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April 29, 2005

JPMorgan Chase Environmental Policy Triggers Tipping Point for US Bank Sustainability
    by William Baue

The JPMC policy surpasses environmental best practice established by Citigroup and Bank of America in some areas, but also lags these sustainability leaders in others.

SocialFunds.com -- Earlier this week, JPMorgan Chase (ticker: JPM) released a comprehensive env ironmental policy that follows in the footsteps of Citigroup (C) and Bank of America (BAC) and even takes further strides. For example, JPMC not only adopts the Equator Principles (as did Citi and BofA), but also extends them beyond project finance to cover all loans, debt and equity underwriting, and even financial advisories, among other areas. And while the Principles apply to $50 million projects and up, JPMC will apply the principles starting at $10 million for financing of the extractive industries, such as oil and gas, forestry, and mining. In some areas, however, JPMC's policy falls short of commitments in Citi and BofA environmental policies.

Taken together, the three sets of environmental policies tip the sector's scales away from environmental irresponsibility and toward sustainable environmental stewardship.

"JPMorgan Chase's move represents a tipping point in the private financial sector, where the three largest banks have now publicly recognized that a sound long-term economic strategy relies on embracing environmental sustainability," said Ilyse Hogue, global finance campaigner for Rainforest Action Network (RAN), a nongovernmental organization (NGO). "The rest of the commercial and investment banks need to taker larger strides to confront their role in the environmental crisis facing us."

RAN employed sometimes-dramatic tactics to encourage Citi and BofA, and then JPMC, to develop comprehensive environmental policies. For example, last month's plastering of "wanted" posters of JPMC Chief Executive William Harrison in his Greenwich, Connecticut neighborhood led to arrests of three RAN campaigners. RAN upped the ante on its advocacy after the bank postponed its self-imposed commitment to implement an environmental policy from October 2004 to April 2005.

While the tactics obviously kept the pressure on the company to make good on its promise, JPMC's work proceeded at the pace necessary to produce good policy.

"The tactics weren't going to speed up or slow down our progress of developing the policy--in fact, speeding up the process and announcing a policy quickly that wasn't fully thought-through could have had a negative effect on the potential success of our policy," said Amy Davidsen, JPMC director of environmental affairs. "I think its important to point out that we went through one of the biggest banking mergers ever, ultimately forming the third largest bank in the US."

JP Morgan Chase and Bank One completed their merger in July 2004.

"The fact that we only took 7 months to produce a firm-wide policy after such a large-scale merger is quite extraordinary, considering the amount of businesses we needed to evaluate," Ms. Davidsen told SocialFunds.com. "We listened to a number of constituents and shareholders, who helped us in the process."

Such engagement with shareholders, which helped instigate Ms. Davidsen's appointment and the development of the environmental policy, dates back to the 1998 formation of a shareholder dialogue group to promote environmental responsibility across the financial sector. The group comprised Christian Brothers Investment Services (CBIS), F&C Asset Management (formerly ISIS and before that Friends, Ivory & Sime), Trillium Asset Management, Domini Social Investments, and the Green Investments Program of Friends of the Earth (FoE).

In 2000, Trillium filed a shareholder resolution asking JPMC to assess environmental and social criteria in its business decisions that received 6.4 percent support. In 2003, CBIS served as the lead filer of a similar resolution (co-filed by Domini and Trillium), and Julie Tanner, CBIS's corporate advocacy coordinator, re-invigorated dialogue with the company.

"Once we filed that second resolution, their Corporate Secretary Tony Horan was very responsive to our concerns," said Steve Lippman, senior analyst at Trillium. "As part of negotiations in which we withdrew our resolution, the bank created the Office of Environmental Affairs almost exactly a year ago, and Amy Davidsen has also been very responsive to our concerns."

Comparing the three environmental policies reveals that JPMC surpasses Citi and BofA in many--but not all--areas. For example, JPMC surpasses Citi and BofA by making explicit its preference for Forest Stewardship Council (FSC) as the most credible independent sustainable logging certification system. BofA's policy on "No Go Zones" affords more protection to ecologically sensitive forests, but JPMC's provides more clarity in its definition of how such forests will be determined, according to Ms. Hogue.

"And while Bank of America and Citigroup link their indigenous protections to intact forests and critical natural habitats respectively, the JPMC policy decouples the support of indigenous rights from the type of ecosystem in which these communities reside," Ms. Hogue told SocialFunds.com. "JPMC's well-articulated support for the processes and decision making, while far short of the ultimate goal of Free and Prior Informed Consent for all affected communities, still moves closer to the recognition that human rights should not be conditional."

JPMC's goals for reducing its own direct greenhouse gas (GHG) emissions falls between those of BofA's more ambitious and Citi's less ambitious goals, but it sets neither targets nor timelines on the reduction of cross portfolio emissions.

However, JPMC distinguishes itself from Citi and BofA by committing to convene an industry group to advocate for greenhouse gas reductions at the federal level.

"In a day and age where our administration continues to tarry while ice caps melt, JPMC is willing to take a leadership position in promoting the solutions the rest of the world has already embraced," said Ms. Hogue.

One issue that remains unclear is whether JPMC will continue to finance BlueLinx (BXC). RAN alleges that the building products distributor sources legally-disputed, undocumented timber from Indonesia.

"We can't comment on client discussions, but our new policy says that we will not finance companies or projects that are knowingly engaged in illegal logging," said Ms. Davidsen.

"We expect to see JPMC and other financial backers of BlueLinx promote a solution-oriented approach to the company that assures legality of the wood products in question from stump to store or to reevaluate their financial relationship," Ms. Hogue stated.

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