Private and Public Banks - Banks in Emerging Market Countries
The banking world is one where “business confidentiality” is considered to be of utmost importance. This is very true not only for industrialised countries but probably even more for banks in emerging market countries. This makes it difficult to get an overview on the banking landscape in emerging market countries.
Specific research has been done only on Chinese Banks, which are tackled in the report “Time to go Green” from May 2007 by Friends of the Earth US and BankTrack. Another report by BankTrack “Mind the Gap” from December 2007 benchmarks credit policies of 45 international banks against international standards as established in international conventions and treaties, guidelines developed by multi-stakeholder initiatives and international best practices. Among the banks researched are the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China, the Saudi American Bank, the State Bank of India, the Banco Bradesco (Brazil), the Banco Itaú (Brazil), the Banco do Brasil, the Bank Mandiri (Indonesia) and the Standard Bank (South Africa). (You can find the report on the BankTrack website.)
Time to go Green
This report by Michelle Chan-Fishel finds that as Chinese firms expand abroad, so do the banks which back them, resulting in Chinese banks being leading lenders in Africa. Notwithstanding their new and influential role, Chinese banks lack policies that are comparable to those of leading international lenders. Looking at the sector at home: the Chinese banking sector is undergoing massive reforms on its way to a market-and-risk-based competitive industry. Chinese bank lending decisions used to be steered by the public policy priorities of local or national government, resulting in a massive amount of non-performing loans. Corruption, due to the lack of strict financial standards and procedures, is another problem. Policy banks like the Export-Import Bank of China lend in accordance with governmental objectives, while commercial banks now have greater independence. Due to China’s entry into the WTO international banks were able to buy shares of newly-reformed Chinese banks.
The report looks into ten of the most important banks in China, including government-owned policy banks (Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, China Development Bank, China Export-Import Bank, Sinosure, Agricultural Development Bank of China, Bank of Communications, China CITIC Group). Although they should all have policies requiring their clients to comply with environmental laws, only two policy banks the China Development Bank and the Export-Import Bank of China have their environmental financing standards disclosed to the public. The question of how these policies are implemented is as much open as with other international banks, very much so as both banks are involved in problematic projects. Among commercial banks environmental issues are being seen as a matter of charity rather than a core business issue.
Given that bank regulators have taken some encouraging steps to require banks to integrate environmental considerations into financing decisions, there seem to be opportunities to promote stronger environmental and social standards at Chinese banks. Actors such as NGOs and international banks especially those with strategic investments in Chinese counterparts should play a role in this promotion.
The report can be downloaded on the BankTrack website (see „documents“).
Eight Chinese environmental organisations started this work and convinced a leading financial newspaper in China to create a Green Bank category to its new annual ranking of top Chinese banks. The award is called the Green Banking Innovation Award and was first announced in July 2008. It went to the China Industrial Bank, a bank that promises to integrate social responsibility and sustainable development into its strategy, and has implemented numbers of activities. Environmental performance for example has become a precondition for its business loans, and the bank will withdraw the money if any environmental violation is discovered. (more on this on the Environmental Finance website).
Another sign that some changes happen is a recent report, released in September 2008 by WWF and the Chinese Central Bank (“Towards Sustainable Development: Reform and (the) Future of China's Banking Industry“ (pdf)) stressing the need for environmental reporting, assessment, management and risk evaluation systems to promote sustainable development in China.
The Banktrack website devotes a whole website on “Chinese Banks”, including a newly bi-monthly newsletter on developments in sustainable banking in China. The latest report of BankTrack ("The Green Evolution: Environmental Policies and Practice in China’s Banking Sector" (pdf)) analyses green policies introduced in China. Read the corresponding press release "China adopts sustainable lending laws" from November 20, 2008 on the BankTrack website.
Mind the Gap
This report (pdf) looked into 14 sectors (agriculture, dams, fishery, forestry, military industry and arms trade, mining, oil and gas) and issues (biodiversity, climate change, human rights, indigenous peoples’ rights, labour rights, taxation, toxics) that should be covered in the policies of 45 international banks. Each banks got a small profile. The existing – or absent – policies of banks in each area were scored against the best practices identified. This led to a score ranking from 0 for “no policy available” to 4 for “meeting world class standard”, a standard, which actually no bank met. Looking especially into the results of banks from emerging economy countries gives the following picture:
Brazil: All three banks (Banco Bradesco, Banco Itaú, Banco do Brasil) had “policies that include some important elements but are not overall consistent” for dams, which is due to the fact that they are all three Equator Principle Signatory Banks (EPFI).
As for Banco Bradesco the research found, again due to the fact of being an EPFI, “vaguely worded or ‘aspirational’ policies” for the following areas: mining, oil and gas, biodiversity, toxics and indigenous people. They got the same score for human rights, labour rights and indigenous people for being a signatory to the Global Compact. A score “vaguely worded or ‘aspirational’ policies” on climate change is due to the banks climate change action plan.
Banco do Brasil was found to have “policies that include some important elements but are not overall consistent” for labour rights for having exclusion lists of companies that employ forced and slave labour. The “vaguely worded or ‘aspirational’ policies” for agriculture, fishery, forestry are due to “Banco do Brasil Protocol Verde/Agenda 21” the same score for mining, oil and gas, biodiversity, indigenous people is due to the Equator Principles. The “vaguely worded or ‘aspirational’ policies” for toxics, climate change and human rights are due to being a signatory to the Global Compact.
Banco Itaú had “vaguely worded or ‘aspirational’ policies” for mining, oil and gas, biodiversity and indigenous people is due to the Equator Principles. The “vaguely worded or ‘aspirational’ policies” on human rights, toxics and labour rights are due to being a signatory to the Global Compact.
China: While the Bank of China and the China Construction Bank were found to have “no policies available” for any of the 14 sectors and issues, the Industrial and Commercial Bank of China had, despite its “environmental credit policy”, nothing but “vaguely worded or ‘aspirational’ policies” on climate change as they are part of the Carbon Disclosure Project.
Climate Change was as well the only area where both, the South African Standard Bank and the State Bank of India were found to have “vaguely worded or ‘aspirational’ policies” as the only area of the researched sectors and issues. This is due to them being part of the Carbon Disclosure project.
The Bank Mandiri from Indonesia and the Saudi American Bank were found to have “no policies available” at all.
