If anything, it was probably related to the upcoming vote on whether to split the roles of Chairman and Chief Executive at JPMorgan Chase, California’s lawsuit against JPMorgan, “accusing the company of falsely signing documents to unlawfully collect credit card debt from thousands of customers,” or follow-ups on JPMorgan’s “London Whale” fiasco.
Given these and other stories, I was a little suspicious when I opened JPMorgan’s CSR report. I wasn’t sure if I could be persuaded that JPMorgan is a responsible company or working hard to become one, so I decided to set up three criteria to make my final decision on the report as objective as possible: 1. Materiality of the achievements described, 2. Transparency and ability to acknowledge failures, 3. Involvement of external stakeholders in the report.
1. Materiality of the achievements described – The report, just like any other CSR report presents many of the company’s achievements in 2012, from increasing its lending to small businesses by 18 percent over 2011 to providing $6 billion to low- and moderate-income individuals or communities to growing the amount of capital committed to impact investments to nearly $50 million. But how material these achievements are?
Looking at SASB’s draft standards for investment banks you can learn that material ESG issues in this sector include issues like integration of social and environmental factors in services’ lending and proprietary investments, transparent information and consumer responsibility, and systematic risk management.
JPMorgan’s actions reported in this report seem to fit SASB’s draft standards to some degree. For example, establishing a new Firmwide Oversight & Controls Group to direct its risk management effort, or having “a formal policy, process and team for assessing environmental and social risks associated with financial transactions identified as potentially posing increased risks to our company.”
In all, the materiality level seems to be relatively high. However other sources like shareholder resolutions which dispute the company’s commitments and argue that it “may be taking a piecemeal approach to addressing climate change” tell a different story.
2. Transparency and ability to acknowledge failures – The report’s summary included two acknowledgments of JPMorgan’s past failures: First Chairman and CEO Jamie Dimon wrote: “…as we look back at last year, there are some areas where we fell short in our risk management – the “London Whale” is one example but there are others. These problems were our fault and it is our job to fix them.”
Second, under ‘Governance, Ethics and Risk Management’ the report mentions that “risk is an inherent part of JPMorgan Chase’s business activities, but we fell short on multiple control issues in 2012, including sustaining a significant loss by our Chief Investment Office. As a result, we have made our control agenda our #1 priority.”
This could be considered somewhat satisfactory if you’re unaware of the Senate Investigations Subcommittee report on JPMorgan Chase Whale Trades. You don’t need to read the whole 300-page report – the press release is quite enough to get a better understanding of what the committee thinks of JPMorgan’s “credit derivative trades that lost at least $6.2 billion last year.” Among the findings of the Levin-McCain report you can find “increased risk without notice to regulators,” “mischaracterized high risk trading as hedging,” “hid massive losses,” “disregarded Risk” and “dodged OCC oversight.”
Reading these serious accusations gets you wondering why JPMorgan didn’t address them in its report. Somehow just saying “we fell short in our risk management” doesn’t seem sufficient anymore.
3. Involvement of external stakeholders in the report – The report is filled with input from stakeholders. First, there’s a conversation between Jamie Dimon and Mark Tercek, President and CEO of The Nature Conservancy, where they address issues ranging from the financial industry’s role in society to the firm’s risk management.
In addition you have stakeholders answering questions related to different parts of the report. For example, Janis Bowdler, Economic Policy Director, National Council of La Raza answers the question “How can banks advance financial capability among underserved consumers?” I liked the idea of these conversations until I got to the last stakeholder’s Q&A – with Amanda Starbuck, Energy & Finance Program Director at Rainforest Action Network (RAN).
The question was “What is the role of the financial services industry in addressing climate change?” Amanda’s answer was: “2012 was a year of extreme storms and drought that reminded us of the scale and urgency of climate change. Addressing this challenge requires a fundamental shift in our energy economy. Which is why, in 2013, an environmentally responsible bank must do more to address its largest climate impacts: the footprint of the activities it funds.”
What I found interesting was Amanda didn’t mention that, according to Rainforest Action Network’s 2012 “Coal Finance Report Card,” JPMorgan is ranked as the second worst bank on coal financing (after Bank of America) and also continues to be involved in mountaintop removal coal mining projects.
So while it was great to see the involvement of stakeholders in the report, I’m not sure what value their participation creates for the reader – as you cand see from the RAN example, a reader can easily make the assumption that RAN has a positive opinion about JPMorgan, when the organization’s real opinion is probably far from it.
The bottom line is that the report seems to barely meet one of the criteria, which means that even with this report JPMorgan needs to do much more to be considered responsible.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.