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Circumventing Washington: Corporate America and activists bypass the White House

Circumventing Washington: Corporate America and activists bypass the White House

Corporate America, Activists & Circumventing Washington:
A New Approach to Environmental Lobbying

Green groups partner with corporate interests to bring changes in business practices
Tina Butler,
April 27, 2005

On April 25, the New York-based banking giant J.P. Morgan Chase & Co. joined the ranks of a select group of firms in the financial sector who have adopted environment policies with an increased focus on more ecologically responsible business practices. This move signals a larger trend and is indicative of the current state of the marketplace as well as that of the government.

Under pressure from environmental activists and shareholder groups, the third largest bank in assets in the United States publicly issued a 10-page environmental policy that takes a proactive and bold stance on global warming, the rights of indigenous peoples and other volatile eco-political issues related to companies and their impact on the environment. According to shareholder activists, J.P. Morgan also plans to lobby Congress to adopt a national policy on greenhouse gas emissions, making the bank the first of its kind to declare that kind of activism on such a hotly debated and dividing issue. The bank’s actions follow the results of similar activist-driven campaigns, which have compelled both Citigroup and Bank of America to take a public stance on environmental issues. Citigroup announced its “New Environmental Initiatives” guidelines in late January 2004; Bank of America’s new policy launched shortly thereafter in May.

Large banks such as J.P. Morgan are particularly strategic and critical targets because of their potential role in financing environmentally-related activity such as energy development and logging. These firms run the risk of diminishing profitable activity by consenting to put limitations on lending, but activists counter that eco-friendly policies can assist banks in avoiding loan defaults and costly litigation linked with industries like timber and mining. With this new policy, J.P. Morgan has laterally raised the bar for the sector.

Despite praise from many groups, some organizations outside of the activist division feel that the bank has given into pressure from environmental proponents out of cowardice, expressing concern that such groups will increasingly assert undue influence and pressure over banking decisions. The Rainforest Action Network (RAN) is one such organization that those wary of the new policy and its larger implications are referring to. RAN has coordinated protests and demonstrations at various J.P. Morgan branches and shareholders meetings across the United States since 2000. The group even ran into legal trouble after three of their protestors were arrested for disturbing the peace by putting up posters listing various environmental misdeeds near the home of the bank’s CEO. With the issue of their new policy, RAN says its protests against J.P. Morgan will cease. Spokespeople for J.P. Morgan deny the charges of caving to pressure, although they do acknowledge the involvement with and input from external organizations in drafting the new policy.

Shareholder groups are also exerting substantial influence over bank decisions; both Trillium and Christian Brothers Investment Services, two socially-oriented organizations, were pivotal in the bank’s creation and implementation of the environmental policy. The number of shareholder resolutions filed against companies based on global warming is growing, almost directly correlating with the percentage of shareholder support they are winning. Last year, shareholders filed 25 global warming-related resolutions. According to the Investor Responsibility Research Center (IRRC), there were 33 this year. The pressure seems to be making an impact. Approximately one half of the resolutions filed this year were withdrawn by the shareholders after the targeted companies agreed to take actions against global warming that the filers judged to be adequate. On a broader scale, of the 348 resolutions on social issues brought to annual meetings by shareholders, IRRC reports that 65 were environmental in nature, comprising the highest proportion of social issues.

There is some debate and concern that initiatives like that of J.P. Morgan’s may be to some degree counterfeit and merely decorative ornaments, displayed only to foster a good public opinion without real substance or plan for action. Another large bank, HSBC, adopted a landmark environmental policy in 1997, as one of the first of its kind to incorporate ecological concern in relation to its business practices. And yet despite their policy and statements of intent, the bank has displayed some contradictory practices according to environmental groups. Friends of the Earth reports that HSBC was, until early 2004, a major backer of the Indonesian palm oil plantation company London Sumatra, which has been accused of intimidating local communities.

The group also has concerns about HSBC’s involvement with another Indonesian plantation company, Agro Indomas. This company stands accused of breaking environmental laws and clearing forest in Kalimantan, where plantations have been established next to water sources without the legally required buffer zone. Activist organizations feel that while HSBC signed up to the “Equator Principles,” the banking sector’s green guidelines, the bank is failing to demonstrate how those principles will be put into practice as well as continuing to associate with environmentally-problematic companies.

Notably, HSBC made an announcement in late 2004 of plans to go “carbon-neutral.” HSBC’s carbon dioxide emissions were in excess of 550,000 tons in 2003. Starting this year, the bank intends to plant trees, buy green electricity and trade carbon credits to cut carbon dioxide emissions to counter its environmental impact. In addition to the carbon-neutral plan, HSBC is investing a little over 1.2 million dollars at Newcastle University and the University of East Anglia to create the “HSBC Partnership in Environmental Innovation” that is dedicated to environmental research and also developing a range of socially responsible investment funds. Environmental groups have recognized and commended the merit of this move, but assert that the real change needs to be made at the client level, in terms of giving loans to large projects like mines, dams and exploratory oil ventures.

