It’s likely that when First National Bank announced it had made a short list of “standout” commercial banks for its commitment to ESG, some had to type “ESG” into their computer search engines, looking for a definition.
But companies operating globally, as well as large U.S. corporations and credit rating agencies, have had environmental, social and governance (ESG) principles and values squarely in their sights for several years. A growing number of institutional investors have steered their money toward companies that are environmentally and societally responsible and that operate in a transparent and equitable manner.
This spring, Coalition Greenwich, a global provider of strategic benchmarking, analytics and insights to the financial services industry, researched how well U.S. commercial banks were reflecting ESG principles and values. Coalition Greenwich asked more than 20,000 small business and middle-market executives to assess their banks’ commitment to ESG. The banks that received the most consistently excellent ratings were named to the list.
“We were proud to be one of only nine banks nationwide to be recognized as a Standout for ESG,” said Brent Semachko, Pittsburgh, Pennsylvania-based FNB’s director of corporate responsibility.
He listed some ways in which FNB, with its five locations in the Wilmington market, addresses social concerns.
“Our company stresses the importance of community engagement and leadership. You can see that philosophy reflected in Wilmington with the many ways our local team gets involved with the organizations and initiatives that are shaping the region’s future,” Semachko said. “I believe you’re aware that Spence Broadhurst chairs the New Hanover Community Endowment, and our market executive, Sandy Spiers, serves on the boards of multiple local organizations, including the Girls Leadership Academy of Wilmington (GLOW) Foundation, the University of North Carolina Wilmington (UNCW) Foundation, the UNCW Cameron School of Business,
StepUp Wilmington and the Cape Fear Boy Scouts Advisory Board.”
Other FSB initiatives aimed at strengthening the community involve increasing financial literacy, stimulating job growth, creating affordable housing opportunities and championing overall social and economic development, Semachko said.
In its recent Corporate Responsibility Report, FNB described several ways in which it strives to be a good environmental steward.
“We integrate efficiency and sustainability considerations into our strategy for the construction, renovation and maintenance of our properties as well as our guidelines for employee behavior and the paperless options available to customers,” the report states. “One example of how we bring this approach to life is the nearly 250,000 square feet of LEED-qualified space we will occupy through our prominent towers in Raleigh, Greensboro and Charlotte, NC, and the completion of FNB Financial Center.”
“Throughout our footprint, FNB has embraced sustainable offices and sustainable practices, such as recycling,” the report continues. “We recycled 1,900 tons of paper over the past two years, saving more than 30,000 trees. In addition, we hope to accelerate the energy savings and the reduced carbon footprint offered by our Clicks-to-Bricks strategy, which enables a wider range of paperless transactions and transactions that can occur without a trip to a bank branch.”
ESG is on the minds of bankers in North Carolina, but there is no guiding legislation yet from the General Assembly, said Peter Gwaltney, president and CEO of the N.C. Bankers Association. North Carolina lawmakers, like those in some other states, might pass legislation to restrict banks from doing business with certain industries or kinds of businesses.
“On one end of the political spectrum, it might have to do with oil and gas or anything energy-related to [promote] the transition to a carbonless economy,” Gwaltney said. “Or it might have to do with gun manufacturers or retailers.
“Our position is that we believe policymakers should not use ESG or Fair Access legislation to allocate capital in the economy. The banking industry should be free to lend to and do business with any entity that’s legal. Banks are under close scrutiny by our regulatory agency; we’re examined every 12 to 18 months on governance. On the social side we have the Community Reinvestment Act. We’re examined every year to 18 months on compliance with that; if we don’t earn a satisfactory score we are limited. It’s really the environmental piece we’re watching the most.”
Gwaltney cited the banking industry’s concern about the SEC’s increased reporting requirements on a publicly traded company’s carbon footprint and the footprints of other companies with which it does business.
“We question how feasible it is to measure the carbon usage of a company for disclosure and reporting so investors can look at a company and decide if they want to invest,” Gwaltney said, adding there is concern in his organization about the validity of ESG scores that credit rating agencies assign to companies.
Steve Coggins doesn’t hear much about ESG in local circles. Coggins, managing partner and chief investment officer of Irongate Partners in Wilmington, thinks ESG is a larger concern among institutional investors than it is among individual investors.
He noted that some larger mutual fund companies that sponsor ESG funds can be very influential because they may have large ownership stakes in public companies.
“BlackRock, which is known to be politically active, has an ESG agenda. If you’re looking for an ESG fund, you may see one from BlackRock. But they are not going to ask you how you want to vote on a certain proposal. They have the ability to vote the way they themselves deem appropriate.”
Part of the challenge in ESG investing has been ESG-focused companies’ performance, Coggins added.
“People can end up bailing out of those stocks over time if they don’t perform,” he said. “Overall, at this point, the ESG funds have under-performed the general markets but yet there are people who invest not just for the performance but for their own conscience. I respect that.”