Strategy

How Green Was My Balance Sheet?

A Q&A with environmental rainmaker Michael Brune.
Marie LeoneMarch 23, 2006

Calling them tree-huggers wouldn’t be wrong. In fact, the Wall Street Journal called the Rainforest Action Network (RAN) “the most effective environmental agitators in the business.” And the group’s mission is to save trees by halting destructive deforestation and its attendant climate-change and human-rights problems.

But the 21-year-old group—with its 30 staffers and $3 million budget—does more than wave anti-logging posters and protest outside the homes of corporate managers. To get companies to adopt pro-environmental policies, RAN has been known to squeeze corporations by choking off their revenues and blocking their bank financing. Indeed, the activists can play a good deal of hardball, drawing on their access to Henry Paulson of Goldman Sachs, Charles Prince of Citigroup, and dozens of other prominent CEOs.

As the Sundance Kid said to Butch Cassidy as the two were being dogged by a relentless posse in the 1969 western: “Who are those guys?” A candid talk with Michael Brune, the executive director of RAN, offers clues.

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Is it fair to say that RAN’s strategy is to “follow the money?”

Yes, we use that phrase a lot. We’re somewhat unique in the social- change movement. Our strategy, in general, is to “bypass the middle man,” which means we don’t focus on Congress or the White House but go to the source of the problem. Eight or 10 years ago we started market campaigns. [As part of that effort] we train our staff and campaign workers to think like CEOs. We ask ourselves, if I’m a chief executive, what do I care about?

What answer did you come up with?

If you’re Boise Cascade’s CEO, [for example] you care about where you sell paper and wood, and where you get your financing. So, [to get Boise Cascade to adopt an environmental policy] we went to the marketplace first, to Boise-Cascade’s customers, like Home Depot. We convinced Home Depot to start phasing out wood products that were not certified as coming from well-managed forests. We went to 400 other companies in the Boise-Cascade campaign. It took a few years, but Boise Cascade adopted a corporate environmental policy in 2003.

RAN also convinced major banks to adopt policies that halt or limit lending to companies and projects that you consider destructive to the environment. How did you get a seat at the table with Citibank, JP Morgan Chase, Bank of America, and Goldman Sachs?

By asking repeatedly, and being persistent. It was very hard. During the 1990s, the banks wouldn’t even return phone calls. But we have a good track record of pressuring companies [into adopting environmental policies] and then applauding them publicly when they do.

What kind of pressure are you talking about?

Years filled with advertisements on CNN and in the New York Times. Protests at bank branches and in front of CEO’s homes. When Sandy Weill [former chairman of Citigroup] was vacationing in Europe, we took out an ad in the International Herald Tribune. We create pressure by raising awareness, and then investors, employees, and customers usually ask how they can help. Executives get it from all sides.

Did the idea to cut off corporations from their bank financing originate at RAN?

Banks have been pressured by activists for decades, during apartheid and the Vietnam War, for example. But we may have been the first to put pressure on banks not to finance environmentally destructive projects. In 2000 we started with Citigroup. They were the largest lender to extractive industries such as logging, mining, oil and gas.

How do you track down project lenders? That kind of information is usually not listed in 10-Ks.

Most of our information is publicly available. Banks usually don’t want to go into these projects alone. A project financing is set up with a lead banker who looks to attract other investors. We track lenders when they go to the capital markets, using several databases, project software, even Google—all different methods. Sometimes we’ll get leaked information from employees.

Banks don’t stop lending for altruistic reasons. Banks scrutinize the balance sheets of potential borrowers. Is there a balance-sheet angle at work here?

Yes. Environmental liabilities add a risk factor [to the balance sheet] when banks [look] at proposed transactions. Other risks that banks look at include shareholder litigation, reputational risk, or lack of insurance coverage. From a conceptual standpoint, we did the same things with banks that we did with Home Depot. Slowly, banks are beginning to phase out loans and financing arrangements to companies that promote unsustainable projects.

Do you have an army of MBAs working at RAN? Your finance-centric tactics seem to indicate they you are being directed by a corporate finance strategist.

No, there is no one person or a financial industry insider, although one of our board members is a former investment banker. I studied economics and finance at Westchester University in Pennsylvania, and worked with Greenpeace for four years until I was hired by RAN in 1998 to run the Home Depot campaign.

How do you make sure banks are following the environmental policies they adopted, and are not just paying lip service to the cause?

We take that very seriously. The integrity of RAN and my personal integrity [are] wrapped up in the [positive] claims we make about companies. The RAN staff monitors environmental policy compliance by meeting with companies on a regular basis, and we contact a point person at the company by phone or E-mail at least once a week. Both sides have made a commitment to meet and communicate on a regular basis.

Do you perform a compliance audit on banks and companies?

No, not an audit in the formal sense, because there is a lot of proprietary information that we don’t have access to, although we’d like to see it. Banks don’t show us their lending portfolios [for example.] But transparency is a big issue when we do an examination, and companies are fairly helpful.

Critics of RAN and other environmental activist groups say corporations are in business to make a profit for the majority of shareholders, not to follow the wishes of a shareholder minority. Is RAN constraining the free market?

I don’t take claims like that seriously, that the sole purpose of business is to make money. Companies also play a role in contributing to the community by providing jobs, a safe work environment, being a good neighbor, providing a good return to investors, and beneficially impacting the environment. It’s naïve to assert that making money is the sole goal. It flies in the face of reality.

What’s your take on the conflict-of-interest charges made about Goldman Sachs’ Henry Paulson by the Free Enterprise Action Fund? (FEAF points out that Paulson is both chairman of the investment bank and the Nature Conservancy, and says that Goldman’s environmental policy “parallels the Nature Conservancy agenda.”)

[The charge] has no merit. If you talk to Hank, he will tell you that the environmental policy makes good sense for Goldman. [Goldman] customers are increasingly looking to making a profit off of organic food, certified wood products, etc. It’s a growth market and companies want to position themselves to take advantage of it. Goldman Sachs’ investment bankers trade in their advice, and the company is now positioned in the forefront of the environmental trend.

Do you have access to Henry Paulson?

I’ve sat down with Hank, and Sandy Weill, and Chuck Prince, and other CEOs and chairmen.

General Electric Co. also has been accused of caving in to the pressure of environmental activism, including RAN. Would you agree?

Jeff Immelt is an astute business man, and does things for a reason. The idea that 30-something activists would be able to bully a multinational corporation like GE is flattering, but unreal.

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