Taking environmental considerations into account is becoming more important for doing business, and even financial institutions can no longer ignore the trend.
While the financial sector has lagged behind other industries in integrating environmental concepts into business, some banks have begun to offer loans to enhance the eco-management of companies, while others are considering including environmental performance in the criteria for company evaluation.
On April 1, Shiga Bank introduced a new financial product offering low-interest loans to companies trying to reduce carbon-dioxide gas emissions and introduce other environmentally friendly operations.
“This loan aims to help businesses purchase low-emission vehicles and install energy-efficient equipment,” says Tadashi Nakamura at the bank’s sales department. “But the loans can also be used to finance other environmental measures if approved by branch chiefs from our bank.”
It is the third financial product from the bank’s so-called eco-clean fund, which it introduced in April 1998. The other two products offer low-interest loans to companies trying to install equipment to prevent water pollution or improve water quality and provide funding to obtain certification under the International Organization for Standardization’s 14000 series of environmental standards.
As of the end of March, 78 million yen was offered in five cases under the clean water plan, while 427 million yen was provided to 14 cases seeking support for ISO qualification, according to the bank.
“In Shiga Prefecture, there are many small and medium-size companies that make (machinery, computer and other equipment) parts for major companies. As more businesses tend to prefer procuring parts produced in an environmentally friendly way, small companies also need to be more concerned about the environment,” Nakamura says.
“As a regional bank, we have a role to play in supporting businesses’ efforts to that end.”
Nakamura also predicted that those companies that invest to enhance their environmental performance now, in spite of the economy being in the doldrums, are the ones that will be more competitive in the future.
Other regional banks such as Hiroshima Bank and Chugoku Bank offer similar financial products, and now major city banks have also begun to hop on the bandwagon.
Sumitomo Bank created a global environmental division in its corporate department in July 1998 — marking the first such attempt among the nation’s top commercial banks.
While Sumitomo offers an “eco-management loan” product that supports companies’ embracing of environment-friendly measures, it places more focus on raising businesses’ awareness of the importance of taking the environment into account in order to reduce business risks.
The bank holds seminars to provide businesses with environmental information and introduces companies to a consulting firm that has expertise in environmental fields.
“As it is certain that environmental regulations will be strengthened and cover more areas in the future, the taking of appropriate measures to reduce environmental risks is becoming more important for companies,” says Masahiro Kuramoto, joint general manger of the bank’s environmental division.
Kuramoto thinks that it will become increasingly necessary in the future to take environmental factors into account when evaluating business performance in addition to other traditional analytical tools used to review businesses’ financial statements.
“If such information showing the degree to which businesses are taking environmental measures is available, it would also help investors decide where to put their money,” Kuramoto says, adding that the bank is currently just studying the matter and has not taken any steps yet.
But the problem is that concrete evaluation techniques for environmental factors have yet to be established. It is therefore still difficult to prove the link between environmental performance and business performance so as to convince financial analysts, according to Mariko Kawaguchi at the Daiwa Institute of Research.
Kawaguchi is a key member of a private group studying the relationship between finance and the environment. The group, whose members are drawn from business and academia, is currently preparing the final version of a report on the issue after 10 months of study.
Kawaguchi says the upcoming paper aims to provide investors and analysts with information on links between business and the environment as well as the financial sector’s role and opportunities in this field.
“Although I want to, I cannot clearly state in the report that a company’s environmental performance has a clear linkage with its business showing,” Kawaguchi admits.
“But providing financial analysts with information on such issues as future environmental regulations and their implications for business performance may at least help them with their evaluation of companies.”
However, in order to evaluate companies based on steps they have taken to boost environmental performance and to rank them by industrial sector — a practice currently being undertaken in the United States and some European countries — it is necessary to have companies disclose more information regarding environmental data and to establish unified measurement methods, said Katsuhiko Kokubu, a professor of economics at Kobe University.
“Although more companies are disclosing environmental data in their environmental reports, no (effective) comparison can be made (among them) because measurement methods differ from company to company,” Kokubu says.
But he thinks that the government’s introduction of the Pollutant Release and Transfer system will improve the situation in terms of disclosure of environmental data.
The PRTR bill, submitted to the Diet in mid-March, would require companies to report on the discharge and disposal of more than 200 hazardous chemicals.
“This would be the first step,” Kokubu says. “(When information becomes available in greater volume and reliability) we can expect to see a situation where financial institutions offer loans to companies based on their environmental risks and invest money based on their environmental performance.”