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Major companies often borrow money from banks to keep their businesses running smoothly. They use that money to develop resources. The money is paid back after the resources are marketed. This method of doing business has been common practice for a very long time.
However, there appears to be a change in the larger banks according to a report in the New York Times on Aug 30, 2010. Banks are beginning to turn businesses down if they operate processes that might appear to be environmentally risky in any way. For example, Wells Fargo announced they would be limiting and reducing their involvement in businesses that draw “considerable attention and controversy” such as mountaintop mining. Other major banks such as HSBC have withdrawn support for some companies involved in producing palm oil are making similar decisions. Environmentalists have complained that the production of palm oil leads to deforestation.
The reports did not say that regulators were putting any pressure on these banks. However, it does appear strange that they would walk away from operations that have been so profitable to them and the companies are not doing anything that is illegal.
Some experts speculate that this is just a natural progression as banks work to reduce any risk or loss of reputation if they work with a company with a bad environmental track record. While Congress did limit a bank’s liability with legislation passed in 1996, they continued to develop stricter environmental guidelines. It appears that they are now pulling their heads deeper into their shells now.
This may just be an opportunity for the smaller banks to step up or private capital investor groups could improve their returns by picking up this market. We may be witnessing a change in who is handling the purse strings. Whether that is a good or bad thing is yet to be determined.