Can sustainability help JPMorgan Chase bounce back?
Even as JPMorgan Chase has incurred billions in losses from botched trading, acknowledged by its CEO Jamie Dimon as an “egregious mistake,” the stalwart bank has been enthusiastically supporting a new environmental strategy that spans all of its businesses.
In a particularly creative move, the bank recently announced it is financing an initiative in New York City to help building owners cover upfront costs of converting old boilers to natural gas. It is also encouraging home owners to make their homes more energy efficient through improvements that may be eligible for tax benefits.
Matthew Arnold, the Head of the Office of Environmental Affairs, sees the move as the sort of innovation he hopes the bank can achieve across businesses to help solve real-world environmental problems.
Appointing Arnold -- former leader of PwC’s Sustainable Business Solutions, co-founder of Sustainable Finance Ltd., and COO of World Resources Institute -- to the top environmental position a year ago was something of a coup for the bank. In Arnold, JPMorgan Chase has lured not just a daring environmental thought leader, but also a well-known implementer of sustainability projects.
On the risk management side, Arnold’s complement is Andre Abadie, Head of Environmental and Social Risk Management, also a former director of Sustainable Finance, as well as head of ABN AMRO’s Sustainable Business advisory group, where he co-authored the Equator Principles, the framework some 70 banks now use to manage environmental and social risk in project financing.
A year into the job, Arnold says his broad mandate to implement an “environmental strategy for every line of business has been met with nothing but support from senior leadership to bankers in all of our businesses, who all want to conduct first-class business in a first-class way.”
He said the various lines of business and the environmental team are collaborating extensively to engage clients and develop sustainability solutions. The growing collaboration has to do partly with the current need for new ideas and sources of innovation. “At its best, this collaboration drives innovation, new solutions and new ways to serve clients and their businesses,” Arnold told me.
Much of the value of the Arnold-Abadie team includes “building new revenue,” says Arnold, through products like the new energy-efficient mortgage.
He adds: “If we start winning business because we’re good at sustainability, that’s revenue, too. As we introduce our work to the bank’s businesses, they’re thinking of us as a way to strengthen relationships with clients, so that helps drive their revenue goals. On the product side, the bar is higher, because they don’t think of environmental professionals as coming up with those types of solutions.”
Image of Money Tree by Mopic via Shutterstock.
While there have been satisfactions aplenty from introducing sustainability measures, products and metrics into the mainline businesses, there are challenges. “With our clients in extractive industries, there’s a more explicit understanding on the part of bankers that [sustainability] is a real issue and we work closely with them to reconcile the trade-off between environment and development," says Abadie.
But there’s a general concern that sustainability means saying no, adds Arnold.
“We get set up as regulators or cops within the bank,” says Arnold. “So the challenge is to position this function as a client service proposition that says we want to understand our client businesses as well as possible and support best practices, and it’s a way of differentiating us in knowing our client business and adding value. You earn that one heart and mind at a time by being with clients who see that our perspectives are refreshing, positive and solution-oriented.”
One particularly thorny new issue: hydraulic fracturing, or “fracking,” a process of drilling and injecting fluid into the ground to fracture shale rock and release natural gas, a procedure that has caused much public concern.
To address the issue, Arnold and Abadie have set up a joint fracking task force between the two teams to communicate with the investment bank, commodities business and risk-management groups. Explains Arnold: “We’re having a natural-gas boom in the U.S., and closely behind are other countries. Lots of our clients are deploying new techniques of horizontal drilling, exploring for gas in places that didn’t have it before. There are infrastructure issues, pressure on roads, concerns about water and so on.”
The team’s two aims, says Arnold, include, first, to set “due diligence procedures that we’re deploying across all of our clients,” including those involved in exploration, production, and natural gas development in general, and second, to “engage with industrial leaders, NGOs, and other banks around best practices.”
The goal: “Try to understand the facts and sort out real risks and opportunities, in an area where there’s lots of polarization and strong views.”
In an effort to initiate an industry-wide approach to the volatile topic, JP Morgan Chase plans to make its due-diligence approach available to other banks. It is preparing a public version, which it will share with NGOs and other banks in the next few months. Says Arnold: “When banks confront a new issue, it’s often helpful to understand it together.”
Looking ahead, Arnold foresees renewed initiatives in the “big new areas” of energy and extractives (oil, gas, mining), as well as resource efficiency. Arnold and his team are looking for ways that financial services can accelerate deployment of cleaner technologies in areas like water, energy and resource efficiency.