Today, Wells Fargo announced a major environmental commitment consisting of three 2020 goals: $30 billion in loans and investments in clean technologies, energy-efficient buildings, environmental innovation; $100 million in community grants and increased volunteerism for grassroots environmental initiatives; and energy-efficiency, waste-diversion, green building, and greenhouse gas targets.
What does it take for a major bank to make such a commitment? Why would it do that? In search of answers, I recently talked with Patricia Callahan, senior executive vice president and chief administrative officer at Wells Fargo, and Mary Wenzel, the banks' director of environmental affairs. Following is an edited version of that conversation.
Joel Makower: One of the things that’s interesting about this announcement is that there is so much else going on in your world: the Wachovia integration, foreclosures, Occupy. How does sustainability fit in?
Patricia Callahan: The Wachovia merger is actually finished, and I would say that having the merger done has given us a little more brain space to focus in this area. I’m not sure we could have gotten through the work 12-18 months ago because everybody was so focused on the merger. We continue to focus on foreclosure problems and working in our communities to get things back on track as much as we can influence that.
But we have to look to the future. And we believe that both the business opportunities on the environmental finance side, as well as the opportunities to reduce waste in our business environment, are things that are going to help us be in better condition as a company in the future. And our team members are interested and want this. So we think it all aligns well. We haven't had trouble getting the attention that we need from management to make this happen.
Makower: What’s the business opportunity in sustainability for Wells?
Callahan: There is a big opportunity in environmentally appropriate development. We have an environmental finance group that is very active in alternative energy. We do a lot of LEED building development. If you ask our commercial real estate people, they will tell that you that anybody building a new building today is trying to meet LEED standards, which was not true only a handful of years ago. So we think there’s opportunity in building, in alternative power, in the way farming is done and in other industries.
We also believe strongly that if we’re working with a customer who is not paying attention to the environmental impact that the company has, that it creates more risk for them and for us. It’s consistent with us wanting to do business with companies that are doing things the right way, to do environmental due diligence on operations of our customers. I’m talking about business customers now, not consumers.
Makower: While you’re on that, do consumers care?
Callahan: When we go out to our consumers and we ask them the kinds of things they care about, they tell us that they care. Now, whether people walk away from someone who isn't environmentally sensitive, or whether they change banks because we’re doing things better than someone else, I don't know. But they say they care.
Mary Wenzel: We took this commitment to an online forum of our customers and asked them what resonated with them. It was an interesting response. The whole commitment resonated very strongly. Over 80 percent of our customers said it was important to them that we have an environmental commitment. The operational aspects of the commitment tested very well because they felt like in order to be credible in your stance that you cared about the environment, you had to have your own house in order. So, not only are there all the right business reasons to focus on our operations, but our customers want to see us focused on those areas as well. And we know our team members are incredibly passionate about that aspect of our environment commitment.
Makower: Tell me about what it took to get to this commitment. How did it start? Talk a little bit about the process.
Wenzel: We announced our first public commitment in July of 2005, so I would say this is just a natural progression of that journey. We met and exceeded the goals we laid out in that first commitment, so it was time to think about what we wanted to publicly communicate around our environmental values as a company a second time in a comprehensive way.
We began this journey about a year ago and engaged an external stakeholder group to help us think about what appropriate environmental leadership and commitments would look like for us as a company. We engaged customers around what they thought would be important for us to commit to, and we engaged a number of internal partners and leaders about their views on environment leadership for us as a company.
From that process we developed the three focus areas where we would have the opportunity to demonstrate material leadership. We then went back to the relevant lines of business that would have to own those commitments, and we spent a long time working with them, and the leadership of those different lines of businesses and organizations, to make sure that this commitment was really owned enterprise-wide.
This wasn’t Environmental Affairs just kind of sitting in a room picking numbers. This is really a commitment that is owned by the enterprise. And so multiple lines of business and organizations within Wells Fargo worked with us over the last year to develop the goals and the language within the commitment.
Makower: Can you give me an example of one of the lines of business that that you had to get the buy-in from?
Wenzel: I think the buy-in was there, but we certainly had to agree on the numbers within the commitment. A good example of that is the environmental finance goal. That goal is going to be owned by multiple groups within our lending organization. So, our community lending and investment team contributed to that goal, our commercial real estate team contributed to that goal, our environmental finance team that does our renewable tax-equity investments contributed to that goal, our cleantech commercial banking office contributed to that goal, our sustainable public infrastructure group contributed to that goal.
So there were multiple business groups that came to the table and said, “If I’m going to be ambitious about the amount of environmental business we can support, here’s what I think we can do.” And those goals were rolled up and taken to different lines of leadership around the company to get agreement on.
Makower: In the internal and external stakeholder process, were there any surprises, things that you thought that would have gone over well that didn’t, or things that your various stakeholders brought up that you hadn’t anticipated?
