HSBC irks fund managers over Samling support

South China Morning Post
4 April 2007

Money guardians question the banking giant's standards on
social responsibility

Byline: Cameron Dueck

Money managers in New York and London who invest only in socially
responsible companies say they may sell shares of HSBC Holdings
because the bank appears to have violated its own social and
environmental standards by arranging Samling Global's initial public
offering.

HSBC, along with Macquarie Bank and Credit Suisse, in February
arranged the HK$2.18 billion Hong Kong initial public offering for
Samling, a Malaysian logging firm with a chequered record of
environmental and social responsibility.

The deal irked managers of ethical funds, known in the industry as
socially responsible investment (SRI) funds, who have long been keen
backers of HSBC's record.

"I've been a strong supporter of that work, but it does raise concerns
if the policies that are being published appear not to be implemented
on the ground," said Steve Waygood, the head of SRI engagement at
Morley Fund Management.

"It may mean that they are downgraded sufficiently enough to get them
removed, to mean that they are no longer acceptable for our
sustainable responsible investment funds. That does remain to be
seen."

Global banks are increasingly held accountable for not only their own
actions but also those of the companies and projects that they
finance.

In 2003, a group of international banks, including HSBC and Credit
Suisse, signed the Equator Principles, pledging to only finance
projects that met certain environmental and social standards. The list
has since grown to 46 banks.

While the Equator Principles apply only to project finance, most banks
also have internal rules on corporate social responsibility (CSR) so
they can market to fund managers who make their investment decisions
based on such issues.

Innovest, which researches corporate environmental, social and
governance issues for institutional investors, has found plenty of
complaints against Samling and said working with the company broke
HSBC's own rules.

Innovest claimed Samling was logging primary rainforests without
having obtained formal certification for sustainable forest management
or proper processes in place to deal with its conflicts with
indigenous peoples.

The company had also been accused of illegal logging in Cambodia and
Papua New Guinea and was found non-compliant with Forest
Stewardship
Council standards in Guyana, Innovest said.

"Samling has never been rated by Innovest, but if it were, it would
likely be rated a CCC," said Gregory Larkin, an analyst at Innovest.
"HSBC's underwriting of Samling's IPO seems to be in clear violation
of the bank's own forestry standards."

Although Credit Suisse was the lead underwriter of Samling's initial
public offering, HSBC has attracted the most criticism for its role in
the deal because of its work to promote its image as an environmental
and social champion.

HSBC has won many awards for such activities. It was the first global
bank to go "carbon neutral", meaning it buys credits for its carbon
emissions. The bank also offers to plant trees on behalf of customers
who choose to receive their monthly account statements electronically
rather than on printed paper statements.

Many of the fund managers interviewed for this article said HSBC had
not been forthcoming with information on the Samling case when it was
requested - a departure from the bank's usual proactive relationship
with SRI managers.

HSBC declined repeated requests for comment. Credit Suisse said it
saw
that Samling had cases of damaging social and environmental
behaviour
in its past as well as under current review, but it was satisfied with
the firm's internal policies and overall present behaviour.

"It was after looking at the overall picture that we said yes, we can
go with this, it meets our standards," said Alex Biscaro, a Credit
Suisse spokesman.

"We have had some discussions with SRIs on this question, but it's
certainly not the situation that we have felt, or been put under any,
pressure. On the contrary, the talks have been in a very constructive
manner."

Macquarie declined to comment.

Adam Kanzer, the managing director and general counsel of Domini
Social Investments, said HSBC's involvement in the Samling offering
"appears to violate their own forestry sector policies" and has
written HSBC a letter seeking an explanation.

"If we determine that the bank does not appear to have credible
systems in place to implement its policies, it is possible that they
could be removed from our approved list of stocks at some point in the
future. Right now, it is too early to tell," Mr Kanzer said.

However, he said HSBC had demonstrated strong environmental
policies
in the past and generally a company was not dropped for a single
infringement.

"Like other investment approaches, SRI is not about defining a list of
good guys and bad guys. It is an iterative process based on a variety
of judgment calls that change as new information becomes available
and
as companies change their practices," Mr Kanzer said.

HSBC is a favourite stock with individual investors, and perhaps it is
from ordinary investors familiar with the bank's global image that the
Samling case draws the most criticism.

"It's not right that a bank like HSBC can be collecting awards in
London for its CSR and environmental practices but then, when it
comes
to the backwaters of the world, their actions are very different" said
Dylan Tanner, a US investor with holdings in various SRI funds.

Socially upright

Lipper lists 662 ethical funds with total portfolio exceeding US$95
billion

Amount raised in the IPO by Samling Global in HK$:

2.18b


Caption: Innovest says Samling is logging primary rainforests without
proper certification and compliance with forest stewardship standards.


Publication - Date: 04.04.2007
Page: 03