British Fund Management asks HSBC for explanation over Samling IPO
SRI manager Waygood says it would be of 'deep concern' if bank has failed its vetting procedures for projects after role in listing of Samling. The firm's Guyana unit has had its permit revoked by the Forestry Stewardship Council.
By Cecilia Valente (Thomson Investment Management News)
LONDON (Thomson IM) - Morley Fund Management, the asset management arm of Aviva, has asked HSBC, one of the banks included in its Socially Responsible Investment (SRI) universe, to explain its involvement in the IPO of a controversial logging company.
HSBC, together with Credit Suisse and Macquarie, advised Malaysian logging firm Samling on its listing in Hong Kong last month, which raised 2.18 bln hkd.
In January, Samling's subsidiary operating in Guyana, Barama, was subject to the suspension of the voluntary forest certification by the Forest Stewardship Council (FSC). The suspension occurred six months after the FSC had awarded it.
In a statement, Barama said it had to tackle some 'corrective measures' before the suspension could be lifted, including worker amenities, staff health and safety practices and monitoring of non-timber activities such as mining activities conducted by third parties within operational areas.
Morley, which manages about 1.2 bln stg in SRI funds, has written to HSBC to seek clarification over the IPO. The fund manager does not include Credit Suisse or Macquarie in its SRI products.
Steve Waygood, the head of SRI engagement at Morley Fund Management, told Thomson Investment Management News: 'I have asked the company to provide us with reassurance that it (the IPO) is one instance, but first of all that in this instance they went through the relevant procedures,'
HSBC embarked on the IPO project after playing a prominent role in the establishment of the ethical code known as The Equator Principles, which applies to project financing.
HSBC adopted the principles in 2003 and was instrumental to updating them last year, lowering the threshold from 50 mln usd financing projects to 10 mln usd. The updated version of the nine principles were extended to finance advisory activities.
Morley's Waygood said that allegations put forward by organisations such as pressure group Global Witness, that the banking group had overlooked its ethical principles, were yet to be proven.
But he added: 'There appears to be some substance in the allegations, in which case it would remain to see whether this was a procedural oversight or (whether) having gone through the procedures, they came to a different view. I would be interested in having this discussion with them,' he said.
A spokeswoman for Global Witness, which campaigns against exploitation of natural resources, said: 'HSBC took relevant steps to develop the Equator principles, and it is all very well, but we want to see the bank applying its standards to all of its operations.'
HSBC is currently encouraging its online banking clients to switch from paper statements to online statements to plant trees. It says it was committed to plant 20,000 trees this year.
The Global Witness spokeswoman added: 'They obviously take it seriously, but are all HSBC departments taking this seriously? It makes you wonder: do all HSBC departments talk to each other?'
Morley reviews and updates profiles on the companies it invests in annually. HSBC's profile was 'relatively recently' updated, Waygood said.
'I remember seeing in their profile policies on implementing very good principles and one of the distinguishing aspects is that, compared with other banks, they do very well on our evaluation score for the management of their sustainability risks,' he said.
“There appears to be some substance in the allegations.”
Steve Waygood, Morley head of SRI engagement
'We are supporters of HSBC's work on corporate responsibility, we think that in certain areas they have led the way in considering how sustainability issues should play out in banking,' he said.
'It is fair to expect that whenever a company, particularly a high profile company, tries to tackle sustainability issues, it will get these kind of allegations, so it is not something I am not hugely concerned about,' he said.
'It would be a deep concern if it (HSBC) had not go through due procedures and they had no way of rectifying in the future, support they give to companies to list and in the project finance,' the SRI executive said.
'One of the elements of this matter is that HSBC is extremely ambitious and that is to be welcomed, but in order to encourage and promote that ambitious work, we should not come down on them like a ton of bricks, wherever they get it slightly wrong,' Waygood said.
HSBC said in a statement: 'When we issued our policy in 2004, HSBC was the first commercial bank to adopt the Forest Stewardship Council (FSC) or equivalent as standard of good forest management.
'At the time we recognised that some our customers were already compliant with this approach, but that others may need some time and help achieve compliance with our policy within five years of the date of issue of the guideline.
'HSBC is prepared to deal with customers who do not have full FSC or equivalent certification, provided they are committed to achieving such independent certification and are following a credible, time-bound action plan to achieve certification.'
Macquarie declined to comment.
Credit Suisse said: 'Credit Suisse critically examined its business relationship with Samling by carrying out a comprehensive internal risk analysis, which focused in particular on adherence to both local environmental provisions and international standards of sustainable forestry. Credit Suisse is convinced that Samling meets these standards, as are its partner banks involved in the IPO.'
Speaking of Barama's suspended FSC certificate, it added: 'Samling's management has provided credible assurances that it will resolve the objections that have been raised so that the certificate can be reissued as soon as possible.'
Since the FSC suspension, Barama has met in Bonn with the Guyana Government, FSC International, the WWF, and independent accreditation body Accreditation Services International, to discuss the matter.
Auditor SGS, which carried out the assessing work for Barama's FSC certificate, was not present at the meeting.
Barama said in a statement that although potentially entitled to an appeal to the suspension, it decided not to. The spokeswoman said Barama is currently not able to set a date for its application to have the suspension lifted and the certificated renewed.
(20 April 2007)