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USA: Big Banks are finding it is not easy being green.

by Joseph A. Giannone and Lisa LeeReuters
January 11th, 2007

Financial giants such as Merrill Lynch and Citigroup among others are under fire from environmental groups and some investors who complain they still fund power plants and other polluting projects despite adopting the Earth-friendly Equator Principles with much fanfare in 2003.

Under these principles, lenders promise to rein in unsustainable development in emerging markets, such as logging in rain forests and strip mining. So far, though, green groups say there is little evidence the policies make any difference.

"Banks are making all the right sounds, adopting the principles and putting them on Web sites," said Michelle Chan- Fishel, who tracks green investing for Friends of the Earth. "At the same time, they're financing really controversial transactions."

TXU Corp. of Dallas sparked the latest battle when it announced an US$11 billion plan to build 11 coal-burning power plants in Texas. Yet Merrill Lynch and Co. Inc. , Citigroup and Morgan Stanley -- three banks that have embraced the Equator Principles -- are leading the debt and stock transaction.

Last month, Rainforest Action Network launched a campaign to pull the plug on the TXU plants, which would generate 78 million tons a year of carbon dioxide, by pressuring dozens of banks to refuse funding and appealing directly to bank chiefs.

"Banks need to adopt policies and make a commitment to reduce indirect emissions," said Michael Brune, executive director of Rainforest Action Network.

Some banks have agreed not to participate, RAN said.

Citigroup and Morgan Stanley declined comment on the matter. Merrill officials did not return telephone calls.

A TXU spokeswoman said the plants in the long run will lead to improved air quality in Texas and supply the state's growing power demands. TXU has committed to offset the new emissions by installing carbon-capture technology as it becomes available.

The TXU plan is not the only one angering green groups. Banktrack, a global network of environmental groups that monitors Equator banks, says too many "dodgy deals" are getting funds.

Several banks are backing development of an open pit metals mine in the Philippines's Rapu Rapu island, which Banktrack contends will generate pollution that would threaten the livelihood of thousands of farmers and fishermen.

"Common sense says this project is not compliant with sustainability," said Johan Frijns, Banktrack's Amsterdam-based coordinator. "We're going to make it very clear to banks that financing coal plants is not acceptable."

Environmentalists say the principles themselves are wanting, since they address project finance, not corporate debt, and only in developing countries. The pact also does not address greenhouse gasses thought to be linked to global warming.

As a result, the TXU deal does not violate the Equator Principles or US law.


Bank officials contend they have made progress reducing their own energy and paper consumption and improving the real- world impact of projects they back. Banks also plan to invest billions of dollars in renewable energy and green technology.

Citigroup, Bank of America Corp. and JPMorgan Chase & Co. , for example, have policies that go beyond the Equator Principles by targeting greenhouse gasses. Bank officials also insist they help make projects less harmful by working with clients and on some occasions turning proposals down.

"The Equator Principles provide a framework to properly look at environmental and social risks in project finance transactions," said Shawn Miller, Citi's environmental and social risk management director. "We will only invest in transactions that comply fully with the principles."

There is heated competition among banks to win project finance deals. There are also a number of major banks that have not adopted the Equator policies, namely in Asia.

Still US banks find they must also contend with increasingly vocal investors who lobby for sustainable development and from those who want banks to protect themselves from possible credit and legal risks down the road.

A Democratic Congress may pass laws to cap greenhouse gasses. That would impose hefty costs on coal-fired power plants, or even make the dirtiest polluters obsolete.

"We'll be seeking meetings with banks to further understand their due diligence and decision-making process for deals like these," said Dan Bakal, director of power plant programs CERES, a coalition of "socially responsible" investors.

But a dearth of information from Equator banks has green groups seeing red. Environment advocates and some investors complain banks do not share enough data so outsiders can determine if green policies are being honored.

"They all need to step up on disclosure," said Julie Tanner, corporate advocacy coordinator at Christian Brothers Investment Services. "If nothing changes, you start to question the principles. If things have changed, tell us and help us have confidence."

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