In Tasmania a proposed pulp mill to be built by Gunns squeaked through the approval process late last year. Environmentalists decry a plant that turns forests into woodchips. Locals are split with some wanting jobs and others wanting forests. Outside Tasmania public opinion is solidly against the mill.

Spot the Difference

While government approval was granted, the mill has yet to start construction. Why? Consumer activism has made funding the deal a hot potato for banks.

The Three Gorges Dam is the best example of how financial backing can turn into a corporate reputation minefield. This controversial project has been decried for the massive relocation required - some 1.2 million people and 1,500 industries were displaced. Worse environmental and cultural heritage sites are being flooded. Even China now acknowledges there are problems:

Wang Xiaofeng, the head of the Three Gorges Dam Project of the State Council declared: “We cannot win passing economic prosperity at the cost of the environment.”

For bank funding the dam there are similar corporate reputation issues, leading to numerous shareholder resolutions to block damaging transactions:

“…but an outstanding example is the resolutions with Morgan Stanley Dean Witter, Citigroup, and Merrill Lynch concerning their involvement in financing the construction of the Three Gorges Dam.”
Source: Social Funds: The largest personal finance site devoted to socially responsible investing

Now it’s the turn of the Australian banks to feel the heat - today Gunns announced a $300 million non-underwritten rights issue led by Credit Suisse, JP Morgan and Macquarie Capital Advisers.

Gunns may yet build their mill yet the company and its financial advisers will feel the sting of public outcry for some years to come.