Wells Fargo joins lenders increasing scrutiny of companies involved in mountaintop removal mining
August 31, 2010 4:00 AM
Jeff Gentner/Associated Press
A mountaintop removal mining site at Kayford Mountain, W.Va., with Coal River Mountain, left, in the background.
By Tom Zeller Jr. The New York Times
Blasting off mountaintops to reach coal in Appalachia, or churning out millions of tons of carbon dioxide to extract oil from sand in Alberta are among environmentalists' biggest industrial irritants. But they are also legal and lucrative.
For a growing number of banks, however, that does not seem to matter.
After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.
In the most recent example, banking giant Wells Fargo noted last month what it called "considerable attention and controversy" around mountaintop removal mining, and said its involvement with companies engaged in it was "limited and declining."
The bank was a small player in the sector, representing about $78 million in bonds and loan financing for such firms between 2008 and April of this year, according to data compiled by the Rainforest Action Network, an environmental group tracking the issue.
But the Wells Fargo policy shift follows others over the last two years, including moves by Credit Suisse, Morgan Stanley, JPMorgan Chase, Bank of America and Citibank to increase scrutiny of lending to companies involved in mountaintop removal -- or to end the lending altogether.
And HSBC, based in London, has curtailed its relationships with some producers of palm oil, which is often linked to deforestation in developing countries. The Dutch lender Rabobank has applied a nine-point checklist of conditions for would-be oil and gas borrowers that includes commitments to improve environmental performance and to protect water quality.
In some cases, the changing policies represent an attempt to burnish green credentials in areas where the banks had little interest, and there is no indication that companies engaged in the objectionable practices cannot find financing elsewhere.
Still, banking analysts and others suggest that heated debate over climate change, water quality and other environmental considerations is forcing lenders to take a much harder -- and often uncomfortable -- look at where they extend credit, and to whom.
Environmental risk has been on the radar for lenders since the 1980s and early 1990s, when courts began forcing some measure of responsibility on banks.
Congress passed a law in 1996 that limited lenders' exposure on this front, but since then, most major banks have developed environmental risk management divisions as part of their commercial banking due diligence efforts.
Now, the rise of murkier issues like global warming, along with increasing scrutiny by environmental groups of banks' investments in many other industries -- like oil and gas development, nuclear power, coal-fired electricity generation, oil sands, fuel pipeline construction, dam building, forestry and even certain types of agriculture -- are nudging lenders into new territory.
"We're taking a much closer look at a much broader variety of issues, not all of which are captured under state and local laws," said Stephanie Rico, spokeswoman for Wells Fargo's environmental affairs group.
U.S. mountaintop removal mining has become both increasingly common and contentious, as coal companies vie to feed the nation's appetite for inexpensive electricity. An expeditious and high-impact form of surface mining, it involves blasting off mountaintops and dumping the debris in valleys and streams below.
A report in May by the Sierra Club and the Rainforest Action Network estimated that nine banks were the primary lenders for firms engaged in mountaintop removal mining in Appalachia, and that they had provided nearly $4 billion in loans and bond underwriting to those companies -- chiefly, Massey Energy, Patriot Coal and Alpha Natural Resources -- since 2008.
Citing Bloomberg data, the group noted that Bank of America, listed as recently as 2008 as one of the "syndication agents" on a $175 million revolving line of credit to Massey Energy, has eliminated that and all other Massey connections.
The group also pointed to JPMorgan, previously underwriters for $180 million in debt securities to Massey, which no longer has any financial ties to the company. In May, the bank said it would be subjecting all future engagements with firms involved in mountaintop removal mining to "enhanced review."
Roger S. Hendriksen, Massey Energy vice president for investor relations, suggested that environmentalists were overstating things, and that his company was having no trouble securing financing. "While some banks no longer provide financing for companies conducting surface mining, there are many who will," he said. "We have and will continue to replace their services with alternate bank providers with little difficulty."