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Equator News Coverage
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Putting principles into practice ENVIRONMENTAL FINANCE, June 2004 Since the Equator Principles’ launch a year ago, almost all the big names in project finance have signed up. But, with many aspects of their implementation still to be resolved, is it too soon to judge their impact? Roz Bulleid reports The beginning of this month marks the 12-month anniversary of the launch of the Equator Principles — an unprecedented initiative by 10 of the world’s largest banks to address the social and environmental impacts of the projects that they finance. The signatories agreed to a series of guidelines for assessing project finance deals, based on those used by the International Finance Corporation (IFC), the World Bank’s private finance arm (see Box 1).
These numbers alone are impressive, as is the decision by the banks to tackle such a significant issue jointly. But, according to Ilyse Hogue, global finance campaign director at Rainforest Action Network (RAN) in San Francisco, to prove their value the Equator Principles must be shown to work in practice. For the banks involved there is a real incentive — much of the motivation for the principles came from the damage done to their reputations by high-profile projects such as the Ilisu Dam in Turkey — and if the principles founder, they may be back to square one. But while their intentions may be good, will their procedures and decision-making live up to public and NGO expectations? For this reason, the initial period is critical, says Hogue. While environmental and social campaigners may have been cautiously optimistic about the principles when they first arrived, they will simply dismiss them as greenwash — grand gestures with no substance — unless they see real changes in how the signatory banks approach project finance. In many ways, however, a year on is too early to judge the principles, says Crescencia Maurer of Washington-based think-tank the World Resources Institute (WRI). So far, scant details have been revealed to the public on a handful of projects to which the principles have been applied, and systems to implement them within banks are still being established. Nonetheless, the principles have been tested, especially in the case of the controversial Baku-Tbilisi-Ceyhan (BTC) pipeline. The IFC is working closely with the banks to interpret the principles. "IFC policies and procedures are very specific to the IFC, so it takes a lot of work to implement them for some banks," says Suellen Lazarus, a senior advisor at the Washington-based institution. Richard Burrett, London-based head of the sustainable development business group at Dutch bank ABN Amro, says that the signatories have met to discuss a num ber of issues. "We’re sharing best practice, which is unusual, but this isn’t an area where we’re competing," he says.
According to the principles, projects are categorised according to their potential impacts, with those given an ‘A’ rating requiring both an environmental impact assessment (EIA) and an environmental management programme (EMP) to be in place.The largest project known to have been given an A rating is the $3.6 billion BTC pipeline. This will connect a new oil field in the Caspian Sea off Azerbaijan to a terminal at Ceyhan in Turkey. Earlier this year, eight of the Equator banks agreed to fund the project, alongside the IFC — highlighting the disparities between the NGOs’ and Equator banks’ views of ‘successful’ implementation. While Friends of the Earth (FoE) maintains that BTC contravenes IFC standards on at least 127 counts, for Lazarus at the IFC,"BTC was really the poster child for the Equator Principles ... We think it was a real success for Equator because the banks were able to make themselves comfortable with the issues and deal with them." Other projects to which the Equator Principles have reportedly been applied fit the requirements less clearly. Barclays has been criticised for funding the Kárahnjúkar Hydroelectric Project in Iceland, but as corporate financing, that deal fell outside the principles’ ambit. Nonetheless, Bray says it was subsequently tested against the Equator Principles to see how it matched up, and passed. Some activists have speculated that Royal Bank of Canada (RBC) turned down an application for funding for the Alburnus Maior mine in Romania because it failed to measure up to the principles. However, Sandra Odendahl, Toronto-based senior manager in environmental risk management at the bank, says that "there are usually a lot of reasons why a deal doesn’t go through — to put it down to just the Equator Principles would be naïve in the extreme". So far, she says, the bank has applied the principles in three cases, a Canadian oil sands project and two developing country oil and gas projects. Few banks, however, have