JPMorgan Chase recently made the smart and responsible business decision of subscribing to the World Bank-initiated Equator Principles, committing itself to consider certain environmental and social risk issues in the deals it finances. In doing so it joined Citigroup and 32 other financial institutions.
One spur to their decisions was campaigning by various nongovernmental organizations, often spearheaded by the Rainforest Action Network. Rainforest activists trailed Sandy Weill around the globe, unfurling banners and brandishing cream pies. They also traipsed through the leafy Greenwich suburb of JPMorgan Chase CEO William Harrison stapling "Wanted: Dead or Alive" posters carrying his image.
Campaigning can and does have an impact on what companies do. But when activists assault them with shrill moral arguments about "corporate responsibility," two things occur:
- o The activists lose (or never achieve) focus on the business case for responsible corporate behavior.
- o The companies risk myopia and view corporate responsibility as PR, missing out on valuable strategic opportunities.
The purpose of the Equator Principles is to ensure that the projects banks finance "are developed in a manner that is socially responsible and reflect sound environmental management practices."The issues addressed are not easy. However, the solutions and mechanisms proffered are not so rigid as to be unrealistic. And responsibility and accountability are shared by a number of players.
Unfortunately activists often frame this nuanced reality with simplistic rhetoric, which is compounded by an instinct among many banks, particularly in the U.S., to duck and cover.
Companies shouldn't capitulate to every criticism, but failing to anticipate them allows others - including competitors - to define problems and develop solutions.
Bankers who want to bring an Equator Principles perspective to their strategy should consider the following:
You are enablers. Investment bankers got their wish - they truly are masters of the universe. And everyone knows it. One clear legacy of post-bubble shareholder litigation is that in the drama of notorious deals, banks are seen not as neutral matchmakers but as complicit co-conspirators.
The rules are being made up right now - with or without you. Ultimately each company decides for itself whether it will address social and environmental issues, what is ethical and doable, or how it might change business practices.
Strategic planning should not be driven by external pressure or timetables. Nor should decision-making be so cloistered that it loses touch with the debate going on around you.
The Equator Principles not only raise awareness of relevant issues but include dialogue about day-to-day practices and measurement criteria for a "right way" and a "wrong way."
Your clients care. The Equator Principle issues are also strongly connected to the environmental and social components of international trade agreements, as well as to valuation criteria for an increasing number of institutional investors, such as Calpers.
Finally, according to a survey by Stanford and the University of California, Santa Barbara, a significant number of new MBAs "were willing to give up some financial benefits to work for an ethical, socially responsible organization."
China. Over the last 20 years China's dismal labor standards and shoddy environmental record have consistently made it a flashpoint for accusations of corporate social irresponsibility.
However, as Marc Gunther recently reported in Fortune, China's emerging leadership seems genuinely concerned about the environmental impact of development. Evidence includes the embrace of "green" building standards and of auto fuel economy standards stricter than ours, as well as major investments in clean-coal technology.
Global banks hunting for business have invested heavily in establishing credibility with the Chinese government. Demonstrably greener finance partners would probably have a leg up with concerned official decision makers.
The principles won't make for worse deals. At their core, they simply suggest a new dimension to due diligence. Being part of something unsavory is as real a risk as losing money. Due diligence in one area is often a reliable proxy for others, and most investors would welcome more transparency on any facet of a project.
Think about a company's media and investor relations efforts. Is the ultimate objective one great story or one glowing analyst report? No. Media and investor relations strategies seek to establish a continuum of credibility.
Similarly, companies must manage social and environmental issues with strategies that aren't responses to a specific eruption.
An engagement approach must fit a company's culture and not compromise competitive advantages, but it also requires spending time with skeptics and even antagonists. The absence of discourse will perpetuate animosity; engagement at least opens the possibility of dissipating it.
Subscribing to the Equator Principles is not just a way to avoid having the CEO "pied" at the next confab of global elites. It helps businesses succeed and grow.
