Features, July/August 2000 NGOs target financial sector Behind every environmentally-damaging project or company stands a financier - and activists are increasingly calling them to account. Ricardo Bayon looks at recent campaigns, and asks the banks how they are responding to this unwelcome attention Private sector financiers beware. Environmental activists are increasingly focusing attention on - and launching campaigns against - banks, mutual funds, pension funds, and insurance companies. Earlier campaigns - particularly against environmentally damaging projects in the developing world - were often aimed at the World Bank, or similar multilateral and/or public sector lending institutions. Now, however, there is an growing realisation among the activist community that the real power and influence lies with private sector financial institutions. "As people become more sophisticated on issues of globalisation, they are beginning to see that banks and financial institutions are important parts of the overall system," says Michelle Chan-Fischel, coordinator of a programme looking at finance and investment at Friends of the Earth (FoE) in the US. She believes that private financial institutions need to recognise that the protests at the World Trade Organisation meeting in Seattle last year and this year at the World Bank/International Monetary Fund meeting in Washington are part of a broader backlash against globalisation. As such, she adds, they are an implicit critique of the business of most private financial institutions. "While they may not yet be the targets of major campaigns, if they are not careful, they will be. It is just around the corner," she adds. For many firms, the warning comes too late. Those banks and financial institutions on the wrong end of an environmental campaign last year include: Morgan Stanley Dean Witter (MSDW), Citigroup, Merrill Lynch, Chase Manhattan and others which have been criticised for their involvement in financing the China Development Bank (CDB), one of whose main loan commitments is the construction of Three Gorges Dam, a huge infrastructure project which environmental groups claim will lead to environmental destruction and social upheaval. California-based International Rivers Network (IRN), together with a group of other environmental organisations, singled out MSDW, calling for a boycott of the bank; Goldman Sachs was criticised for its involvement in underwriting the initial public offering of PetroChina, a Chinese oil company, on the New York stock exchange. The campaign led to demonstrations and banner-hanging sessions in front of the Goldman Sachs headquarters; Rainforest Action Network (RAN), an environmental organisation based in California, has launched a "Citigroup campaign" attacking the largest bank in the US for its involvement in financing a number of environmentally-damaging projects ranging from pipelines in Africa to mining in Latin America; Amazon Watch, an environmental organisation based in Los Angeles, campaigned for Fidelity Investment Group, a fund manager with assets of more than $1 trillion, to exercise its power as shareholder of Occidental Petroleum in order to encourage the company to halt oil exploration activities in Colombia that were seen to be damaging to the environment and local indigenous people; In the Netherlands, ABN-AMRO, one of the country's largest banks, and Millieudefense, a local environmental group, have begun a dialogue on what the bank can do to protect the environment. This comes, in part, as the result of a letter-writing campaign organized by the environmental organization; Greenpeace, Netherlands has commissioned a study on the role of Dutch banks in financing environmentally damaging activities in Southeast Asia, and In Switzerland, the Berne Declaration, a Swiss NGO, has begun a campaign aimed at UBS, one of the world's largest banks, for its role in financing the Illisu dam in Turkey. "This is definitely the beginning of a new wave of activism aimed at private financial institutions," says Shannon Wright, campaign coordinator for Rainforest Action Network (RAN) in San Francisco, and one of those responsible for the organisation's campaign against Citigroup. "People are realising that globalisation is more than Starbucks [the US coffee-shop chain] and IBM. They are beginning to understand that they need to look at what is behind globalisation, at the private financial institutions which make up [its] backbone." Wright believes that the focus on private financial companies is a natural outgrowth of previous work aimed at the World Bank, the IMF and other public financial organisations. "As more and more of the money for environmentally-damaging infrastructure projects begins to come from private, not public, sources," she explains, "more and more of our campaigns will need to be aimed at [the private sector]." Research undertaken by the IMF supports Wright's assertions in this regard. Its latest report shows that private financial flows to developing countries grew from $31 billion in 1990 to a peak of $226 billion in 1995, before dropping back as a result of financial crises in Asia in 1997 and Russia and Latin America in 1998. According to the IMF, the amount of private capital flowing to emerging markets has begun to rise again, and they expect to see it grow further this year and next. By contrast, official development aid (ODA) channeled from the world's richest countries to developing countries has remained stable at around $50 billion over the past ten years. "It is clear," says Chan, "that we are witnessing an increasing privatisation of development." So, activists are increasingly turning