Dear EarthTalk: I understand that mountaintop removal as a way of coal mining is incredibly destructive. Didn’t a report come out recently that named major banks that were funding this activity? -- Seth Jergens, New York, NY

Yes it’s true that many major banks invest in companies that engage in the environmentally destructive practice of mountaintop removal (MTR) coal mining, whereby the tops of mountains are removed by explosives to expose thin seams of recoverable coal. The wasted earth and other materials are either put back onto the mountain top in an approximation of their original contours, wreaking havoc on local ecosystems and biodiversity, or dumped into neighboring valleys, polluting lakes and streams and jeopardizing water quality for humans and wildlife.

According to the non-profit Rainforest Action Network (RAN), this dumping—especially throughout Appalachia where MTR is most prevalent—“undermines the objectives and requirements of the Clean Water Act.” The group adds that some 2,000 miles of streams have already been buried or contaminated in the region. “The mining destroys Appalachian communities, the health of coalfield residents and any hope for positive economic growth.”

This past April, RAN teamed up for the second year in a row with another leading non-profit green group concerned about MTR, the Sierra Club, in publishing a “report card” reviewing 10 of the world’s largest banks in regard to their financing of MTR coal mining projects. The new 2011 version of “Policy and Practice” takes a look at the MTR-related financing practices of Bank of America, CitiBank, Credit Suisse, Deutsche Bank, GE Capital, JPMorgan Chase, Morgan Stanley, PNC, UBS and Wells Fargo.

What did they find? Since January 2010, the 10 banks reviewed have provided upwards of $2.5 billion in loans and bonds to companies practicing MTR. While some of the banks—Chase, Wells Fargo, PNC, UBS, and Credit Suisse—adopted policies limiting their financing of MTR, few actually pulled funding in place from any such activities upon adopting such policies. Citibank, despite announcing publicly in 2009 that it would limit its involvement in MTR, doubled its investments in the business in 2010.

RAN and the Sierra Club are also keeping a close eye on UBS which, soon after stating that it “needs to be satisfied that the client is committed to reduce over time its exposure to [MTR],” went ahead and acted as a paid advisor on the merger of Massey Energy, which operated the West Virginia mine where 29 men died last year, and Alpha Natural Resources. This merger created the largest single MTR company in the country, now responsible for some 25 percent of coal production from MTR mines.

The report card grades each bank based on its current position and practice regarding MTR investments, and calls on the banks to strengthen their policies and cease their financial support for coal companies engaging in MTR. “The ‘best practice’...is a clear exclusion policy on commercial lending and investment banking services for all coal companies who practice mountaintop removal coal extraction,” says RAN.

RAN and the Sierra Club hope that by exposing the impact these banks are having on the environment through their financing programs, they can help alert the public and policymakers to the need to outlaw MTR coal mining altogether.

Photo: Ilovemountains.org

EarthTalk® is written and edited by Roddy Scheer and Doug Moss and is a registered trademark of E - The Environmental Magazine (www.emagazine.com). Send questions to: earthtalk@emagazine.com. Subscribe: www.emagazine.com/subscribe. Free Trial Issue: www.emagazine.com/trial.

by Jesse Eisinger, ProPublica

Later this month, the Federal Reserve is going to let banks know how they did on its most recent round of “stress tests.”

Banks are eager to bring doctors’ notes to their meetings with investors, displaying their bills of health. They want regulators to allow them to start paying, or increasing, dividends to investors or to initiate stock buyback programs.

This set of exams, announced in November, is Son of Stress Test 2009, a follow-up to the tests the Fed conducted in the wake of the financial crisis.

But something seems different this time around. It’s almost as if the banks knew their results, even before the testing was complete.

Since the end of last year, banks have been bragging about their rude health. Bank of America’s chief executive, Brian T. Moynihan, suggested that the bank would raise its dividend above its current token amount. Jamie Dimon, JPMorgan Chase’s leader, did the same. Warren E. Buffett suggested in his shareholder letter that Wells Fargo was about to pass with flying colors.

Of course, banks ought to have a good idea of the results. They came up with the questions — and the answers.

The Fed gave the banks one economic assumption — a recession — to test their books against, but otherwise the measures were chosen by banks themselves. The Fed just vetted them. Seems like a low bar.

“It’s a take-home exam where you supply the math and then it’s pass/fail,” said Joshua Rosner, an analyst with the independent research firm Graham-Fisher & Company.

