Banks at risk from environmentally unfriendly companies

Environmental Data Interactive (UK): Financial institutions put their reputations at risk if they invest in companies which have a negative impact on the environment, according to a new report. That is the view held by the majority of banks and non-governmental organisations (NGOs) surveyed for Biodiversity, the Next Challenge for Financial Institutions published by the World Conservation Union (IUCN) this month.

Ivo Mulder, the report's author, said: "Continuous decline of global species diversity is not only leading to more concerned conservationists - the private sector is also starting to feel the implications. Financial institutions, such as banks and insurance companies, need to be able to determine which of their client companies are at greatest risk, in order to avoid taking on the same risks themselves through their lending, investment and insurance activities."

The report surveyed 26 commercial and investment banks, NGOs and other stakeholders. Two thirds believe the financial sector risks its reputation if it invests in companies which have a detrimental impact on ecosystems.

Increased pressure from NGOs, more government regulation to protect the environment and rising consumer expectations mean financial institutions must take more heed of biodiversity, the study found.

It highlights the introduction of the EU Environmental Liability Directive in April, which makes companies liable for damage to flora and fauna, water resources and natural habitats and forces them to pay for damages. The potential financial implications are significant not only for companies using these resources, it says, but also banks and insurance companies.

In 2004 Associated British Ports lost 10% of its share price after the government rejected plans for a new container terminal on the south coast. One of the major reasons was the potential impact on surrounding wildlife. "There needs to be a big effort to make the financial sector more aware of biodiversity issues," said Mr Mulder. "Perhaps a Stern-like review of the economic costs of biodiversity loss and the financial benefits of conservation could be one trigger."