Investment banks’ climate change agenda falls short

Despite initial efforts to address climate change, U.S. brokerage firms have further to go, according to a recently released study.

Merrill Lynch & Co. Inc., The Goldman Sachs Group Inc. and Morgan Stanley, all of New York, ranked relatively well on their climate change policies, according to the study, which was conducted by Ceres, a Boston-based coalition of institutional investors and environmental groups that work with companies to address sustainability issues.

The survey analyzed 40 of the world’s largest publicly traded banks and financial services firms and ranked them based on board oversight, management execution, public disclosure, emissions accounting and strategic planning. Lehman Bros. Inc. and Bear Stearns & Co. Inc., both of New York, received the lowest scores in the study.

Lehman Brothers is still developing an environmental policy, and Bear Stearns hasn’t addressed climate change, the report said.

HSBC IS TOPS

London-based HSBC Holdings PLC got the top score of 70 points out of 100 “because of an intense focus at the board level,” Douglas Cogan, the author of the survey and the director of climate change research at RiskMetrics Group Inc. of New York, said during a conference call with reporters.

One of the goals of the study was to provide institutional investors with “a new capability to assess the capabilities of their investment managers [and banks] to address climate risk,” he said in an interview. Although financial firms have begun dealing with the issue, there is still room for improvement, Mr. Cogan added.

For example, none of the firms has a policy to avoid investments in carbon- intensive projects such as conventional coal-fired power plants or Canadian tar sands, the study found. Tar sands contain a heavy, viscous oil that requires a lot of energy to recover and refine.

Only Charlotte, N.C.-based Bank of America Corp. has set a target for reducing its clients’ carbon emissions, Mr. Cogan said. The bank wants to reduce by 7% the carbon output per kilowatt hour of electricity produced by its utility clients.

The median score of the 40 firms was 42 out of 100. Only a dozen have board-level involvement on the issue of climate change, Ceres found, and just a half dozen are calculating carbon risks in their loan portfolios.

In addition, just nine mention climate change in securities filings, Mr. Cogan said.

Nevertheless, the study detailed a number of steps firms are making to address climate change.

CARBON CREDITS

Morgan Stanley has committed $300 million to investments in clean energy and $2.7 billion to purchase carbon credits, and will offer carbon verification and offsetting services for clients, Ceres said.

Merrill Lynch has sponsored a global program to encourage companies to report emissions and has created its own framework for addressing the issue, the study said, including recognizing that coal-fired power plants have significant environmental consequences.

Goldman Sachs in 2005 created a framework to cover its own investments in alternative energy and clean technology, emissions trading and research.

Citigroup Inc. of New York last year announced a $50 billion commitment to finance investment in alternative energy and carbon-re-ducing activities, and has a detailed environmental and social risk management policy, the study said. It also tracks carbon dioxide emissions attributable to power plant projects it finances.

Morgan, Merrill, Citigroup and Goldman also have taken steps to reduce their own emissions.In addition, the 40 firms in total have produced 97 research pieces on climate change, 57 of which were published just last year.

“When we [began reviewing reports] in 2004, we could barely find any studies addressing climate change,” Mr. Cogan said.

IMAGE BOOST?

But many of these corporate climate change policies are done simply for image reasons, said Brandon Scarborough, a research fellow at the Property and Environment Research Center in Bozeman, Mont., a research institute that seeks market solutions to environmental problems. PERC wasn’t involved in the Ceres-backed study.

Green investments will be made anyway once they are economically feasible, Mr. Scarborough said.

Investment firms earned kudos from Ceres for supporting a cap-and-trade system, in which carbon emissions are capped, based on firms’ past output, and further emissions must be accounted for by buying permits. A carbon tax, however, is “far more efficient,” Mr. Scarborough said.

Dan Jamieson can be reached at [email protected].