Though the Fed isn’t labeling these exams an official banking system stress test, it could be every bit as consequential. Just as the 2009 tests required some banks to raise money — and the most fragile improved their capital to the tune of about $77 billion — this Stress Test Lite could allow some banks to slough off capital.

Unfortunately, declarations of banking system vigor seem premature. Housing has resumed its fall, and many analysts expect national prices to fall on average this year. Commercial real estate is a looming problem. Unemployment remains obdurately high.

In 2009, critics complained that the stress tests were driven by appearances and that the government’s true, and thinly disguised, goal was to shore up confidence in the markets. The conclusion — that, over all, the system was sound — was inevitable.

“The stress tests were designed to reassure the capital markets that the government was not going to restructure the banks,” said Damon A. Silvers, who serves on the Congressional Oversight Panel, which monitors the Troubled Asset Relief Program. “But the capital raises compared to the problem assets were not that big.”

In the first round, the Fed disclosed the economic assumptions, a baseline and an “adverse” situation, which the banks had to test against. (In that event, even the adverse situation for 2009 wasn’t as dire as reality.)

Unfortunately, the central bank didn’t disclose enough information to actually judge the results. The Congressional Oversight Panel enlisted two University of California, Berkeley professors who specialized in banking and risk assessment to judge the tests. They had to throw up their hands.

The two “were interpreting shapes on the wall,” said Eric Talley, a professor of law at Berkeley, who worked on the project. “We couldn’t see what the shapes were, so had to look at residue to see if those were the shapes you would normally want to use.”

This time, the Fed hasn’t made even that cursory amount of criteria public.

The first round of tests was based on self-reported data of asset quality and loss estimates. This time around, that weakness is squared. Now the banks are reporting on their own internal capital plans based on their own asset assessment.

“It could be that banks have been really assiduous about own risk portfolios,” Professor Talley said. “Or it could be that too much control over the process has been handed over to banks. It’s hard to tell.”

While the Fed got hammered by critics who assailed the tests as too deferential to the banks, the central bank was doing something unprecedented and holding the banks to what it viewed as a solid capital standard.

Inevitably, though privately, banks screamed to the regulators about how harsh they were. They were reluctant to do so publicly because we were still in that fleeting period when bankers displayed a modicum of chagrin for the debacle they had caused. That moment has passed.

It would be alarming if the regulators had internalized their complaints. The operating theory of supervision from the Treasury secretary, Timothy F. Geithner, and the banking regulators continues to hold: we can push banks to restructure, without forcing them. Banks can be made to raise capital and reduce their risky activities, largely through encouragement and moral suasion. They can please shareholders and be safe at the same time.

We had better hope that the banks actually are healthy. The banks say ‘Trust us,’ and the Fed is doing just that.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

by James Hyatt

So your company hasn't had an OMG moment over Facebook ethics?

As they say, Good Luck With That.

It has been almost a decade since Congress passed the Sarbanes-Oxley Act in the wake of the Enron, Tyco and WorldCom scandals, seeking to put in place a variety of measures to protect investors and address standards of behavior. Over the years, once-controversial practices about disclosure and ethics have become generally accepted standards.

But the social media explosion - from email and Facebook to blogs and Twitter – is making a hash of once-resolved issues and creating all kinds of new dilemmas.

--Businesses have less and less control over how they communicate with the public, while 24-7 bloggers feel free to snipe away.

--Job seekers find their private lives may no longer be private and employees worry that the boss is electronically looking over their shoulders.

--Consumers can't be sure their account information remains safe and have no way to tell whether favorable on-line comments about products and businesses are legitimate.

--Professionals of all sorts -- psychiatrists, attorneys, school teachers, reporters, and even NFL players – are learning to live with new, often controversial, social media rules. A customer's irate blog can undo months and years of corporate image work. A careless email can sabotage delicate contract talks or M&A negotiations. Failure to protect customer information can result in years of costly litigation. An old party-hearty photo may block a chance at a new job. Hitting “send” without thinking can torpedo an executive’s career.

In just one recent week:

--an email circulating among male employees at the PricewaterhouseCoopers Dublin offices – rating the ‘top 10’ new female recruits, with headshots – quickly went “viral” and drew widespread criticism. (Some tut-tutting newspapers, however, also saw fit to run the headshots as news.)

--an executive at Pacific Gas & Electric in California was put on paid leave after seeking to join, under an assumed name, an online discussion group critical of the utility’s plans to install “smart meters.”

