying off. Green groups have largely failed in efforts to lobby the Bush administration on oil drilling and other issues. So they are pressuring corporations directly, hoping to counter business activity that could harm the environment.
Large banks are a particularly important target because of their potential role in financing activity such as energy development and logging. By agreeing to put some limits on lending, banks could forgo some profitable activity. But activists argue that eco-friendly policies can help banks sidestep loan defaults and costly litigation associated with businesses such as logging and mining.
"This is increasingly becoming the way all banks operate," says Steve Lippman, vice president of social research at Trillium Asset Management, a socially oriented investment firm based in Boston that helped lobby J.P. Morgan. "J.P. Morgan is now raising the bar for the sector."
But the new policies smack of capitulation to some observers, coming after months of protests coordinated by the San Francisco-based Rainforest Action Network. RAN, as the group is known, orchestrated demonstrations at J.P. Morgan bank branches around the country and at a shareholders meeting in New York. The group also organized protests with the help of second-graders. It even attached posters to telephone poles and trees near the Greenwich, Conn., home of Chief Executive Officer William Harrison last month, an action that caused three protesters to be arrested for disturbing the peace.
In giving in to the protesters, J.P. Morgan is "guilty of political correctness and cowardice," says Niger Innis, spokesman for the Congress of Racial Equality, a civil- rights group in New York that advocates more investment in the developing world. "A lot of these projects that banks finance have real health benefits."
Such deals, moreover, can give environmentalists undue influence over banking decisions, argues Steve Milloy, adviser to the Free Enterprise Action Fund, a small Potomac, Md.-based mutual fund that was formed to counter green activism against corporations.
J. P. Morgan officials reject the idea that they gave into pressure, though they acknowledge the contributions of external groups in drafting the bank's new policy. "We were committed to establishing a significant leadership position on the environment and we have achieved it," says Rick Lazio, J.P. Morgan's director of global government affairs and policy and a Republican who lost to Hillary Rodham Clinton in the 2000 New York Senate race.
Protest groups, moreover, aren't the only source of pressure, nor necessarily the most influential. Before the RAN campaign began last spring, J.P. Morgan had already promised socially oriented shareholder groups, including Trillium and Christian Brothers Investment Services Inc., to draft a new environmental policy.
Other companies are being caught up by shareholder actions on the environment. The number of shareholder resolutions filed against companies on global warming is rising, as is the percentage of shareholder support they are winning. This year, shareholders filed 33 resolutions on global-warming-related matters, up from 25 last year, according to the Investor Responsibility Research Center, a Washington-based firm that provides research on corporate-governance and social-responsibility issues.
In years past, the filers, mostly religiously affiliated investors, offered resolutions mainly against auto, oil, utility and financial-services companies. This year, more small oil companies and real-estate investment trusts have been added to their list. About half of the resolutions filed this year were withdrawn by the shareholders after the targeted companies agreed to take actions on global warming that the filers deemed sufficient.
Whether the environmental policies amount to much more than window dressing is still an open question. Some officials at oil companies who have bowed to environmentalists' demands, for example, privately say they did so because the move didn't require much new substantive action on their part -- basically they agreed publicly that global warming is a legitimate issue. Most companies adopting green policies haven't lost much business as a result, nor spent huge sums of money on abiding by the principles, industry executives say.
J. P. Morgan's new policy includes a pledge to set up one of the largest "No Go Zones," or sensitive regions where it won't finance commercial logging or underwrite projects that pose an environmental threat. It plans to require borrowers in the wood-products industry to make sure their suppliers are certified by an independent auditing group as having procured wood out of nonthreatened forests.
The bank is also pledging to reduce to $10 million from $50 million the threshold of total capital cost on environmentally-sensitive projects by which it will apply an international standard called the "Equator Principles," which require more stringent environmental review for financing or other work. About 30 banks around the world have adopted those principles, which are based on policies of the World Bank and its private-sector arm, the International Finance Corp.
Such policies don't always bring big environmental change. RAN officials, for example, say that Bank of America needs to do more to carry out environmental guidelines it announced last May. A spokesman for the Charlotte, N.C., company was not available to comment.
But other companies have taken action. Home Depot Inc. in 2003 used its purchasing clout to get two of Chile's biggest loggers to quit buying land that was being deforested. Earlier this year, Citigroup told environmentalists it had ordered a Malaysian company linked to excessive logging practices in Papua New Guinea to get certified by the Forest Stewardship Council, an international auditing group whose membership includes environmentalists.
RAN, which has just 27 paid staffers, has helped gain green commitments from dozens of companies in the home-improvement, home-building and timber industries since the mid-1990s. Other groups have waged similar campaigns against companies, including Greenpeace, whose protests over Coca-Cola Co.'s use of ozone-deleting hydrofluorocarbons helped prompt a commitment by the Atlanta soft-drink giant to reduce their use.
Typically, the RAN activists first go after an industry leader, as it did with Home Depot, and then smaller rivals. "We call it, 'Rank 'em and spank 'em,' " says Mike Brune, RAN's executive director.
Now, Mr. Brune said RAN plans to end its protest campaign against J.P. Morgan today, and start focusing on other banks that haven't issued similar commitments. Plus, the next industry to be targeted: U.S. auto manufacturers.
