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Michelle Chan: Fighting for sustainability in the bank sector

Amy Domini, founder of Domini Social Investments, believes Michelle Chan is taking the lead in socially responsible investing.

Carmel Wroth | Jan/Feb 2009 issue

There’s a framed photo hanging in Michelle Chan’s living room that makes her feel uneasy when she stops to look at it. It shows an old Chinese couple standing in an alley. The man’s eyes are downcast. The woman looks up, into the distance, soft light illuminating her face. Behind them are round, woven baskets leaning against a wall. From the moment Chan bought the picture, she says, it got to her: “I knew the picture was of a scene in a place that doesn’t exist anymore.”

Chan fought for nine years to save that place, but her efforts ultimately failed. Despite the vehement objections of environmental and human-rights organizations, the Chinese government built the Three Gorges Dam on the Yangtze River, completing it in 2008 after more than a decade of construction. The dam displaced an estimated 1.4 million people, flooded 370 miles of farmland, destroyed towns, villages and countless archaeological sites and threatened the river’s fish stock and endangered dolphin species. And of course, it displaced the old man and woman in the picture, whose home and ancestors’ graves are now under 500 feet of water.

Though Chan couldn’t stop the dam, the struggle gave her motivation and direction in her career. In 1995, Chan, just 23 at the time, took on the Three Gorges battle as a campaigner with the environmental organization Friends of the Earth. Instead of protesting against the Chinese government directly, she and fellow campaigners took a new approach: They exposed the Wall Street banks involved in funding the project, a tactic that gradually reshaped public expectations of banking.

It was the first major project in which non-governmental organizations (NGOs) had gone to private-sector banks and asked them to take responsibility for the ethical and environmental impact of the projects they funded. And it was the first time that some commercial banks acknowledged that certain projects were too harmful to merit their involvement.

The term “sustainable” has become commonplace, but it usually refers to consumer products, agricultural practices or energy. Chan’s work has done much to create and push forward the concept of sustainable finance: the idea that banks should evaluate investments based on social, ethical and ecological as well as financial criteria. Organizations such as Friends of the Earth see banks as key to getting corporations to practice corporate responsibility. Thanks in part to pressure from NGOs, more than 60 commercial banks have voluntarily adopted a set of ethical principles for assessing the environmental and social impact of investments in the developing world. Many banks have also begun to implement environmental and social responsibility policies affecting their operations.

With worries over climate change intensifying and a financial system in crisis because of widespread use of risky investing practices, many environmental organizations think the time is right for sustainable finance to become even more far-reaching. “The public—especially the American public, because we’ve paid a lot for the bailout—is ready to see a return to soundness, sustainability and decency in our financial system,” Chan says. “People are hungry to participate in a way that allows their savings and investments to create positive change.”

One afternoon in her office in San Francisco’s financial district, Chan is laughing hard, catching her breath to talk, then losing it again. She has a bottle of Maker’s Mark bourbon in her hand and is about to toast her office mate Adina Matisoff. But the success she’s celebrating is a quiet one. She and Matisoff have just completed a paper analyzing China’s new financial regulations; surprisingly, they include environmental laws, which Chan suggests provide an example to the U.S.

It’s hardly a high-profile stunt, but pushing forward new ideas is Chan’s particular brand of activism. “A lot of what advocacy groups struggle with are power issues,” Chan says. “Part of the job is to shape the debate, to get your ideas out there.”

And Chan is quite skilled at it. “She’s an incredible pioneer,” says Matt Arnold, director of Sustainable Finance Limited, a consulting firm that works with banks on their environmental practices. “She’s been doing this for longer than most people knew it was a ‘thing.’ She’s provided a huge amount of intellectual content for developing these policies at banks.”

Chan knew sustainable finance was the next frontier in the mid-1990s, when she got her start. Back then, the idea of asking Wall Street banks to broaden their definition of corporate responsibility was new. “At the time, big companies thought being environmentally sensitive meant recycling their office paper,” Chan says. “We had to push to redefine what social responsibility meant for these big companies. The way we did it was by talking to them about the environmental impacts of their portfolios.”

One part of banks’ portfolios was particularly vulnerable in discussions of ethical behavior. It was a narrow but important segment of banks’ global business called project finance, the most common lending practice for funding infrastructure and resource extraction in the developing world. It quickly became the lever NGOs used to raise consciousness within the banking sphere. In the early 1990s, the World Bank had changed its policies to encourage more of these investments by commercial banks. NGOs already knew how to lobby the World Bank, which has a mandate to work for the public good; the challenge Chan took on was to develop techniques that would work with private sector banks that think in terms of profit.

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