Environmental risks
Category: Corporate Banking
Increasingly, environmental issues have to be taken into consideration when a bank tries to assess a business. This is not due to fashionable trends, but a number of hard facts forcing banks to have a close look at the environmental implications of businesses, their products and their markets.
1. Burdens of the past: Environmental pollution
Environmental pollution is of the greatest concerns for companies operating in industries like, e.g., chemicals, coal, steel, plastics, paper, electricity and so on. These industries either consume large amounts of natural resources such as water, land or forests, or their production processes tend to produce waste that contaminates air, water and soil. Their products may do the same:-car exhausts pollute the air, detergents are spilled into rivers, herbicides may even enter the human food chain. Contaminated soil makes real estate worthless for collateral Fehler! Textmarke nicht definiert., so a bank must check on pollution control when lending to industries that could be environmentally dangerous.
2. Legal and official regulations
Businesses in Western countries are facing tough environmental regulations. Governments have set strict standards which decree who is allowed to emit how much pollution. These rules are strictly enforced, if necessary by the police. If a company violates the pollution standards, if only by neglect, it can be held liable to pay for the damage done to the environment. Certain ingredients which are harmful to human health are no longer allowed to be used in consumer products.
A bank has to watch closely any new regulations being issued. Long-term lending to companies which use environmentally doubtful materials should be reconsidered. The least that pollution control does to companies is to drive up costs. But it can even cause their products to vanish from the market: Styrofoam cups, for example, have all but disappeared; they were replaced by the good old-fashioned paper cup or by glassware.
3. Alterations in consumer behaviour
Consumers have grown ever more environmentally conscious. Most people simply refuse to buy many products, like detergents, if they are not biodegradable. Even the decision which car to buy is influenced by the amount of exhaust emissions produces. Smart companies have turned this trend in consumer behaviour into profits: so, food producers who can guarantee that their vegetable and meat contains no unnatural ingredients are able to charge higher prices. Any company that does not comply with these customer demands would find itself in a problematic position sooner rather than later.