By Fritz Nelson, TechWeb TV
Brazil just sounds exotic: the rain forest, the Amazon. My yardstick usually consists of how many shots and pills CDC recommends, and leaving the clinic I felt like A-Rod on my way to batting practice. But we journeyed to Sao Paulo, far from the Amazon, and our mission was much more pedestrian: to explore Banco Real. What we found wasn't exotic, but alluring: a bank that has taken eco-leadership to fertile ground in a country basting in the politics of green.Here is our documentary.
In the past year, I've talked with banking executives and experts in several countries about the environment, and about risk management, but never both combined. I expected to hear echoes of past conversations: rethought data centers, travel cutbacks, video conferencing, telecommuting. Or on risk management: counterparty risk, financial crime, regulatory risk, IT risk.
Environmental risk management seems less tangible, like a social cause or a general and aspirational corporate responsibility. Yet it can have surprisingly positive impacts on banks. This isn't simply about going from paper-based bank statements to electronic ones; this is about doing more than just your company's part, about extending your influence out into the world, and compelling (and sometimes commanding) others to do the same. One small, but meaningful example: lending to a company that is doing something harmful to the environment becomes the bank's problem if the company is forced to re-invent itself or its processes, or pay fines, or clean up accidents.
Brazil: "Victim and Villian"
Banco Real, now part of Grupo Santander Brazil, began its green journey earlier this decade under the leadership of its CEO, Fabio Barbosa. Although this is not a company that relishes in shining a spotlight on individuals, achievements like this don't happen without buy in from the top, and in Banco Real's case that buy in came in the form of impetus and an unwavering discipline toward a mission. Sure, Banco Real wanted to good; it also wanted to do well, and so its earliest green musings turned quickly into a risk management strategy that has increased its popularity with its customers and propelled its growth.
It is instructive to examine Banco Real's home. While it is tempting to view Brazil as simply a developing economy, it can also be quite cosmopolitan. Sao Paulo's population is one of the world's largest, more than doubling that of New York City. We stood atop one Grupo Santander building on a street called 15th of November (so named to commemorate the date of independence from Portugal) in the old financial district, with a view of a city that didn't seem to have an end.
Roberto Smeraldi, Director of Amigos da Terra (Friends of the Earth), called Brazil "both victim and villain" in the eyes of the world. It is, perhaps, a symbol for how fragile the line is between promise and peril.
Brazil is home to more than a third of the world's remaining rain forests, and as such, it is the earth's largest absorber of carbon dioxide. Its biodiversity is unmatched, making the region a palpable symbol of our planet's deteriorating health.
Yet those rain forests are plundered, regularly and illegally. The fish in Brazil's waters are also a source of an underground economy. And many of these illegal trading systems regularly exploit workers. Deforestation has made Brazil the world's fourth biggest contributor of greenhouse gases, the traffic we saw in Sao Paulo was out of control, and a great deal of the water is tainted; in fact, less than 10 percent of wastewater is treated.
But there is more promise than peril. One of Brazil's main crops is sugar cane, and the arable land to plant it is plentiful. Sugar cane is used to produce ethanol in a form more potent than the kind that comes from corn. It is said that Brazil has enough sugar cane to produce ethanol to drive a large percentage of the world's automobiles if every single car ran solely on ethanol. Some reports say that 80 percent of the country's electricity comes from hydro-electric plants, and as much as a third of its fuel consumption is from ethanol.
A Bank of Value
With so much at stake, Banco Real saw itself with an obligation that surpassed its own financial statements. So it began, among other things, an ecologically stringent lending process. Not only does it require companies to meet certain standards, it scrutinizes those companies with surveys, intense interviews; it evaluates available public data, even makes site visits, and then crunches some of that data using analytic tools. If you aren't green, you don't get money; and even if you are, Banco Real helps you strengthen those practices.
It is looking for companies that do things right, from treating their workers equitably and with dignity, to creating diverse workforces; from having adequate waste disposal, to cleaning up contaminated land.
Some might question whether such stringent lending practices are wise in such troubling economic times. Isn't this just the crux of the risk management debate when it comes to environmental risk? How "good" can you afford to be? Chris Wells, who heads up environmental risk management at Banco Real, sees things clearly here, saying there is great coincidence in a company that performs poorly financially and has inadequate environmental standards. "I've rarely seen a company that is great environmentally, and terrible financially," he said.
Wells should know. He's been doing this for a long time, and has formed alliances with outfits like Amigo Da Terras and the United Nations Environment Program - Finance Initiative (UNEP FI). Together they give talks and run education programs aimed at helping organizations succeed in just this sort of thing.
Banco Real continues to lead. It developed an ethical mutual fund, launched a comprehensive employee diversity program, and created a microfinance initiative called Real Microcredito. And it is nowhere near being done.
Now let's hope it can influence the new parent company, Grupo Santander, and provide leadership from within.
Fritz Nelson is executive producer of Techweb TV, a sibling operation and partner to Bank Systems & Technology.