The Dakota Access Pipeline (DAPL) loan highlights the challenges banks are going to face as they seek to embrace environmental and social standards, and ‘do good’ while still doing business.
The $3.8 billion loan to Energy Transfer Partners to help finance the pipeline has become a headache for the deal’s lead banks. Not only does the pipeline have the potential to contaminate drinking water, it has also become a human rights issue, having been rerouted through sacred lands of indigenous peoples. As such, the deal violates the Equator Principles that 13 of the 17 banks on the DAPL deal signed up to.
On December 4, Department of the Army announced that it would not approve an easement that would allow the pipeline to cross under Lake Oahe in North Dakota. The Standing Rock Sioux Tribe’s reservation lies half a mile south of the proposed crossing. The army said that it would look for alternative routes for the project. However, president-elect Trump, who owns stock in the company building the pipeline, Energy Transfer Partners, could overturn this decision after January 20.
Citi, one of the leads on the deal, has found itself in an uncomfortable position. For one, it refers to the Equator Principles at length in its annual corporate social responsibility report. Two statements were put out in November by the bank assuring critics that it was assessing the deal, but customer responses on its blog page show little comfort was given. Many of the posters said they would be leaving the retail bank.
This year Citi and the other lead banks, TD Bank and Mitsubishi UFJ Financial Group, are expected to see shareholder resolutions filed.
It is not just those three that find themselves under scrutiny for the environmental and social impacts of their financing business. Environmental and human rights groups have gone from targeting corporations to instead targeting the banks that fund them. For example, some 26 environmental groups, led by organization BankTrack, wrote an open letter to the DAPL banks urging them to halt further loan payments to the pipeline.
Forests and Finance is another group keeping its eye on bank finance deals. Last year it published research that highlights the banks that have funded $38 billion of commercial loans and underwriting facilities to companies that impact tropical forests in southeast Asia. Credit Suisse, Bank of America, Standard Chartered, ICBC, Bank of Communications, Rabobank and DBS are among banks to have made loans as recently as 2014 and 2015 – many of these have again signed up to principles that denounce deforestation.
When Société Générale and Crédit Agricole followed Natixis in announcing they would end financing for coal power plant projects globally, Friends of the Earth France released a statement applauding the banks, but pointing out that it was something of a “double game” for the pair because their promises excluded heavily polluting power projects in Indonesia and the Dominican Republic.
This pressuring voice holding banks accountable for their actions is necessary. Not enough data is available on whether or not the principles that banks sign up to are more than just lip service. And that voice is only going to grow as the more socially and environmentally engaged younger generations become bank clients and investors.
Appetite for change is growing. In 2016, socially responsible and impact investing reached record levels, and more social bonds and green bonds were issued than ever before. According to the Sustainable Investments Institute, the number of US shareholder resolutions concerning climate change and the level of support for those resolutions was higher than any previous year.
Social and environmental advisory and financing will be big business, but if banks want to lay claim to being the institution of choice in these areas, then they are going to need to make sure that those values are reflected across their businesses.
It is simply not going to wash with informed clients if their bank discusses investment in a deforestation initiative, while pumping money into a palm oil company in Indonesia.
Banks have started to promote their CSR efforts in a calculated attempt to convince a sceptical public that banks have the power to do good, but they risk undermining that trust if the bank foundation is financing cures for disease, while the bank business is financing companies that contaminate water supplies.
It is encouraging that most of the world’s largest banks are talking more about their CSR efforts, and a relief to many that banks are engaging in environmental initiatives – several banks have come out against mountaintop removal mining as well as against financing new coal plants, for example.
It would be unfortunate, then, if these efforts were drowned out by headlines that point to deals that violate human rights or environmental agreements.
This year, particularly with a US administration that looks set to ignore climate change warnings and has yet to show support for women’s rights, banks are going to be under more scrutiny than ever. This is really the year that could sort those banks that just talk about principles from those that act on them. Now’s their chance to regain trust.