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JP Morgan's Green-Lending Policy: Point of No Return?

JP Morgan Chase has agreed to adopt new lending policies designed to protect the environment. But conservatives say the bank caved in to pressure from activist groups, setting a dangerous precedent for other businesses. By Lisa Roner Read More

JP Morgan Chase has agreed to adopt new lending policies designed to protect the environment. But conservatives say the bank caved in to pressure from activist groups, setting a dangerous precedent for other businesses. By Lisa Roner


When JP Morgan announced in late April it was adopting new guidelines restricting its lending and underwriting activities for environmentally damaging projects, activist groups applauded, skeptics doubted the real impact and many in the business lobby fumed.

For JP Morgan, it is a classic case of you can’t please everyone.

After much pressure from environmental groups and shareholder activists, the bank issued a ten-page environmental policy that covers a range of concerns. It is a series of commitments similar to those made by Citigroup and Bank of America last year.

In the policy statement, JP Morgan pledges to tie its loan reviews to the environmental impact of projects, including, for example, greenhouse gas emissions for power plants. And the bank says it will use “no-go zone” criteria to curtail investments with negative impact on natural habitat and will not finance companies or projects engaged in illegal logging.

JP Morgan has also committed to adhere to the Equator Principles, an international standard established in 2003 and based on World Bank policies that has now been adopted by about 30 banks around the world.

Controversially, JP Morgan has pledged to press the US government to adopt a national policy on greenhouse gas emissions. This commitment, conservative groups say, is an attempt by activists to circumvent the federal legislative process.

New Activist Tactic

Environmental activists admit they have stepped up their efforts to target America’s corporations as an alternative to lobbying the federal government, after years of little positive headway against the policies of a conservative White House.

Usually, activists target an industry leader and then smaller rivals – a tactic the groups call “rank ’em and spank ’em.” Critics of activist tactics say that other banks should prepare to become targets of such groups now that JP Morgan has given in to activist demands.

Wells Fargo, for example, is reportedly already on the radar of activist groups because they say the bank funds projects that increase global warming.

Governments have failed to act to address the concerns of civil society groups through regulation and policy reforms. So, experts say, the groups will continue the tactic of lobbying corporations because, at least for now, it is a tactic that is working.

‘Hysteria’

Steven Milloy, a columnist for the New York Sun and a vocal opponent of activists’ tactics, says the JP Morgan commitment turns “a bank whose role is to provide financial services to society for a profit” into “a lobbyist for global warming hysteria.”

Environmental and shareholders groups, including the Rainforest Action Network (RAN), which put relentless pressure on JP Morgan, say big banks are a particularly important target because of their role in funding many environmentally destructive activities.

Some industry analysts argue that banks run the risk of diminishing profitability if their lending options are limited. Activist groups counter this by stating that environmentally friendly policies help lenders avoid the loan defaults and costly litigation that can accompany dealings with businesses like logging and mining.

Relationship Too Close

Critics on both sides of the issue question the wisdom of corporations and activists groups working closely together. Some activist groups say working too closely with corporations may cause non-profit groups to compromise or undermine their core values.

Some in the business lobby say leading banks, like JP Morgan, have given in to pressure from activists as a way to avoid trouble following on from ethics scandals in the financial services industry. They warn that the lenders will pay a higher price later by effectively granting special interest groups increased power to assert influence and pressure over banking decisions.

JP Morgan denies it caved in, but does acknowledge its new environmental policy was drafted with input from external organizations like RAN.

But RAN is not alone in pressuring banks. Shareholders groups are jockeying to exert some influence of their own. Two socially oriented groups of investors – Trillium Asset Management and Christian Brothers Investment Services – were also key players in JP Morgan’s new policy.

Trillium and Christian Brothers, which worked in conjunction with other investment, environmental and religious groups, have announced the withdrawal of a related shareholder resolution they sponsored requesting similar action from JP Morgan.

And industry observers say groups are increasingly joining forces to bring more pressure to bear on corporations to adopt socially responsible priorities.

Long-Term Gain

There is some debate among industry experts, however, about just how effective policies like JP Morgan’s end up being at effecting environmental change in the long run.

RAN says Bank of America, which put forth a similar policy last May, needs to do more to carry out its environmental guidelines. And other banks publicly committed to the Equator Principles have also been criticized for not performing enough due diligence before lending to companies and projects likely to harm the environment.

Critics argue that there are no objective standards for evaluating the environmental impact of projects or the “ecological value” of “no-go zones,” giving activists too much control over bank’s lending.

Opponents also question provisions in the JP Morgan policy that require borrowers to allow indigenous peoples to have input on ongoing projects. They say this gives activists a license to use local communities as pawns to advance their own agendas.

And critics say that, ultimately, limiting lending for projects in developing nations destroys economic growth and could mean continued poverty and suffering for local communities. But most activists say environmental destruction, for any short term gain, is never a plus for the long term prosperity of local communities.

So, activists and shareholders focused on the environment and social accountability have turned to seeking change in companies one at a time as an alternative to lobbying government, where they have met with limited success in their quest for regulation and policy reform.

Such tactics secured the groups a foot in the door when Citigroup were the first to announce new investment criteria. Making such a statement, though, is becoming a de facto norm for the financial services industry that other leading banks are finding difficult to simply ignore.

But responses to pressure from activists may not be for the “business case” reasons claimed by companies as they announce policies like the one adopted by JP Morgan. Instead, compromising and sending their critics off to the next “target” on the list is quicker, easier and less damaging than putting up a prolonged fight.

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This article has been reprinted courtesy of Ethical Corporation magazine. It was first published on May 12, 2005.

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