--labor lawyers across the country warned clients that a  National Labor Relations Board (NLRB) office planned an unfair labor practice complaint against an ambulance company for firing an employee who posted negative Facebook comments about her supervisor.

--Britain’s financial regulator, seeking to address insider trading, ordered financial services firm to keep records of employee cellphone calls.

No wonder companies are rushing to build new defenses and adopt new policies to reinforce ethical behaviors and learning how to use social media to react to real-time problems. At the same time, individuals are rethinking their casual attitude about exposing personal information on the Web. And in Washington, government agencies are adopting new guidelines defining acceptable social media behavior.

Defining social media behavior is clearly a work in progress

A year ago, the Society of Corporate Compliance and Ethics and the Health Care Compliance Association looked at what organizations are doing about social media issues. Twenty-four percent of those surveyed said an employee had been disciplined in their organization for activities on Facebook, Twitter or LinkedIn, more often in the not-for-profit sector. But half of the respondents said their organization had no policy regarding employee online activity outside of work.

Technology search firm Robert Half in April asked chief information officers about social networking policies; 38% said their companies have tightened social networking policies, while 17% say the policies have eased. And 55% reported “no change”.

A recent survey by Deloitte of about 1,700 companies found that 26% said they had no social media policy which 34% answered “not applicable/don’t know” even though 84% thought every company should have a social media policy in place.

Your Social Media Profile Can Affect Your Job Prospects

A survey commissioned by Microsoft in December 2009 found that 79% of hiring managers and job recruiters reviewed online information about job applicants, and 70% of U.S. hiring managers surveyed said they’d rejected candidates based on what they found online. “Chances are you already have a reputation online, even if you don’t want one,” Microsoft says.  And three-fourths of the U.S. recruiters and HR professionals said their companies have formal policies requiring hiring personnel to research applicants online.

The survey firm declared that “Now, recruiters can easily and anonymously collect information that they would not be permitted to ask in an interview, and the survey found that recruiters are doing just that.”

Corporate and union attorneys went on alert early in November 2010 when word spread of the NLRB’s unfair labor practices complaint involving the Facebook posting. The NLRB said the company’s social media policies were “overly broad.”  The LegalTimes blog quoted the company as saying “although the NLRB’s press release made it sound as if the employee was discharged solely due to negative comments posted on Facebook, the termination decision was actually based on multiple, serious issues.”

Although an administrative law judge will have to rule in the case, Philadelphia-based law firm Morgan, Lewis & Bockius LLP declared that “all private sector employers should take note of this issue, regardless of whether their workforce is represented by a union.”

You Need a Social Media Policy

Social media behavior “can have real legal and economic consequences for businesses,” writes attorney Michelle Sherman in a Social Media Law Update Blog for law firm Sheppard Mullin Richter & Hampton LLP.

“A post may seem as innocent as an employee expressing a personal opinion.  However, if the person describes herself as working for a particular company, and then speaks on a highly controversial subject, her post could damage the ‘good will’ of the company. Or, the poster may be recommending a product to all of her Facebook friends without sharing that she happens to work for the product manufacturer in violation of fair advertising practices.”

Sherman says adopting a social media policy can show compliance with Federal Trade Commission guidelines about endorsements, and can better protect brand value “by ensuring that employees do not post unflattering material in association with the business.”

One of the most remarkable studies is the 130-plus-page Social Media White Paper, now in its second edition, prepared by Reed Smith LLP.  The paper review 13 areas where social media is impacting business – from advertising and marketing to trademarks – and declares “the key lesson is that rather trying to control, companies must adopt an altered set of rules of engagement.” Well worth a visit.

It has become increasingly common for major companies to issue specific directives on social media behavior.  While most encourage employee efforts to put companies in a positive light, they also spell out acceptable conduct. For example:

(Wells Fargo): “By posting content on this Blog, you expressly grant Wells Fargo (and its affiliates) the right to use or distribute the posted content in any form, worldwide, and in perpetuity.”

(Kaiser Permanente): “Be mindful of the world’s longer memory – Everything you say is likely to be indexed and stored forever, either via search engines or through bloggers that reference your posts.”

(FedEx): By posting to the FexEx Citizenship Blog “you agree not to post or transmit anything unlawful, threatening, libelous, defamatory, obscene, inflammatory or pornographic, or anything that infringes upon the copyright, trademark, publicity rights or other rights of a third party.”

(Mayo Clinic): “Where your connection to Mayo Clinic is apparent, make it clear that you are speaking for yourself and not on behalf of Mayo Clinic. In those circumstances, you may want to include this disclaimer: ‘The views expressed on this [blog; website] are my own and do not reflect the views of my employer.”

