Corporate Social Responsibility

Outline Introduction Financial benefits of being green. Voluntary standards for green companies, investors and lenders. Case Study ICBC and ANZ. Conclusions

Introduction International treaties and agreements and national laws. Banks can implement voluntary environmental standards for their company, investments and lending. Difference between banks in developed and emerging markets.

Financial benefits of being green Improving reputation Attracting private investment Risk management

Improving reputation Improving reputation correlated with financial performance and attracting and retaining employees. Orlitzky ’03 and McKinsey ‘09 Especially in emerging markets financial benefits can be gained as recognized leaders. EIRIS ’09 Avoiding scandals.

Risk management Increasing regulation can mean a huge extra financial cost. Emerging market investment managers regarded risk management as the most important benefit. IFC ‘09

Attracting investment Green securities Active green funds Green index products - Dow Jones Sustainability indices, FTSE4GOOD, The CSI ECPI China ESG 40 Equity Index Green fixed-income securities (bonds) Green private equity

Attracting investment Assets under management (AUM) by UN Principles of Responsible Investment (PRI) signatories: $15tr from $60tr. IFC ‘Sustainable’ AUM: $6.5tr, in Emerging Markets : $58-300bn. IFC 75% of investors factor climate change information into their investment decisions. CDP

Voluntary standards for companies OECD Guidelines for Multi-National Enterprises (2003) ISO Environmental Management System (EMS) (1996) UN global compact Global Reporting Initiative (GRI) (2002)

Voluntary standards for investors UN Principles of Responsible Investment (2006) “We will incorporate Environmental Social Governance (ESG) issues into investment analysis and decision-making processes.”

Voluntary standards for lenders GRI Financial Services Sector Supplement (2008) The Equator principles (IFC) (2006)

The Equator Principles Project finance deals >$10m. Covers 85% of this financing globally. Involves the following stages: 1.Screening and categorization. 2.Social and environmental assessment. 3.Risk management planning. 4.Monitoring.

GRI Financial Services Sector Suppl. 1. Procedures for screening clients Industry Classification Client screening tool Client Environmental Information database and Classification System 2. Processes for monitoring clients' compliance. 3. Processes for improving staff competency

Rating agencies and indexes VIGEO - Ethibel index SAM - Dow Jones Sustainability Index EIRIS/KLD – Footse4good Index CDP - CDP leadership index

SAM EIRISVIGEOCDP Comprehensiveness of EMS (ISO 14001). ★★★★ Quantity of green house gas emissions in one year. ★★★★ Quantity of energy consumed in one year. ★★★ Comprehensiveness and scope of environmental policy. ★★★ Interaction with environmental policy makers and published information on environmental issues. ★★★ Hierarchical level of the highest placed person with environmental responsibilities ★★★ Infringement of laws and regulations. ★★★ Environmental standards of suppliers. ★★★ Common rating agency factors

Case Study – ANZ and ICBC Australia New Zealand Bank (ANZ) - No.1 bank on the Dow Jones sustainability Index since ’07. Industrial and Commercial Bank of China (ICBC) – No.1 one among the Chinese large mainland banks in ESG.

Companies in China -Poor environmental standards compared to other emerging market economies. -View ‘Green’ as compliance. -Laws on environmental protection are not always implemented locally.

Comprehensiveness of EMS ANZ: -ISO Assesses impact on the environment and sets performance targets. -Measures and reports progress ICBC: - No EMS reported.

GHG emissions and energy use ANZ: -Detailed data for GHG emissions. -Data for energy use broken down by type e.g. fossil fuels ICBC: -Basic data for GHG emissions just business transport. -Only energy use data for head office reported.

ANZ: -Specific policies for forests; water; mining and minerals; and greenhouse and energy. -Use international standards (e.g. the Forest Stewardship Council). ICBC: -Restricts loans to 14 high polluting and energy consuming industries and promotes credit to energy saving and environmental protection industries. -Based on national government agencies. Comprehensiveness of Environmental Policy

Interactions with policy makers ANZ: -Membership and participation in international bodies. -Regular discussion with elected representatives, policy makers and regulators. ICBC: - Close communication with relevant state bodies on environmental issues on a national level.

Green Credit– Industry Classification ANZ: -‘Integrated sustainability analyses’ -Four environmental indicators - greenhouse gas emissions, primary energy use, managed water use and land disturbance calculated for 135 sectors of the economy. -Separated into high low or medium risk. ICBC: - “two high” classification. -14 industries with high energy use and polluting industries described as high risk.