Industry executives do concede that abiding to these demands of environmental groups does not require too much on the part of the company in terms of development and press releases. A policy is far different from practice. However, the ideas outlined in J.P. Morgan’s plan do put forth some heady endeavors. In adhering to the new guidelines, J.P. Morgan will finance only companies exercising preservation and light, non-extractive use of resources, creating broad, “No-Go Zones” where large scale industrial development is effectively off-limits. The bank will also add carbon disclosure and mitigation to its client review process to assess associated financial risk linked with high carbon dioxide emissions from companies such as power plants. J.P. Morgan will use Forest Stewardship Council (FSC) certification when financing forestry projects. The FSC is an international auditing group with a strong environmental membership. What is more, the bank will require FSC chain of custody certification of wood that comes from areas where over 50 percent of logging is known to be illegal, essentially tracking timber from stump to store. Also included in the policy is a pledge to reduce the threshold of total capital cost on environmentally-sensitive projects by 40 million dollars, down to ten, applying the international “Equator Principles,” which will require more rigorous ecological review for financing. Their policy will apply to new and existing business that comes up for renewal or extension after September 1, 2005.

The introduction of such policies does not always bring immediate or widespread environmental improvement, but J.P. Morgan’s decision is a step in the right direction as viewed by environmentalists. RAN says that Bank of America needs to do more to live up to their proposed initiatives outlined last May and has criticized other companies who have similar policies. In spite or perhaps because of the criticism, other kinds of companies are taking action, including the Home Depot, in which the home-improvement leviathan used its purchasing clout to stop two of Chile’s largest logging companies from buying land that was been deforested unsustainably. Earlier this year, Citigroup announced that it had ordered a Malaysian business tied to excessive logging in Papua New Guinea to get certified by the FSC.

Activist influence on environmental policy and protection is extending beyond the financial world, largely because of stymied efforts in Washington, especially those of an environmentally-oriented nature. With the current administration, environmentally-concerned groups have been particularly defensive in their maneuvering. Currently, the private sector is where social activists see opportunity; for them, corporate America is moving in a more promising direction than the government. If a Republican-dominated government favors free markets to regulation, the rationale works, then use marketplace dynamics to raise standards and enable change. And some are finding much better reception and success traversing corporate channels as opposed to the traditional lobbyist routes.

Over the course of the past year and a half, institutional investors have argued that any role companies might have in global warming has the potential to make them a target for future lawsuits or tough regulations. It appears as though some companies are listening. American Electronic Power, Cinergy Corp. and TXU Energy, all power companies, have recently analyzed their risks relative to climate change. Ford Motor Co. and Southern Co. have agreed to follow suit. Mindy Lubber, president of a coalition of environmental, public interest and investor groups called CERES says, “We have gotten enormous traction with business and investors, not because it’s a clever tactic, but because the economic risks are inordinate.” Regardless of their motivation for action, if large companies can be persuaded to be more environmentally responsible, the activists will stick to this approach. Since the mid-90s, the diminutive but influential RAN has won green commitments from numerous companies in the wood product industry. The organization’s typical action involves going after the largest corporation of any industry, forcing smaller competitors to follow suit.

In one particular approach, by positioning climate change as a direct threat to corporations’ profits, activists are getting solid responses from companies. For example, individuals owning stock in Chevron Texaco or Exxon Mobil will vote on the likely environmental detriment of drilling in Alaska’s Artic National Wildlife Refuge. US Public Interest Research Group (US PIRG), a leading lobby organization working to preserve the ban, now reserves half of its resources on the issue toward lobbying companies instead of Congress. While some of US PIRG’s approaches may be unorthodox — such as recruiting anthropologists to write the president of British Petroleum to urge him to take into consideration the imminent fate of the indigenous Gwich’in people that live in the refuge among them — these methods seem to be making an impact. Last year, BP issued a statement relaying the company had no plans to drill in the refuge. Meanwhile, US PIRG believes it can help oil companies tap into the US consumer base that is against drilling in the refuge. In an odd pairing, activists are helping oil companies bolster their images as green businesses.

US PIRG efforts are not limited to the energy industry. Since 2001, the group has been going after Congress to impose stricter storage standards at chemical plants where, the organization asserts, over a million people could be killed in the wake of a terrorist attack. Since the government has neglected to take action, US PIRG will be teaming up with a coalition of investors to foster more prudent management.

With this new approach, those activist groups sometimes face questioning from other nonprofit organizations that are wary about involvement with the corporate sector and the possible compromise or undermining of values. However, these activist organizations adamantly respond that they are not abandoning their regulatory efforts, but rather are augmenting them, believing that market forces alone cannot achieve every goal. It is clear that corporate executives are willing to listen if activist groups can produce a solid case for a policy proposal if it makes business sense. The face of environmental lobbying is changing in the wake of the administration’s re-election, the emerging consciousness of the private sector and environmental activist groups’ burgeoning clout. Getting new environmental policies passed by major banks is as revolutionary as the new methods that led the companies to such steps. Anything but traditional, J.P. Morgan’s overture is a sign of a new future for the market, the government and the environment.

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