been this open in revealing projects to which the Equator Principles have been applied, making it hard to know how they are working in practice. While it is "good that these banks are all moving to higher standards, there is no way to monitor whether they’re applying the principles to projects," says Jon Sohn from FoE in Washington. Maurer also points out that there is no requirement for the decisions made by the banks to be externally verified. "The banks are all talking about reporting," says Lazarus at the IFC. "Whether it’s a sustainability report or something in the annual report, they all recognise that something needs to be done," she says, but adds that it is up to individual banks to choose exactly what. Foster Deibert, head of the sustainability management department at Germany’s West LB, says that, for the bank, "the idea would be to disclose some level of information [but] the likelihood is that it will be on a more general level 3 numbers and types of projects". Bray, though, is quick to point out that Barclays is in a rather different position to the IFC: "As a private sector bank, we have a duty of confidentiality to our clients," he says. Unlike some, Bray is unhappy even with giving the number of projects passed and failed in reference to the Equator Principles, feeling that the numbers could be misinterpreted or misleading. Too many failed projects would suggest that initial screening procedures were not working, while too few might bring suggestions that the principles were being insufficiently rigorously applied. Odendahl says RBC, too, is "generally leaning towards confidentiality," although it may disclose an aggregate figure on its website, while Royal Bank of Scotland declined to answer any questions whatsoever on the principles. There are a number of other aspects of the Equator Principles that also need to be addressed if NGOs are to be kept happy. Maurer is concerned that the assessment process may suffer from "categorisation creep" — as the categorisation of projects is a subjective process, banks may be tempted to place projects in a lower risk group to reduce the costs associated with carrying out environmental and social assessment. Again, it is up to the banks how they interpret this section of the procedure. It is an issue which RBC, for example, has taken seriously. Odendahl says the bank looked at the guidelines that multilateral organisations use for project categorisation and came up with its own interpretation. A more deep-seated problem, says Maurer, is that "the principles are only as good as the IFC’s guidelines and the IFC guidelines have certain ambiguities about them that need interpretation". She also says that the IFC guidelines do not take into account climate change or the need to increase renewable energy generation. The IFC, however, is reviewing the safeguard policies on which the Equator Principles are based. An updated version is expected by next year which may address some of these concerns. This, however, raises another thorny issue: the relationship between the World Bank and IFC, and the Equator banks. "The fear among civil society is that the Equator banks will drag the IFC down," says Maurer. This applies to the review of the IFC’s safeguard policies and to whether the World Bank and IFC accept the recommendations made in the Extractive Industries Review (EIR) — an independent review commissioned in 2000 looking at the group’s involvement in fossil fuels and mining. In April, 11 Equator banks signed a letter to the president of the World Bank giving their opinions on a number of issues in the EIR. "Equator definitely took a good hit as a result of this," says Hogue at RAN. It also angered FoE because, as Sohn points out, the private banks’ "missions are different to the World Bank’s, which is poverty alleviation". While they only have to be accountable to their clients, the World Bank and IFC must be publicly accountable, he says. Many of the banks see things differently. In the eyes of Burrett at ABN Amro, the Equator banks are stakeholders and have as much right as anyone else to speak out, while Bray says that Barclays would like to stay in step with the World Bank and IFC but if the steps demanded were impractical, some banks may pull back, leaving less scrupulous ones to fund projects. For Lazarus, too, the idea of the IFC consulting with the Equator banks on future policies is not unreasonable. "They are important stakeholders so, as part of the process, we will consult with them — if the demands are outrageous they won’t accept them," she says. "We’re working in an environment where we’re trying to take a leading role ... our role in promoting sustainability is not decreasing because of the Equator banks". A final criticism that some NGOs level at the principles is that they only scratch the surface: project finance makes up only a very small percentage of the deals done by