Equator News Coverage
 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.
 Leaders challenge 'business as usual', Guardian, 6 November 2006
Financial Sector Responsibility
Building a better world (for investors and whales), The Banker, 3 July 2006
Update on the Equator Principles - 2006 Revision, Allens Arthur Robinson, August 2006
The Miami Herald
July 31, 2006.
Building sustainability into syndication, Project Finance - July/August 2006
For Citigroup, Greening Starts With Listening
For people and planet, San Francisco Chronicle, 4 April 2006
Conservation You Can Bank On (Christopher Wright) (PDF - 91k)
'A New Environment', Legal Week 2 February 2006 (Paul Watchman and Charles July of Freshfields Bruckhaus Deringer) (PDF - 2572k)
'Banks Business and Human Rights' (2006) 2 JIBFL 46 (Paul Watchman of Freshfields Bruckhaus Deringer) (PDF - 59k)
 Polluters Clean Up Act to Attract Lenders, The Moscow Times, 12 October 2005
The Equator Principles - guidelines for responsible project financing, Focus, Allens Arthur Robinson, August 2005 (PDF - 122k)
Corporate Green, Washington Post, 11 May 2005
Taking The Earth Into Account, Time Europe, 9 May 2005
Principles in Question, The Banker, March 2005 (PDF - 97k)
Banking on the future, Euromoney Syndicated Lending Handbook 2005, December 2004 (PDF - 38k)
A Matter of Principles, Global Finance, January 2005
Principle Finance, Euromoney, October 2004
Putting principles into practice, Environmental Finance, June 2004
'Greening' of financial sector gathering speed, Financial Times, 4 June 2004
"Equator - Risk and Sustainability," from Project Finance International, 2004 Yearbook. (PDF - 429k)
NGOs Bring Bank Scrutiny Back on Track, Ethical Corporation Online, 2 May 2004
Banks contest ban proposed for coal and oil extraction, Financial Times, 5 April 2004
A Matter of Principal, Project Finance, 3 March 2004
The Equator Principles: a milestone or just good PR?, Global Agenda, 26 January 2004
 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
A point of principle, Global Finance, July 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
Financiers must meet criteria, Business Day, 14 July 2003
Banks agree new loan guidelines, Ethical Performance, July 2003
Principled finance?, Project Finance, June 2003 Cover Story
Banks club together to turn their notes green, The Age, 22 June 2003
Nikkei Financial Daily, 11 June 2003 (in Japanese - PDF)
 Banks' green pledge earns mixed response, swissinfo, 10 June 2003
Greening the banks, The Economist, 7-13 June 2003
Leading banks sign up to project finance principles, Environmental Finance, 6 June 2003
 Bancos adotam princípios de responsabilidade social, Valor Econômico, 5 June 2003 (in Portuguese)
 Zehn Banken werden zu Umweltschützern, Die Tageszeitung, 5 June 2003 (in German)
 Major Banks Endorse Equator Principles, The Peninsula, Qatar, 5 June 2003
The 'Equator Principles' adopted by leading banks, The Times of India, 5 June 2003
Westpac's principles, Australian Financial Review, 5 June 2003
 Loan rules with an eye on nature, International Herald Tribune, 5 June 2003
10 global banks endorse socially responsible "Equator Principles", Agence France Presse, 5 June 2003
"THE FLIP SIDE", CNN, 4 June 2003 (transcript)
 IFC Head's Remarks at Equator Principles Press Conference, 4 June 2003
Banks sign up for responsible lending accord, Financial Times, 4 June 2003
Banks Accept Environmental Rules, The Wall Street Journal, 4 June 2003
Banks in drive for project principles, Financial Times, 9 April 2003
Four banks adopt IFC agreement, Financial Times, 7 April 2003
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Principled finance?
Do the Equator Principles need more teeth? Some banks and sponsors are unfazed by what NGOs call a modest step forward for environmental thinking in project lending.
PROJECT FINANCE MAGAZINE, June 2003 Cover Story
By Tom Nelthorpe
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Peter Woicke, head of IFC, and Chuck Prince, CEO of Citigroup's corporate & investment bank, announce the adoption of the Equator
Principles on June 4, 2003.
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The sight of protestors outside of WestLB’s New York offices was the most
visible sign of the latest meeting of projects and protest — at least
for the lenders. Activists had targeted the landesbank for its arranging
role on the OCP project in Ecuador. The pipeline, sponsored by Occidental,
Perenco, Repsol, Agip SpA, Pecom, Encana and Techint, enjoys the support
of the Ecuadorian government, but not the World Bank, or environmentalists.
Such signs — that the activist movement has moved behind sponsors to
the banks that support them — have been noted by project lenders. The
result is an ambitious step by project finance lenders in using market power
to prevent high profile projects from exposing them to reputational risk.
Nevertheless, the banks involved are enthusiastic at the possibility of
being taken seriously as environmental advocates.
