UK government faces judicial review over sustainability at RBS

London, 2 July: Three environmental NGOs have taken legal action against the UK Treasury over its decision to bail out RBS without imposing environmental criteria on the bank’s finance practices. This comes as a European investor coalition put forward proposals for governments to become more active shareholders in the banks they took stakes in as the financial crisis hit last year.

The World Development Movement, Platform and People & Planet have started the process for a judicial review of the Treasury’s actions, claiming that it is allowing public money to be invested by the bank in companies without considering the environmental impacts.

A Treasury spokesman said that the government plans to “strongly resist” the legal challenge. He added: “The government intervened in the banking sector in order to preserve the stability of the UK financial system and to protect people’s savings. Our shareholdings in banks must be managed on a commercial, arms-length basis if we are to achieve those aims and ensure the best return for the taxpayer.”

RBS declined to comment.

According to the NGOs, RBS has “contributed to” around £10 billion ($16 billion) in loans to oil, gas and coal companies since it was bailed out in October 2008, when the Treasury took an initial 58% stake in the bank, since increased to 70%.

Some environmental campaigners hoped that the UK government would use the opportunity to force the bank to adopt stricter environmental and social criteria in its finance business.

The NGOs point out that the Treasury’s methodology meant to be applied to all policies and projects, The Green Book, requires that government make an “appraisal of a range of different options against key variables such as costs, benefits and distributional, unvalued and non-market impacts”, which includes environmental impacts.

Ian Leggett, director of People & Planet, added that the Treasury’s position is at odds with broader government policy and legislation aimed at cutting greenhouse gas emissions and tackling climate change.

Rosa Curling, a solicitor at Leigh Day, which is acting for the NGOs, said: “The refusal by the Treasury to even consider whether an investment could contribute to climate change or result in human rights abuses is clearly unlawful and completely out of line with the government’s own guidance, policies and targets on these issues.”

Julian Oram from the World Development Movement added: “We’re launching this action because the Treasury has displayed a blatant disregard to the government’s own commitments to tackling climate change, and its rules for spending public money.

“The taxpayers’ interests would be vastly better served by RBS investing in a low carbon future than in undemocratic regimes and environmentally devastating projects around the world.”

Meanwhile, last week the European Sustainable Investment Forum (Eurosif) published a working paper looking at the role of governments after the credit crunch, calling for them to become active shareholders in bailed-out banks.

“Now is the time to address sustainable banking from a new risk management perspective as well as from an economic recovery perspective,” said Marion de Marcillac from Eurosif. “Banks in which governments have injected public money should adopt some sustainable banking practices.”