Greening Finance

Leading financial firm JP Morgan has issued a new Environmental and Social Policy Framework document.

This 23 page document has 16 uses of the words “climate change.” And, reflecting this, the document lays out explicitly that how a firm once one of leading financiers of coal projects will accelerate its move beyond coal. Most notably, ‘green field’ coal mining is now to be treated like projects using child labor and those that endanger world heritage sites. To quote from the document JP Morgan “will not finance” projects that include:

  • Forced or Child Labor: Transactions where there is evidence of the use of forced or child labor;
  • World Heritage Sites: Transactions for natural resource development within UNESCO World Heritage sites;
  • Coal: Transactions that involve asset-specific financing where the proceeds will be used to develop a new greenfield coal mine or a new coal-fired power plant in a high income OECD country;
  • Illegal Logging: Transactions with entities or projects that collude with or are knowingly engaged in illegal logging;
  • Uncontrolled Fire: Transactions with entities or projects that lack an explicit policy against the uncontrolled and/or illegal use of fire in their forestry, plantation or extractive operations.

With this, JP Morgan has joined Morgan Stanley and Citigroup in creating ‘no go’ zones for coal as part of a shift toward climate aware financing.

To be clear, these financiers haven’t renounced coal entirely — but have created significant restrictions and guidance as to what is and isn’t acceptable coal-related investing (see pages 8-9).  As the report notes,

JPMorgan Chase believes that balancing environmental and human rights issues with financial priorities is fundamental to sound risk management and a core part of corporate responsibility.

Moving the financial markets and financial firms toward climate-sensible policies is critical to fostering a climate-friendly and prosperous future.  Policies and statements like those JP Morgan Chase just released are tangible signs of progress toward this.

This document is an interesting read, from the high-level objectives to the wording to enable their desired flexibility for financing that might conflict, in some manner, with those objectives.

As an example, from the introduction:

As a global provider of financial advisory and lending services for clients in various sectors and geographies around the world, we recognize that our business decisions have the potential to impact surrounding communities and the environment. JPMorgan Chase believes that balancing environmental and human rights issues with financial priorities is fundamental to sound risk management and a core part of corporate responsibility.

Protecting the natural systems which all life depends on while lifting people out of poverty and advancing economic development are among the greatest challenges confronting humanity. We recognize that the policies and practices we adopt today will shape not only our lives but also those of future generations. Therefore, we have designed policies that ensure environmental and human rights impacts are identified early, carefully evaluated and managed responsibly. Such policies not only promote positive environmental stewardship, but also highlight business opportunities to support investments in renewable energy, energy efficiency, sustainable water management, sustainable forestry and sustainable supply chains. Attention to environmental and social (E&S) issues helps us to better manage risk, attract and retain critical talent, develop expertise and provide clients with suggested solutions to pressing sustainability issues in their businesses.

Obviously the leaders of global finance are not going to solve climate change on their own – especially without explicit financial incentive to do so. However, this report is just more evidence that makes it clear that even Wall Street is taking the threat of climate change seriously.

 

Image courtesy of Wikimedia Commons. Originally published by S&S on March 11, 2016.

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