The Equator Principles have been in the works since October 2002, when the
International Finance Corporation invited a number of banks, ABN Amro and
Citigroup among them, to present case studies on their experience in dealing
with environmental risk. The opportunity came at a useful time for the banks,
which have struggled, as with many market-wide issues, in creating a united
front for action.
The objectionable projects generally fall into two categories — large
oil and gas pipelines through areas of particular environmental sensitivity
and hydroelectric dams that cause widespread social disruption. Both require
exhaustive consultation and environmental due diligence. Moreover, both
usually require heavy support from export credit agencies and multilateral
lenders.
There has been a marked decrease in dam activity recently — Brazil
has been the site of the most recent, relatively uncontroversial, projects.
However, coming up is the Bujagali dam in Uganda, which is struggling against
sponsor AES’ financial woes as well as allegations of irregularity in the
tender process. China’s Three Gorges Dam used the China Development Bank
as a financing vehicle, but Morgan Stanley attracted criticism for underwriting
the bank’s bonds.
Pipeline projects represent the bulk of recent activity, and include the
Chad-Cameroon pipeline, the aforementioned OCP, and the Baku-Tblisi-Ceyhan
project, which may approach lenders shortly. Chad-Cameroon is often held
up by lenders as the high point to date of socially and environmentally
aware financing, given that it included solid due diligence as well as a
trust account for Chad’s share of revenues, to be earmarked for social spending.
The project is still much disliked by activists, who charge that the pipeline
will cause considerable disruption along its route. The next project likely
to attract attention is the Camisea pipeline in Peru, on which the Inter-American
Development Bank and Citigroup had been preparing a financing package. The
banks would like to have a common environmental risk assessment framework
in place before this and other contentious projects hit the market.
However, the process will be a difficult one, since many banks regard such
risk assessments as both proprietary and individually tailored to a banks
needs. There are echoes here of the struggle to present a common front in
opposition to Basel II’s regulations on capital adequacy levels for project
finance. Adopting voluntarily rules in what is, after all, a market will
be a fraught process.
The first means of mitigating this risk is to adopt a set of guidelines
that are well-respected and reasonably neutral. The International Finance
Corporation (IFC)/World Bank rules are the nearest thing to a common standard,
although arguably not the strongest standards. Some would say that the US
Ex-Im rules are unusually strong, while participants in InterGen’s Bajio
project in Mexico have less-than-fond memories of complying with the IDB’s
standards.
One complication in adopting the guidelines is that banks cannot formally
sign up to them. The IFC treats its own guidelines as proprietary and looks
dimly upon projects with which it is not involved claiming adherence to
the rules. Therefore, the Equator principles function something like an
ideological special purpose vehicle — banks sign up to Equator, which
in turn bases its guidelines on the IFC process.
The document uses unusually strong language — the preamble states that
"we will not provide loans directly to projects where the borrower will
not or is unable to comply with our environmental and social policies and
processes." Indeed the preamble’s aspirational language might strike some
readers as a little lofty.
The main steps in the creation of the principles have been taken by four
banks — ABN Amro, Citigroup, Barclays and WestLB — with Chris
Beale, Citigroup’s global head of project and structured trade finance,
and Richard Burrett, ABN Amro’s project finance head, being the key players.
According to Beale, "project banks play an important role in development
projects around the world, and particularly in the emerging markets. Environmental
risk is a credit risk as well as a reputational risk, and we believe that
project banks have an opportunity to foster good environmental practice."
The group also includes Credit Lyonnais, Credit Suisse First Boston, HVB
Group, Rabobank, Royal Bank of Scotland and Westpac, and includes banks
better known for their advisory and underwriting franchises. But it will
eventually need to see whether not only the broader syndication market,
but also the export credit agencies, institutional investors and bilateral
and multilateral lending arms will sign up.
In the meantime, the core group has also reached out to non-governmental
organisations (NGOs), the same groups that have been protesting and lobbying
against recent investment decisions at the project banks. The meetings were
apparently fruitful, and included groups such as the World Wildlife Fund
(WWF), Friends of the Earth, and Environmental Defence. Nevertheless, word,
and a draft version of the document, leaked out to the business press in
April.
The NGOs’ original welcome was cautiously warm — it was apparent that
they had not expected such a forthright proposal from the lenders. The interchange
is best understood as the first skirmish in a public relations war that
will ultimately shape how corporates and the public view the proposals.
The Rainforest Action Network had been running television adverts in New
York specifically targeting Citi — the two have now agreed a "truce"
while they work on projects together. Likewise, one NGO has claimed the
end of Citi’s advisory mandate on the Camisea project as evidence that Citi
is anxious to avoid sabotaging the principles’ launch. Beale stresses, however,
that the mandate expired in September 2002, before the banks began the Equator
process.
