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Equator News Coverage
 For people and planet, San Francisco Chronicle, 4 April 2006
ContactContact for information about the Equator Principles |
Financiers must meet criteria BUSINESS DAY, South Africa, July 14, 2003 By Justin Smith & Lisa Plit THE Equator Principles seek to ensure that the projects its signatories finance are developed in a manner that is socially responsible and reflect sound environmental management practices. They were developed by the International Finance Corporation (IFC) in conjunction with ten of the world's largest banks, including ABN AMRO, Barclays and CitiGroup, to set down a consistent approach to managing environmental and social risk in project financing. The principles aim to ensure that financiers play a more substantial role in promoting sound environmental management and responsible social development. Projects are classified as high, medium or low risk, with the former two requiring thorough environmental assessment reports that address the interests of a wide range of parties that may be affected. An environmental management plan has to be prepared to ensure environmentally and socially responsible practices will endure for the life of the project, and beyond. These must be implemented together with the relevant IFC guidelines and safeguard policies. The principles are, in part, the financial services sector's response to a growing demand that it recognise the role that it can, and should, play in achieving sustainable development. Although the financial services sector has traditionally seen itself as a clean sector, financing decisions tend to determine what projects obtain funding to proceed and affect development choices. The other motivation behind these principles is risk reduction, which in turn has direct bottom line implications. Environmental and social issues can no longer be regarded as soft issues as the spectre of lender liability grows. While some may complain that the principles will lead to a lengthening of the turn-around time for obtaining a funding decision, the benefits that they bring clearly outweigh this concern. The most obvious benefit is that projects will be subject to greater scrutiny, which should result in them being more environmentally and socially sound. Beyond that, the principles also offer consistency. They provide for commonality in approach and terminology among all subscribing banks, which should provide certainty for both the banks in respect of the project risk and the customer, who has a prescribed framework with which they must comply if they are to obtain funding. It also creates peer and consumer pressure on other financial institutions. Local banks in emerging markets will need to markedly improve their environmental and social risk practices if they wish to be considered to partner with subscribing banks in large projects. Such partnerships also offer a great opportunity for knowledge transfer of best practice to local banks that are involved in these projects. Local banks are also likely to find it very difficult to win tender proposals for World Bank and IFC- funded projects in developing countries, when they compete against banks that subscribe to the stricter and more consistent environmental and social standards. The corporates that deal with the subscribing banks on a regular basis may find their environmental and social practices being redirected by the stance of their financiers. The question, though, that must be asked is, Are the principles anything more than a vague value statement, or are they being lived out by the subscribing banks? Of the banks subscribing to the principles, not all have comprehensive and globally consistent financing practices in place and even where they do, there tends to be a lack of disclosure on the issue. This makes is difficult to determine how do they will apply these principles and whether they will do so universally. Doubt also exists as to whether the Equator Principles contain sufficient mechanisms to monitor a borrower's compliance on an ongoing basis. Perhaps even more significantly the principles fail to address the issues of transparency and accountability by the subscribing banks. Other critics claim that the Equator Principles do not go far enough as they fail to put the most ecologically endangered areas, such as the Amazon rain forest, off limits for large development projects. They also fail to address the issue of whether or not the banks invest in projects that destroy endangered ecosystems and indigenous communities. They merely provide a framework to manage the social and environmental issues to which the project may give rise. Another potential weakness is that the principles only apply to projects with a total capital cost of $50m or more. Perhaps one of the Equator Principles' greatest weaknesses is that the scope is limited to project finance. The ambit should extend across the board of financing activities. While project finance may have the biggest single impact, the cumulative affect of financing activities should not be disregarded. Responsible financing practices are in fact moving beyond screening only massive projects a recent study by ISIS Asset Management found that a number of European banks are considering environmental credit risk factors in all their lending processes, as a means of reducing liability exposure. Such practices have also emerged in North and South America, Asia, Australia and Africa. The principles should take cognisance of this and address the issue more holistically. The subscribing banks should, provided that they enforce these principles and the accompanying IFC standards on a strict and consistent basis, be lauded for upholding responsible environmental management and social practices as a crucial part of any development. They are also urged to address the shortcomings that have been identified in the same bold manner. © 2003 BDFM Publishers (Pty) Ltd. All Rights Reserved. |
Institutions Which Have Adopted the Equator PrinciplesABN AMRO Bank, N.V.ANZ Banco Bradesco Banco de la República Oriental del Uruguay Banco do Brasil Banco Galicia Banco Itaú BankMuscat Bank of America BMO Financial Group BTMU Barclays plc BBVA BES Group Calyon Caja Navarra CIBC CIFI Citigroup Inc. CORPBANCA Credit Suisse Group Dexia Group Dresdner Bank E+Co EKF Export Development Canada Financial Bank FMO Fortis HBOS HSBC Group HypoVereinsbank ING Group Intesa Sanpaolo JPMorgan Chase KBC KfW IPEX-Bank la Caixa Lloyds TSB Manulife MCC Mizuho Corporate Bank Millennium bcp National Australia Bank Nordea Nedbank Group Rabobank Group Royal Bank of Canada Scotiabank SEB Societe Generale Standard Chartered Bank SMBC TD Bank Financial Group The Royal Bank of Scotland Unibanco Wachovia Wells Fargo WestLB AG Westpac Banking Corporation Mailing ListClick here to start receiving press releases and other news about the Equator Principles.World Bank/IFC LinksWorld Bank Guidelines and Criteria Referenced in the Equator PrinciplesDevelopment Indicators Database IFC Guidelines and Policies Referenced in the Equator Principles Sector-Specific EHS Guidelines Performance Standards |
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