Link between banking and the environment
By Thean Lee Cheng

Published in The Star, July 31, 1998

MALAYSIA
- Mention a green bank and immediately one would think of a financial institution that protects wildlife. Our traditional concept of a bank is one of an institution, in which we save our money, which in turn is lent to others at a margin. However, the banks and financial institutions in the West are increasingly becoming aware that it is in their interest to be aware of the green issues in the countries they are operating in.

And thanks to the media, from China to Indonesia, India to Taiwan, the man on the street is becoming more aware of the environment issues in their respective countries. Few are, however, able to understand the link between banking and the environment.

In Malaysia, of late, there have been companies caught flouting the law by dumping toxic chemicals in oil palm plantations and the interiors, which results in the poisoning of water tables. We have also read about logging activities that destroy water catchment areas.

What of the banks and financial institutions which lend to these polluting companies? Little is know about what happens to them when—or if—their clients default on payments.

To make lending officers more aware, the Institute of Bankers Malaysia, with help from the United States-Asia Environmental Partnership (US-AEP) and Bank of America, held a seminar, Environmental Risk Management, in Kuala Lumpur recently.

Bank of America senior vice president (environmental services) Evan C. Henry said that as a result of companies’ acts of environmental degradation and the risk of being caught by the authorities, they did not make the money they thought they were going to.

"This results in companies having problems paying a debt or having a harder time doing so," he said.

Activities that denigrate the environment have an attendant cost. They not only destroy the environment, they also exert a cost on the polluting company in tangible dollars and cents. Fixing the environment costs money. A fine means money, and it the managing director of the company is jailed, this affects the profit and earning ability of the outfit.

The risks faced by the company, Henry said, were transferred to the banks that lent them money. "What we are telling the lending officers is that they should consider the environmental risks these companies face in their credit decision process," he said.

He said that as bankers became more aware, their clients and the banks themselves would not be able to treat the environment so poorly. "Banks should be aware that these companies have added costs which turn into risk when they lend money to them."

"The objective of this program is to ensure that banks protect their financial bottom line that ultimately benefits the environment because it is in our best long-term interest to work with business partners who minimise their environmental risks and problems," Henry said.

"Many of the environmental situations can translate into a dollar impact and the poor attitude of bankers can cost them money," Henry said.

"The program is universal. We do not specially address Malaysian situations. We provide a framework for understanding and categorizing the issues and the lending officers of banks apply this framework to the local conditions," he said.

 

 

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