CSR in the Australian banking sector – Westpac

January 29, 2007

Westpac has released its sixth non-financial Stakeholder Impact Report, available at www.westpac.com.au/corporateresponsibility.

The 2006 report is based on the ‘G3’ GRI guidelines, and sets out Westpac’s extended performance in building human, social and environmental capital. It also includes contributions from a number of thought leaders, suppliers and community advocates.

In the past year, Westpac has:
point Committed to the revised Equator Principles – the only Australian bank to do so;
point Launched two new ‘green’ products: the EcoNomical Home Loan and the Westpac Landcare Term Deposit account;
Continued to reduce greenhouse gas emissions –cutting emissions by over 45% since 1996;
point Contributed a total of AU$47m to the community, 1.4% of pre-tax profits; and
point Celebrated 30 years of partnership with Surf Life Saving Queensland.

The report again emphases the links between sustainability and shareholder value, with Westpac CEO, Dr David Morgan, stating that managing social, environmental and workplace performance, along with stakeholder relationships and other intangibles, is fundamentally linked to long-term shareholder value.

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The Equator Principles bring shareholder value, but the limits of the approach must also be recognised

October 24, 2006

With campaign groups putting increasing pressure on Equator Principle (EP) banks to take responsibility for the environmental and social risks of the projects they finance, there is a need to recognise the limitations that financial institutions (FI’s) face when implementing due diligence approaches.

In general it is certainly not a lack of commitment on the part of EP banks to managing these risks that causes the difficulties, and the vast majority have made an impressive effort in this area. A key factor is the limited ability of FI’ to influence project sponsors, and as the project progresses, to influence other parties such as construction contractors and workers. The main ways FI’s can exert their influence is either by refusing to finance the project, or by writing covenants in to the loan agreement that must be met prior to each draw down of the loan.

This is not to say that project sponsors are the weak link in the environmental and social risk management process, but there is a need to recognise that the maturity of sponsors varies considerably, with some demonstrating a far better understanding of the potential risks and recognition of the need for robust management approaches than others.

While FI’s and their advisors can help project sponsors to understand how to manage risks effectively, the onus remains on the sponsor to follow the guidelines and implement the recommended measures at the appropriate time.

Extracts from The Banker

Equator Principles
Oliver Balch reports on how environmental activists and bankers are entering a new era of understanding through the Equator Principles.

Shareholder value
Banks are increasingly conforming to the view that social and environmental risks pose a threat to long-term shareholder value. “Protecting our assets in a traditional sense is risk management and protecting shareholder returns,” explains Andre Abadie, head of sustainable business advisory at ABN AMRO. “So if we are financing potentially socially and environmentally egregious projects in far flung corners of the world, then we also have the commitment to ensure that the social and environmental footprint of those projects is well managed.”

Limits of Environmental and Social Due Diligence

But the scope of non-financial due diligence has its natural limits. The financier needs to know the end purpose of the loan if it is to assess the environmental impact of its lending activities.

“If you’re advancing a corporate loan to a large company that is not being used specifically for a project, it is not going to be reasonable or practical to get that [environmental] information across all the projects that the company might be working on,” says Jon Williams, head of group sustainable development at HSBC in London.

Naturally, for some corporate or government loans, banks will be aware of a loan’s end use. The same is true for certain debt securities placements and underwritings, equity transactions and letters of credit. But one area where banks certainly have prior knowledge is, by definition, project finance. Consequently, this is where the banking industry has channelled the bulk of its efforts to date.

Extraneous limitations on due diligence
External, not internal, reasons limit banks’ environmental due-diligence efforts, many risk specialists argue. Short of calling in its loan, a bank’s influence over a project sponsor depends largely on delicate client management. The revised Equator Principles aim to add an extra safeguard by covenanting certain environmental commitments up front. They also require all high-risk projects to be assessed independently throughout the lifetime of a loan. Experience has shown that a bank’s ability to influence other actors can be even more limited than with their clients.

Chris Bray, head of environmental risk at Barclays, believes the Principles have sent a clear message that social and environmental issues represent mainstream business risks. More than that, the principles have shown banks their main environmental impacts derive from how they use their money. As Mr Bray puts it: “Equator has fairly and squarely put lending centre-stage.

HSBC’s approach
In the past three years, the UK-based bank has adopted a raft of environment-related policies and procedures. The list includes specific guidelines on dangerous chemicals, freshwater infrastructure and forest products. In May 2005, HSBC became the first major private bank to put its name to the World Commission on Dams. Within the next 12 months, it plans to add an extractive industry policy to its growing catalogue of green tape. Underpinning what HSBC terms its “restricted appetite” for environmentally sensitive transactions lies its environmental risk standard. Launched in 2002, the standard is designed to minimise the environmental, credit and reputational risk associated with the bank’s investments. Most of the procedural steps are straightforward. HSBC’s due-diligence register, for example, now features environmental impact assessments and reviews by external auditors.