banks. The IFC, for example, is increasingly lending money to local banks — which they subsequently invest in projects, although it is also hoping to get them involved in the principles, says Lazarus. One developing country bank is quite close to signing, she adds. Whatever the limitations, most groups seem to agree that project finance is a good place to start. As Burrett points out, "while it may be a relatively small part of a bank’s overall lending, project finance has a heavy focus on energy and infrastructure projects, which do have social and environmental impacts". There is also the strong possibility that good practice in project finance will influence other bank activities. As Lazarus says, "once a bank starts addressing these issues in project finance, it’s inevitable that they start looking at them in other areas". BOX 1 Applying the principles In signing up to the Equator Principles, a bank agrees to apply guidelines based on International Finance Corporation policies for assessing projects’ environmental and social impacts. These principles apply to all project financings, in all sectors, globally where the size of the deal exceeds $50 million. Each project is categorised into one of three groups: High-impact ‘Category A’ projects, which require a full environmental impact assessment (EIA);‘Category B’ projects with lower likely impacts, which require a less-extensive EIA; and ‘Category C’ projects with minimal or no adverse impacts.These do not require an EIA. The principles also require borrowers in high impact projects to carry out appropriate local stakeholder consultation. In addition, the borrower or a third-party expert must put an environmental management programme in place to address project compliance, mitigation, action plans and monitoring prodecures. For these high-impact projects, compliance with the principles is written into the loan covenants: if a borrower breaches its obligations, the bank can withdraw funding. For more information, see www.equator-principles.com. BOX 2 The 23 Equator signatories ABN Amro Bank of America Barclays BBVA Calyon CIBC Citigroup Credit Suisse Group Dexia Group Dresdner Bank Eksport Kredit Fonden HSBC Group HVB Group ING Group KBC MCC Mizuho Corporate Bank Rabobank Group Royal Bank of Canada Standard Chartered Bank The Royal Bank of Scotland WestLB Westpac Banking Corporation PRINTER-FRIENDLY VERSION | E-MAIL THIS PAGE |
Institutions Which Have Adopted the Equator PrinciplesAbsa Bank LimitedAccess Bank ANZ Arab African International Bank ASN Bank NV Banco Bradesco Banco de la República Oriental del Uruguay Banco do Brasil Banco Galicia Banco Santander Bancolombia S.A. BankMuscat Bank of America Bank of Tokyo-Mitsubishi UFJ Barclays plc BBVA BES Group BMO Financial Group BNP Paribas Caixa Econômica Federal Caja Navarra Calyon CIBC CIFI Citigroup Inc. CORPBANCA Credit Suisse Group Dexia Group DnB Nor E+Co EFIC EKF Export Development Canada FirstRand Bank Ltd FMO Fortis Bank Nederland Fortis Bank NV/SA HBOS HSBC Group HypoVereinsbank Industrial Bank Co., Ltd ING Group Intesa Sanpaolo Itau Unibanco S/A JPMorgan Chase KBC KfW IPEX-Bank la Caixa Lloyds TSB Manulife Mizuho Corporate Bank Millennium bcp National Australia Bank Nordea Nedbank Group Rabobank Group RBC Scotiabank SEB Societe Generale Standard Bank Group Standard Chartered Bank SMBC TD Bank Financial Group The Royal Bank of Scotland Wells Fargo & Company 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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Environmental standards loom ever larger in banks' lending decisions, by Susanne Bergius, ENDS Report, December 2008
60 Second Profile on the Equator Principles, Good Practice Newsletter from ICMM, December 2008
Banks increase their environmental requirements
Promoting Greater Responsibility in Project Financing by Natasha Cappon, Canada, Spring, 2008
China to bring in green loan benchmark, 25 January, 2008
A Question of Principles, Infrastructure Magazine, by Kimberley Gaskin, June 2007
Citigroup to scale up its green spending,The Financial Times, 8 May 2007.
Polluters Clean Up Act to Attract Lenders, The Moscow Times, 12 October 2005
Mizuho To Adopt Environmental Standards In Project Financing, CNNfn, 26 October 2003
Dexia adhère aux "Equator principles", La Tribune, 22 September 2003 (in French)
Western Banks Set Standards for Eco-Friendly Lending. Japanese Banks Far Behind. NGO Keeping Close Watch, Nikkei, 5 September 2003
Equator Principles — Why Indian Banks Too Should be Guided by Them, The Hindu, 25 July 2003
Project finance — Standards for Lending, Financial Mail, 25 July 2003
Banks' green pledge earns mixed response, swissinfo, 10 June 2003
Major Banks Endorse Equator Principles, The Peninsula, Qatar, 5 June 2003
Loan rules with an eye on nature, International Herald Tribune, 5 June 2003
IFC Head's Remarks at Equator Principles Press Conference, 4 June 2003