their attention from public to private financiers. "Over the last year and a half we have seen dozens of new programmes on financial issues started by environmental organisations," says Julie Tanner, in charge of finance and environment at the National Wildlife Federation (NWF) in Washington D.C. Tanner and Chan-Fischel were among the first within the environmental movement to focus on private financial flows more than two years ago. "Initially," Tanner recounts, "only FoE and the NWF were looking at the private financial sector. Now, it seems that every organisation is interested in dealing with private financiers in one way or another. I have heard that a wide variety of groups, groups ranging from Greenpeace to the AFL-CIO [a US trade union confederation] are beginning to set up projects or programmes aimed at working with private financial organisations." The reaction of bankers and financial institutions to this coming tide of environmental activism is far from uniform. One banker, speaking on condition of anonymity, said that the riots in Seattle and during the IMF were "one-off" affairs and would probably not be repeated, adding that environmental activists had had little or no influence on the financial community. At the other end of the spectrum, Citigroup's head of environmental affairs, Iris Gold, explains that her organisation is well aware of the importance of environmental issues. "Citigroup has always been open to dialogue with all relevant organisations, including environmental organisations." She describes how Linda Descano, a senior asset manager at Salomon Smith Barney, Citigroup's investment banking arm, has for a long time served as the chair of the Financial Services Initiative of the United Nations Environment Programme (UNEP), an initiative which seeks to engage banks in discussions on environmental issues. "So this is not new to Citigroup and it is noteworthy that we are the only bank, to my knowledge, that has an environmental affairs division whose job it is to look at how environmental issues affect all aspects of our business," she says. On the RAN campaign attacking Citigroup for its environmental performance, she says that they have had discussions with RAN and are currently in the process of conducting a company-wide environmental policy review process aimed at ensuring that the entire company's environmental policies are in sync. At RAN, campaigners say they are waiting to see what impact such a review will have on the company's day-to-day activities. The reaction at Merrill Lynch is similar. Joe Cohen, a Merrill spokesman, says that campaigning by environmental organisations has "raised everyone's awareness of the social and environmental implications of projects like Three Gorges." In the case of Merrill Lynch, he says, campaigns have heightened the company's awareness of environmental risk, and have led to ongoing dialogue with the organisations concerned. He admits that Merrill helped underwrite a $500 million bond for CDB, the government-run bank that provides money for Three Gorges, but claims that they have asked the CDB to specify how these funds will be used, and have even been given assurances by the Chinese government that none of the money raised with Merrill's help will be used to finance the dam. But not all interactions between environmentalists and banks are quite as positive. MSDW was expressly targeted by RAN over the Three Gorges because the group felt it was not serious about dialogue on the issue. Certainly, the bank does not seem to feel it has any obligation to communicate its environmental impact and policies - repeated calls by Environmental Finance to Morgan Stanley's corporate affairs department were not returned before press day. When Goldman Sachs decided to offer shares in China's restructured oil company, PetroChina, on the US stock market, it found itself up against a broad-based coalition composed of environmentalists, human rights groups, and labour unions who argued that money for the Chinese oil company would only be used to damage the environment in China, and provide support to a regime notorious for its disdain of human rights - particularly in Tibet. FoE's Chan-Fischel calls PetroChina "the single most important example of the dramatic impact that this new form of activism can have." She claims that, as a result of pressure from environmental organisations and others, the market capitalisation of PetroChina was reduced by several billion dollars. Sources familiar with the deal say that it is hard to quantify the exact effect that the activists had. One, however, told Environmental Finance that the deal was initially expected to raise about $5 billion for PetroChina. The source believes that such a valuation was overly optimistic, and that given the sector, the nature of the company, and the emerging market risks a more realistic value for the offering was probably around $4 billion. Since PetroChina ended up raising a little less than $3 billion at its IPO, the source believes that activism ultimately cost the company about $1 billion in lost investment - or 25% of the value of the IPO. The same Wall Street source, however, argues that the real impact on the deal was not achieved by the environmental and human rights groups, but by the labour unions. "This campaign really didn't have any traction when it was only the human rights groups involved," he said. "It was only when the AFL-CIO decided to get involved and started calling the state pension fund agencies and others, asking them not to buy the issue, that the underwriters really began to feel the heat." FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE