The environment and the finance sector
 Martin Hancock, Chair of the UNEP FI, Westpac Institutional Bank |
Many international financial institutions routinely assess the environmental risks associated with their products and services. Consequently they are beginning to alter their corporate lending practices, offer investment options that favour environmentally and/or socially responsible companies, adjust insurance premiums to reflect environmental risk and embrace sustainability principles across their internal procedures.
The UNEP FI promotes sustainable development and environmentally sound business practices across the financial services sector. UNEP FI has been chaired since early 2005 by Martin Hancock, Chief Operating Officer of Westpac Institutional Bank in the United Kingdom, a division of Westpac Banking Corporation, Australia. Westpac has been a signatory to the UNEP FI since 1992.
"As the sustainability debate gathers momentum, it is becoming increasingly clear that many of the challenges we face require a global response. Geographic boundaries are becoming increasingly irrelevant to both individuals and business," Martin Hancock, Chair of UNEP FI, said.
"UNEP FI is a unique partnership that brings together two key global players – UNEP, which has hands-on experience of the sustainability issues currently faced around the globe, and the finance sector, which plays a major intermediary role in the economy and development and in financing the future. Working together, UNEP and the finance sector are well placed to address some of these global issues.
"For UNEP FI to function effectively, it requires a committed and experienced network of both financial institutions and like-minded organisations. It is in this respect that EPA Victoria has played a key role in professionally promoting the sustainability message in Australasia, by coordinating and facilitating activities in the area. For me, this is an opinion formed first hand, both as an employee of Westpac, and more recently, from my role in UNEP FI."
This section provides information about the following areas:
Corporate lending
"We are delighted to join UNEP. It's a significant commitment that signals we are serious in taking this forward as part of our efforts to earn the trust of the community." Mark Lawrence, Chief Risk Officer, ANZ
The role of corporate lenders in minimising environmental risk on traditional issues, such as potential land contamination, is well-established.
This has been extended to other products. For example, Australian Credit Union, mecu, launched the goGreen Car LoanTM, that offers lower interest rates to customers wanting to buy environmentally friendly cars and will see hundreds of thousands of trees planted in the Murray Darling Basin. For every car it finances, mecu offsets the car's greenhouse gas emissions through the Greenfleet tree planting program for the life of the loan. Following the launch of the product, in 2004, mecu car loan sales increased by 94 per cent.
For more information on this initiative, visit the mecu's website.
Investment options
An increasing number of Australasian investors are choosing to invest their money in an environmentally and socially responsible manner. A recent survey conducted for the Australian Ethical Investment Association (EIA) found that at 30 June 2005 assets of socially responsible investment (SRI) managed funds in Australia had topped $7.67 billion, an increase of almost 24 times since 2000 (source: Sustainable Responsible Investment in Australia – 2005 Benchmarking Survey, EIA, October 2005).
Bendigo Bank launched Australia's first bank deposit account directly linked to ethical investment structures in May 2000. The fund is directly linked to the Community Aid Abroad Ethical Investment Fund, with investors choosing to donate all or half of their return to the fund. Since the launch, the fund has attracted more than $100 million in investment, resulting in a significant contribution in commission and interest to the fund beneficiary, Oxfam Australia.
For more information on this and other community initiatives, visit the Bendigo Bank's website.
Insurance products
For the insurance industry specifically, environmental degradation and ecological catastrophes are considered a significant threat to business. Therefore, many insurance companies recognise the need to manage and reduce environmental risks through their business operations.
"Managing the risk we pose to the environment in how we use energy and treat and dispose of our waste is a natural extension of how we want to do business." Michael Hawker, CEO Insurance Australia Group.
For example, in response to Swedish environmental regulations, Lansforsakringar Miljo, a Swedish insurer, sells a product called 'recycling insurance'. This provides a service for producers whose products require end of life recycling. Such a policy helps producers deal with uncertainty with regards to the timing and cost of recycling. A premium is included in the price of a product at the time of purchase. The product premiums are placed in a fund managed by Lansforsakringar Miljo, and when the product is returned to the retail outlet where it was purchased it is passed on to a recycling company, which recovers recyclables. The costs of this process are covered by the recycling insurance. Its advantage is that it provides a guarantee that there will be someone to pay for the costs of recycling when it is needed.
For more information on insurance and environmental risk, read Risk, the Environment and the Role of the Insurance Industry (Adobe PDF file, 413KB) prepared by the UNEP FI Australasian Advisory Committee on Insurance.
Internal processes
As the finance sector is a large consumer of resources and produces significant amounts of waste, many financial institutions are also looking at the impacts their internal operations have on the environment, and have introduced environmental considerations into their property, purchasing, transport and waste management programs. Within the sector, companies have also developed environment policies, obtained ISO 14001 certification for their environmental management systems and produced public sustainability reports.
"We firmly believe that companies that integrate social, environmental and economic principles into all decision support systems are more likely to increase their long-term shareholder value." Bob Welsh, CEO, VicSuper.
For example, Westpac, one of the founding signatories to the United Nations Environment Program Statement on Financial Institutions and the Environment, was also the first bank to join the Australian Government Greenhouse Challenge in 1996. Westpac has released four Social Impact Reports, which outline the targets and progress in the bank's effort to integrate corporate responsibility into the business model. The reports, which conform to the Sustainability Reporting Guidelines framework of the Global Reporting Initiative (GRI), detail performance indicators in areas such as corporate governance, employee matters, retail, business and institutional customer matters, environmental performance, SRI and financial performance.
Find out more about Westpac's environmental and social policies.
VicSuper, one of Australia's largest superannuation funds, has made sustainability its central operating principle. This means that the organisation has undertaken to increase the efficiency with which it uses resources to provide superannuation services, integrate sustainability principles into the way it deals with suppliers, and increase its level of community involvement. This operational direction is based on the notion that healthy economies are needed to create wealth for superannuation members, which in turn rely on healthy societies and a healthy natural environment.
Find out more about VicSuper's approach to sustainability.