Wenzel: I don’t think there were huge surprises. There were a lot of different perspectives out there and a lot of different areas that different groups consider to be most important. We just had to balance and acknowledge that there are a lot of viewpoints out there.
There were a lot of folks that wanted us to have one signature statement, and we didn’t feel like we could do just one thing. We felt like it was more important to show that this was a systemic integrated approach to thinking about sustainability and that we weren't trying to hang our hat on one issue or initiative. We wanted to show that this was about our way of doing business and about our way of working with customers and communities.
Makower: What’s enabling you to commit to $30 billion in environmental finance? Is it the greater availability of projects and companies that you think would qualify?
Callahan: Some of it is that. Some of it is increased expertise on our side, and better understanding across these various sectors of the kinds of business that we can do that is actually important from an environmental point of view, both in the alternative energy and in our community lending. And trying to not just build low-income housing, but build low-income housing that is well insulted, has solar on it, and so forth. And so I think there’s an expertise shift as well as a demand shift.
Wenzel: A lot of this work is about supporting our customers, and our customers are telling us they want to put solar on their facilities. So we are not only doing the tax-equity solar financing, but we’ve developed a solar lease product for commercial solar installations and we’re financing solar companies.
As we build expertise and reputation for having expertise in these areas, the business is coming to us. The customers are starting to have this dialogue with us, are wanting to bank with us, and so it’s really about building good relationships and about knowing and supporting our customers.
Makower: There’s a certain group out there, and I don’t mean just the Occupy types, who would say that all banking should be sustainability-minded — that all loans and financing should consider environmental and community and social impacts, as opposed to having a separate green fund. What do you say to them?
Callahan: We agree that we want all of our customers to be environmentally sensitive. Now, all of our customers aren't in a directly environmental business. So if we have a customer that’s manufacturing widgets of some sort, it is part of our credit due diligence to make sure that they are following laws. You have to do a certain amount of due diligence that has to with the environment regardless of the business.
But there are some businesses that are specifically attuned to the environmental side, like alternative power generation and the way building construction is done these days, and that’s what we’ve segmented out. It doesn’t mean that we’re not paying attention to the environmental practices of our other customers. It also doesn’t mean that we don’t do business with customers that this group of people that you’re talking about might not want us to. It’s true that the whole society isn't there yet, and we do business with a lot of companies in America. The whole economy hasn’t yet shifted to one that doesn’t require carbon-based fuels.
Wenzel: We want to support the transition to green our economy. We want to honor our existing customer relationships, but we also want to enable deployment of cleaner technologies and environmentally-focused businesses. We know we’re all in a transition period right now, that renewables are still a very small percentage of our overall energy mix in the U.S. So we need to do what we can to support and accelerate that transition.
Makower: Let’s turn briefly to the community philanthropy piece of this. The way I understand it, under the Community Reinvestment Act [a federal law to encourage banks to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods], banks don’t get extra credit for making green investments — for example, if you were to finance LEED multifamily housing. Given your environmental commitment, is this an issue for Wells Fargo? Is this something that you would like to see changed?
Wenzel: We’d love to see that change. In fact, we have engaged in a conversation with our regulators about all the good work we are doing in that space so that they can understand and recognize its value. But even without the extra credit, these are still the right investments to make in our communities. If we can finance a green low- or moderate-income housing project, that has a huge benefit to the community. And so even though we don’t get extra credit, we think that these are the right things for us to focus on.
Makower: Will you give a preference to green community-minded projects?
Wenzel: In some cases we are. We have a housing foundation and we support Habitat for Humanity projects in communities, and we will fund them a little bit more to be green. We are trying to incentivize green community development and community projects. We are working with the developers of those projects to understand how they’re integrating environmental considerations into their projects.
Callahan: I just want to clarify, there are lots of things that go into what projects need financing and what communities need housing, and it’s not the only consideration. So, if there is a low-income community that very desperately needs housing and there’s no developer who’s going do it green, we would have to consider more than just the green aspect.
Makower: So, it’s now Earth Day 2020. You’ve just completed this 8-year commitment. What’s the story you want to be able to tell as a result of the commitments you made in 2012?
Callahan: I want us to be in a situation where we are, from a selfish corporate point of view, recognized for the good work that we’re doing. But even more, I’d like to see us having not only met, but exceeded all of these goals and be a company that’s out there doing the right things and having customers know it, and seek us out when they have these opportunities.
And certainly from an internal point of view, we want to be best-in-class in terms of energy use, water use, waste diversion, and those kinds of things. We want to be as good as anybody.
Wenzel: My vision is that this is that we build deep and lasting relationships with our customers, our communities, our team members, our stakeholders, around environmental priorities and needs. And that it is not thought of as something other than the way we do business. That it is just part of everything that we do.