Credit: Bloomberg Finance LP
© 2019 Bloomberg Finance LP
Are companies that promise to combat climate change on the level? To hear environmental activists tell it, this new-found corporate idealism is a publicity ploy, which they label “greenwashing,” as in whitewashing.
For sure, environmental sentiment has an impact on stock performance. A study released recently by Deutsche Bank found that stocks reporting positive climate-change news outpaced the MSCI World Index by 0.8 percentage point. The companies with negative climate news under-performed by 0.3 point, during the 12 years the bank had data for.
The latest stab at corporate ecological correctness is a commitment signed by a third of the world’s banks to invest in environmentally friendly endeavors. The effort, known as the Principles for Responsible Banking, was formally launched last week as the United Nations General Assembly convened in New York, part of the U.N.’s broad-ranging Climate Action Summit. This came just after massive world-wide youth protests over climate woes.
The 130 banks said they would combat climate change by lending to such causes as renewable energy and would ease away from fossil fuels. Each bank that signed the accord promised to publish explicit goals and meet them at binding deadlines. If they don’t, they get kicked out of the pact.
The idea is to get these principles to be so important to banks—something like an investment-grade credit rating—that no lender would dare live without them. A number of mega-banks have signed up, including France’s BNP Paribas, the Netherland’s ING, Spain’s Santander and Britain’s Barclays.
Trouble is, this coalition has a long way to go. The U.S., which harbors the world’s largest concentration of banking capital, has precious little presence among the accord’s signatories. You won’t find any Chinese banks there either. Just two American banks are part of the agreement: Citigroup, which indeed is a giant and a big win for the pact, and Amalgamated, a union-backed institution that has long shown an environmentalist bent.
A group of environmental devotees called the Civil Society decried the pact last week and staged a protest outside the New York office of Paribas, which was hosting a conclave of bank CEOs who had signed the principles. The banks’ action was “yet another greenwashing tool that masks the destruction of the planet and egregious human right abuses that are currently being fueled by much of the banking sector,” the enviro group said in a statement.
The climate activists, which included Greenpeace and the Rain Forest Action Network, pointed to the banks’ support for the coal industry and commodities trading that they linked to burning down forests in Brazil’s Amazon region.
You can see why the activists are skeptical about professions of corporate green do-goodism. It’s hard for banks to simply cut ties to fossil fuels, which powers and warms the world. At the Paribas CEO gathering, the chairwoman of Norway’s DNB bank, a major lender to North Sea oil extraction, tried to explain that dropping that business would be financially insane. DNB’s compromise, said Olaug Svarva, was to lend more to cleaner natural gas and to make $25 billion in loans by 2025 to renewables.
After all, generating earnings lies at the heart of the free-enterprise system. Milton Friedman, the Nobel-winning University of Chicago economist, famously said that the business of business is to make profits. That observation, which crystalized and updated the bare-knuckled capitalism of swashbuckling 19th century moguls, led to a shareholder-centric approach that dominates corporate America to this day.
But things are changing, at least to some degree. No less a body of corporate thinking than the Business Roundtable, composed of CEOs of large companies, has come out with a statement seeking to expand their constituency to other “stakeholders,” like their workers and consumers. As part of that, they list protecting the environment.
And just as the proponents of the banking accord envision, green investing likely will become the thing to do in the C-suite. Polls show the public overwhelmingly is in favor of it, especially young people. The Deutsche Bank study (the German lender is one of the pact’s signers) also found that the more a company improves its environmental credentials, the better its stock does—you know, what the almighty shareholder cares most about. Those with headlines citing their improvements on the climate question did 1.4 points better than the MSCI World Index.
And in a world beset by climate change yet running on compromises, that will have to do.
