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Leading bank turns down loans on ethical grounds

An international bank has turned down one in ten investment and loan requests from corporate clients after referring them to an in-house ethical screening unit.

Over the past two years client-facing staff at ABN Amro have referred 667 proposed transactions with companies to the bank’s central sustainable business advisory unit, which declined to recommend 62 of them. A quarter of the referrals (181) were approved only with conditions. Client-facing staff can in theory ignore the unit’s advice, but in practice they rarely do so.

ABN Amro’s stance is further evidence that financial institutions are starting to look routinely at the social and environmental risks associated with loans and investments. The bank has put no figure on the value of the business that it has turned down.

The three sectors that are most likely to receive a negative recommendation from the eight-person unit are aerospace and defence, mining and metals, and oil and gas. Aerospace and defence had the largest number of declined deals last year – five out of 61 referrals – but the unit turned down proportionately more in the gaming and leisure sector, where four of 14 referred deals were declined.

The Amsterdam-based bank, which has 3500 branches and 105,000 employees in 60 countries, says there has been a ‘significant’ rise in referrals to the unit in 2005, up from 295 to 372 compared to the previous year, mainly because its staff are now more aware of how social and environmental issues can affect investment performance.

However, as more deals have been referred to the unit, the rate of negative recommendations has fallen, from 14 per cent in 2004 to five per cent last year. The bank believes this is because employees are becoming more adept at raising issues early on, giving clients the opportunity to take ‘corrective action’.

Staff dealing directly with clients initially assess deals using ‘filters’ that the bank has put in place. For example, they ask whether the transaction involves a sensitive issue such as nuclear power, whether it involves work in a country where there is widespread corruption, or whether the client has recently been the subject of litigation or a pressure group campaign.

Emma Griffiths, an associate at the WSP Environmental Consultancy, told EP: ‘The Co-operative Bank does something similar, but it is uncommon for a mainstream financial services company to be routinely declining general purpose loans on social and environmental grounds.’

ABN Amro is among the financial institutions that now assess project loan finance proposals against the Equator Principles. But only five of the deals declined by the bank fell into this category, with a further 27 approved after conditions were agreed.

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