These are the risks, but it would also be wrong to ignore the opportunities that environmental protection can provide for banks and other financial institutions. Most obviously, the costs of cleaning up pollution and the need to invest in environmentally friendly technology imply the need for finance, either from the banks or the capital markets. Just to take one small example in the Hong Kong context, the Government’s initiative to persuade diesel taxi owners to switch to LPG taxis creates the chance for the banks to finance the purchase of the new vehicles. Banks also need to bear in mind that while there will be losers from the drive to cut pollution, there will also be winners in the shape of those companies which can exploit the new technologies to curb emissions. Another by-product from efforts to combat climate change will be the growth of emissions trading between companies. Such trading allows companies that can reduce their carbon emissions below allotted targets to sell their surplus credits to those companies that cannot reach their targets. Admittedly, the immediate future of emissions trading is in some doubt following the Hague conference, but it still has the potential to become a major commodity market. If so, there will inevitably be a role for financial institutions to broker deals between buyers and sellers of emission credits, and perhaps to take positions themselves. Finally, banks and other financial institutions can profit from the growing public awareness of environmental issues by offering “green” investment products.
One point that is particularly relevant to banks that finance companies or projects in countries like China is that the rules of the environmental game can change very quickly. The authorities in China are getting serious about cutting emissions and pollution, as the requirement by the Beijing Municipal Government on the Shougang Steel Group to cut back its output has shown. The problem in China is that regulations are not always strictly enforced. But this can change overnight, resulting in major compliance problems for the companies concerned and increased risk for the banks that have lent to them. Hong Kong banks which lend into China would therefore be well advised to keep this in mind. Finally, banks should pay close regard to their own “corporate ecology”. Banks can contribute to environmental protection by the way in which they manage their use of resources in their own operations. In this way banks can be responsible corporate citizens while at the same time reducing business costs. The type of measures that can be adopted include saving on energy consumption, recycling of paper, waste management, purchasing environmentally friendly products and use of video conferencing to cut down on unnecessary travel. Use of office automation such as email can also help to reduce the consumption of paper, provided of course that staff can be encouraged not to print out the messages.