Outlining the labour components of the revised Equator Principles

October 18, 2006
Extract from ELDIS:
Ergon / Ergon , 2006
This briefing paper outlines the labour components of the revised Equator principles – Equator II – to assist signatories, their clients and other stakeholders in understanding the new requirements. It introduces the new Equator Principles, which are based on a revised version of IFC Performance Standards – provisions on labour standards and provides an overview of the issues financial institutions must now address. It also suggests some steps they must take to operationalise the new requirements.Until now, the labour component of the IFC policies referenced by the Equator Principles has been limited to occupational health and safety and avoidance of harmful child labour and forced labour. The new IFC Performance Standard 2 (PS2), covers a range of new issues such as non-discrimination, freedom of association and non-employee workers, and also introduces a new set of processes that must be followed.Highlights of the PS2 include:

  • there must be a human resources policy covering terms and conditions and other rights at work
  • all employees must be informed of their terms and conditions and entitlements
  • collective bargaining agreements must be respected, or if not in place, terms and conditions of work must be reasonable and, at minimum, comply with local law
  • the rights to freedom of association and collective bargaining must be respected
  • if rights to freedom of association are restricted in law, clients will enable alternative means for the expression of worker rights
  • projects must not use forced labour
  • projects must not employ children in economically exploitative or hazardous ways, and national laws must be complied with
  • if a significant number of jobs will be lost a retrenchment plan must be drawn up based on non-discrimination and consultation
  • there should be a confidential grievance mechanism
  • workers must be provided with a healthy working environment
  • sub-contracted workers are covered by most of these provisions

The brief argues that the new Equator Principles have the potential to improve conditions for many workers, but the procedures required for assessing risk and the issues that must be considered will be unfamiliar to most private sector banks – as will the possibility of engaging with wider stakeholders, such as trade unions.


Barclays, believes that business ethics are key ingredient to their record financial performance

August 4, 2006

John Varley, Group CEO of Barclays, explains why business ethic are so important to branding and maintaining good relationships with stakeholders – customers, employees, regulators and investors. Barclays sets out how these considerations have made an inherent contribution towards to their ongoing strong financial performance.

Imagine that you’re a big organisation, making good returns on capital. You can make choices that are irresponsible … but lucrative. But bit-by-bit, as the values that bind your organisation together are compromised through irresponsible choices, and the trust of your customers is diluted, your brand will suffer. And let’s be sure about this: brands are far more important to stock market value and sustained growth, than short term profits.

Beyond financial results

  • In February of 2005, Barclays reported a record financial performance.
  • A few weeks ago I was able to report another record performance – in the area of corporate responsibility.
  • Many of you will have seen the recent results of the Business in the Community “Companies that count” index in the Sunday Times. This year we’re 3rd – our highest ever ranking.

Our top three ranking reveals something important: a strong performance as a responsible corporate citizen does not conflict with strong financial performance.

Business-wide responsibility

We can’t (and shouldn’t) separate our corporate responsibility activity from our daily business. Nor can we separate corporate responsibility from our brand. That’s because the people we seek to reach with our brand expect us to be responsible.

Our stakeholders – customers, employees, regulators and investors are becoming more sensitive to our changing world. They are intensely interested in ethical, environmental and social issues, and business conduct. For customers making buying decisions, corporate responsibility is a point of difference. For talented people looking to move organisations, corporate responsibility is a point of difference.

Really making a difference

Another example of where we have taken an important lead is our involvement as a founder member of the Equator Principles. The Equator Principles form a framework for a thorough independent environmental – and social – assessment of the impact of project financing, for major infrastructural programmes, such as dams and pipelines and mining.

We’re a leading provider of financing of this sort. So it’s an important area of business for us. But we have made a choice about how we are going to participate in this business. And by doing so, we are influencing other participants. More and more governments and construction companies are making the same kind of choice.

They realise that financing will be easier to obtain if the project complies with the Equator Principles.

Extracts from the text of John Varley’s speech on 31st May at the Fifth Ethical Corporation Summit in London


Bankers Environmental Credit Risk Workshop highlights need for EIA and CSR

June 19, 2006

Workshop on Environmental Credit Risk (4 May 2006, Copenhagen, Denmark, hosted by the Danish Bankers Association)The workshop included presentations by Chris Bray, UNEP FI Steering Committee Member and Head of Environmental Risk Management at Barclays, as well as representatives of Nordea AB, Danske Bank and Folksam, with case studies provided for different types of environmental risks.

Examples of risk management tools such as land use investigation and environmental impact assessment were also shared.

A key conclusion of the workshop was that sustainability and Corporate Social Responsibility (CSR) issues are now permanent strategic factors. As such participants noted, among other things, that there has been an increase in corporations focusing on CSR due to rising pressure to report publicly on progress in this field.

It was also observed that the UN Millennium Development Goals for financial institutions have triggered an increase in shareholder activism. Further information and materials will be available shortly on the UNEP FI website.