It increasingly pays for banks to be sustainable. A recent study found that socalled ‘values-based’ banks, which "balance people, planet and prosperity", did better in the credit crunch than the mainstream competition. The Global Alliance for Banking on Values (GABV) report said that they averaged an equity to assets ratio of 9.3% in the crisis, compared with 5.1% for mainstream institutions, while return on equity was 7.1% against 6.6%.
The GABV put the results down to the fact that its members focus on lending in the ‘real economy’, rather than speculative investment. It also says their approach has won over consumers and investors who are increasingly looking for "more socially aware and valid" approaches from banks in the wake of their post-crunch image meltdown.
The Forest Footprint Disclosure (FFD) project also says banking is getting greener. Its aim is to harness businesses to the battle against deforestation. It invites them to answer questions on procurement policy for a range of "forest risk commodities", including timber, and then rates their responses. Getting a high ranking is not only good for marketing to increasingly environmentally sensitive consumers but, according to FFD director James Hulse, also helps secure credit.
The new buzzwords in the financial community, he said, are "natural capital". This is the sum of the environmental benefit and impact of the company or project they’re considering investing in. The greater a company’s natural capital, the more likely banks are to back it.
Further proof of this, said Mr Hulse, is that the FFD now has 70 financial sector backers with US$7trn of assets under management.
So is evidence of environmental performance set to play a growing role in helping timber and wood products companies secure that loan, credit, or trade finance? The answer from banks we contacted seems increasingly to be yes.
At the greener end of the spectrum, GABVmember Triodos takes a very firm environmental stance with timber and related sectors.
"We support woodland and woodland product projects, and are looking for more," said spokesperson Faye Holst. "These are generally Forest Stewardship Council (FSC) certified as a minimum, but often have additional sustainability evidence; such as whether the woodland owner makes their own products, or there is community ownership. We’ve also funded related projects, including companies installing biomass boilers, and focused closely on their timber sourcing in terms of locality, security and sustainability of supply."
Standard Chartered (SC) also has very defined environmental policies within its "Building a Sustainable Business" strategy. They include guidelines for lending to forestry, palm oil and related sectors, including firms involved in logging, and "milling logs for sawn wood, veneer and plywood production".
Balance of factors
"Our objective is to serve clients commercially, while engaging with them and other stakeholders to implement sustainable business practice," the company states. "This requires a balance of economic, social and environmental considerations."
SC head of sustainable business Yulanda Chung said the bank would not associate with businesses linked to illegal logging, forest clearance, or felling in high conservation value forest (HCVF), or critical natural habitats. This includes companies that trade in, buy or process the resulting timber.
SC also "encourages clients to process or trade in products that are FSC certified, or equivalent, and have chain of custody.
On SC’s apparent FSC preference, Ms Chung said: "For us, credible certification includes clear technical standards based on sustainable production of timber products, clear environmental requirements, and protection for local people’s rights."
She added that the bank "did not want to be prescriptive" but, along with financial records, does now ask for evidence of environmental performance from prospective timber clients. "We evaluate the merits of each transaction, but emphasising their environmental and social issue track record," said Ms Chung.
RBS Group also has a detailed "Forestry and Forest Products Environmental, Social and Ethical (ESE) Appetite Statement". This includes a "review process for companies operating in forestry and forest products and examination of their commitment, capacity and track record in managing ESE risk".
Specific focuses are whether companies are linked to HCVF clearance or "adverse impact on habitats and biodiversity". The policy also takes account of stakeholder consultation.
"The level of risk associated defines our lending appetite," said a spokesperson. "In certain circumstances these policies can prevent provision of finance where environmental or social impacts are considered too high."
Stephen Pegge, director of small to mediumsized (SME) business markets at Lloyds TSB Commercial (see p24), said its credit policy was "geared to actively support timber industry companies’ sustainable sourcing of materials".
"A sustainable approach can have tangible benefits, not just in terms of mitigating risk, but for efficiency and growth," he said. The bank has 300 business and environment managers to help companies "embrace" a more sustainable model, he said. For timber businesses this includes sustainable timber sourcing and the competitive benefit it brings.
"We work closely with [timber] customers to help them take a proactive approach to environmental issues," said Mr Pegge.
Lloyds doesn’t currently ask to see specific environmental certification – "but we do ensure they’re engaged in legal sourcing and trading practices," said Mr Pegge.
HSBC has had a Forest Land and Forest Products Sector Policy since 2004. Drawn up in consultation with industry experts and based on FSC principles, it covers logging, timber processing and trading.
"We consider engagement rather than exclusion as the right approach," said a spokesperson. "But we will exit relationships with companies that do not comply with our policy within a given timeframe."
No other bank currently demands upfront proof of a timber company’s eco record, but several hinted this may not remain the case.
"Environmental considerations, particularly deforestation and illegal logging, are moving up the corporate agenda," said one bank. "They are going to be an increasingly important factor in doing business."