(Microsoft): “As a general rule, Microsoft does not review, edit, censor, or, obviously, endorse individual posts. You should ‘be smart’ and, as an employee of the company, you should not only think about how your blog reflects on you as an individual, but also about how your blog affects Microsoft as a whole.”

Concerns go well beyond defining proper behavior and move into legal areas. FINRA, the successor to the National Association of Securities Dealers Inc., stresses that social media postings can violate industry rules about promoting investments and soliciting customers. FINRA says securities firms should take steps to be sure that employees using social media sites for business are “appropriately supervised” and “do not present undue risks to investors.”

The Social Media Business Council, a group of large companies that explore social media issues, posts a free “Disclosure Best Practices Toolkit” online suggesting checklists to help companies and employees “learn the appropriate and transparent ways to interact with blogs, bloggers, and the people who interact with them.”

It makes recommendations on how to deal with bloggers, on how employees should handle personal and unofficial blogging, on how to be transparent in providing rewards or incentives to bloggers, on best practices for third parties acting on behalf of a company, and on best practices for “artistic/entertainment situations where temporarily obscuring the sponsor of a site is necessary and appropriate.” For instance, it is okay to use a pretend blog where someone writes that they may have discovered aliens in their house to promote a science fiction movie. But it is not okay to create “a fake customer blog where the ‘author’ writes: ‘I’d love to go see this movie.’ “

This is the first of a two-part series.   The second part is available here.

James Hyatt, a retired reporter and editor for The Wall Street Journal, has been writing about business ethics and social responsibility issues since 2005.

Some 55 publicly-held U.S.-based companies have now voluntarily agreed to hold annual advisory shareholder votes on executive compensation, according to shareholder advocates who have been pushing for adoption of the practice.

The number of companies with so-called “say-on-pay” votes has increased from only 6 in 2008, when Aflac Inc. became the first to adopt the practice, and 19 in 2009.

“Say-on-pay holds corporate leaders accountable for unjustifiable CEO pay,” said Gerald W. McEntee, President of the American Federation of State, County and Municipal Employees (AFSCME), a 1.6 million member union whose members participate in public pension funds with combined assets worth more than $1 trillion. “Shareowners are demanding sensible pay for performance programs that discourage excessive risk taking.”

In addition to the 55 companies that have adopted say-on-pay votes, companies participating in the federal government’s Troubled Asset Relief Program (TARP) are also required to have annual advisory votes.

More companies are “stating a higher comfort level with the concept” and there are “several companies whose boards have voted to adopt but have not gone public as yet,” said Timothy Smith, senior vice president of Walden Asset Management and a leader in the say-on-pay movement.  Shareholder proposals urging the adoption of annual say-on-pay votes have been filed at 70 companies in 2010, according to Smith.

Votes Are Advisory

The say-on-procedures voluntarily adopted by companies to date generally establish mechanisms that enable shareholders to annually register their approval or disapproval of compensation for senior management.  In most cases, said Smith, the advisory vote is likely to result in “pro-forma” approval of executive pay packages.  However, if shareholders consider compensation excessive, especially when combined with poor corporate performance, investors could vote to register disapproval.

“It puts the (board’s) compensation committee on notice,” Smith said.  “”A stubborn company could ignore it entirely, but I don’t think they would.”  Smith noted that a majority of shareholders at Royal Dutch Shell last year voted disapproval of management pay, prompting revisions of pay packages.  Advisory shareholder votes on executive compensation are mandated in the United Kingdom.

The coalition pressing for say-on-pay reform includes a number of public pension funds, labor funds, asset managers, individual investors, foundations and religious investors.  Denise L. Nappier, Treasurer for the state of Connecticut, said: “Corporate boards have a primary responsibility to their shareholders – and this includes getting input from them on how well the company’s executive compensation ties pay to performance.  These 50 and counting companies deserve credit for listening to their shareowners.”

Smith said a number of financial firms are among the companies recently announcing they adopted a say-on-pay vote, including American Express, Bank of New York Mellon, Goldman Sachs, JPMorgan Chase, State Street, SunTrust Banks and Wells Fargo. Other adopting companies, according to Smith, include Aflac, Ameriprise, Apple, Bristol-Myers Squibb, CVS Caremark, ConocoPhillips, Hewlett-Packard, Honeywell, Ingersoll-Rand, Intel, Motorola, Valero Energy and Verizon.