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Market News

 July 04, 2007
Green Competition Moves Banks

 Increased consumer demand for sustainable investments, as well as evolving international standards for environmental and social performance have pushed banks to improve their performance in these areas, report ethical reputation research firm Covalence in its Banking Industry Report 2007.

According to the group, banks show the second best EthicalQuote reputation score from June 2006 to June 2007 compared to nine other industries. The ethical quotation system is a reputation index based on quantifying qualitative data, which are classified according to 45 criteria of business contribution to human development such as Labour standards, Waste management, Product social utility or Human rights policy. It is a barometer of how multinationals are perceived in the ethical field.

The system integrates thousands of documents found among media, enterprise, NGO and other sources, for producing the EthicalQuote curves. These curves measure the historical evolution of the reputation of companies regarding ethical issues. They are created through the cumulative addition of positive news (documents coded as "ethical offers", which are weighed as +1, curve ascends) and negative news ("ethical demands" weighed as -1, curve descends). The Reported Performance measure is given by cumulating positive news only.

Over last year the Banking Industry has witnessed a favourable evolution in the areas of Eco-Innovativeness of its products, Environmental Impact of Production and Social Sponsorship, reports Covalence.

According to the report, the reasons for this green turmoil amongst various enterprises in the banking industry stems from both the market side (increased consumer demand for Socially Responsible Investment funds, growing attractiveness of investing in renewable energy) and evolving international standards (United Nations Principles for Responsible Investing, UNEP Finance Initiative, Revised Equator Principles).

Traditional banking practices of confidentiality, cautiousness and neutrality are giving way to transparency and direct communications. Nowadays, banks have become quite aggressive in showing the public how they contribute to sustainable development. Corporate Social Responsibility emerges as an important competition factor in the banking industry, notes Covalence.

A major ethical risk identified for banks centers on corruption and transparency issues. Criteria Downsizing also received a significant portion of the ethical demands for the banking industry. Thirdly, while global warming offers banks opportunities (carbon emissions reduction plans, investments in renewable energy), it also brings increased scrutiny on their credit policies (environmental risks in project finance).

Within the industry (25 among the largest banks in market capitalization), the EthicalQuote reputation curves show HSBC leading the way ahead of ABN AMRO and Bank of America, while US Bancorp and Banco Bilbao occupy the last positions. Results representing the Reported Performance of companies (positive news only) place HSBC Holdings in first position, followed by Citigroup, ABN AMRO, and Bank of America, out of the 25 Banking companies.

For more on this report, click here(PDF).