The principles call for all banks to categorise the projects that they consider
into three levels, A,B, and C. C represents a project with no or minimal
potential environmental and social impact, while B and A represent much
more serious potential impacts. C projects would presumably be those that
stirred up little controversy, and banks would not require an environmental
assessment (EA) from the borrower. B projects would need an EA, while A
projects, and some Bs, would also require an environmental management plan,
and evidence of a serious consultative effort with affected groups. Banks
would list the numbers of projects in each category that they supported,
ideally in a bank-wide corporate governance and social responsibility report.
The final significant aspect of the proposals is that loan documents would
have reference to environmental responsibility, and would be covenanted
so that borrowers would need to remain in compliance with any management
plan described in the documentation. The banks’ ultimate aim is that borrowers
and sponsors would have done much of the relevant work before even going
out to award a mandate.
However, NGOs and others have noticed a few loopholes, some of which were
addressed in the periods between drafts. The most significant of these is
that the guidelines, while originally covering emerging markets, are now
global in scope. The second is that the guidelines only cover projects greater
than $50 million in size. The Equator banks’ argument is that such projects
represent only around 3% of the project market and that, as one banker put
it to the NGOs, "you have to spend a lot of money to pollute the environment"
(their response was not recorded).
Nevertheless, such deals represent a large number of, often contentious,
small ticket resources deals, in particular mining. The IFC itself has received
a large amount of negative coverage for its support of smaller mining operations.
More recently, Barrick’s Bulyanhulu project attracted strong levels of criticism
from human rights campaigners. This last would have been covered by the
guidelines, but smaller mining deals are often those that are less likely
to need multilateral support because their tenor and size mean that they
can secure political risk insurance in the private market.
A more serious paradox is on offer, however, one that explains the cautious
stance of NGOs. The guidelines need to be tight enough to present a meaningful
advance and draw the protestors’ ire, but loose enough to encourage adoption
and keep the corporates on side. Sponsors, remember, have been forced to
confront criticism for much longer than banks, and have not only their own
environmental guidelines, but their own means of rebutting adverse comment.
While the guidelines will not add appreciably to transaction costs, if only
because the majority of deals already use many of the risk mitigation steps
outlined there, they may alter project economics. The temptation for banks
to break in front of powerful sponsors will be strong, or, as one banker
put it, "will they take on ExxonMobil over QatarGas 2? I doubt it." It will
be possible for projects to shop around where environmental scrutiny is
most to their liking, although almost all public sector institutions will
have fairly stringent guidelines.
Another point made by supporters is that the larger sponsors already have
some form of environmental monitoring in place, although opinions differ
as to its effectiveness. Corporates such as BP have been effective in persuading
consumers and some stakeholders that they are serious in monitoring their
compliance — shareholder activism has forced still others to take steps
in this direction. As Richard Burrett at ABN Amro puts it, "the principles
should create standards that sponsors can live with, since most of the more
sophisticated firms are doing this already." It is likely to be the smaller,
privately-held sponsors with less in the way of clout with banks and less
form in being environmentally conscious, that will have to take Equator
to heart.
Those at the less enthusiastic end of the spectrum of Equator supporters
note that the deal will not cover bonds, and also that, given the nature
of many commercial and investment banks, some projects will slip through
the cracks — "it’s not a panacea", as one put it. Given the declining
importance of project finance at some banks, and the fact that non-recourse
debt will be offered on a one-off basis, mean that project finance heads
will occasionally be unable to enforced the principles within their own
institutions.
And it is in implementation that the banks will face the most serious challenges
and criticisms. Michelle Chan, a US spokesman for Friends of the Earth in
the US, cautiously welcomes the proposals but has doubts about the effectiveness
of implementation. "The IFC safeguard policies are a good place to start,"
she says, "but the IFC has around 30 people working on this. I’m not sure
that banks have the people to look into this effectively." Chan believes
that an independent auditor or ombudsman, a neutral arbiter of adherence
would be a good place to start, but banks will be wary of policing mechanisms
that infringe on their independence. As such, the NGOs would be wary of
offering the banks a strings-free public relations boost.
Likewise, the IFC has to carefully circumscribe its relationship with the
Equator Banks. According to Suellen Lazarus, head of syndications at the
IFC, it does not envisage its role as enforcement, but more in terms of
educating the banks on how to apply the safeguards. Nevertheless, she is
gratified by the enthusiasm of the banks, saying "it’s a recognition that
the IFC has guidelines that have worked over time, so the principles are
an affirmation of what we’ve been doing."
The arrangers make a strong case for the positive effect that a few banks
can have on the business — the core group of 4 alone corner about 17%
of the bank debt market, and the full group holds 30%. Their effect on projects
on which they either do advisory work or are part of a club syndicate is
probably higher. As Burrett at ABN Amro puts it, "any bank joining a loan
syndication by an Equator bank will be buying into due diligence done according
to the principles. We can’t force banks to adopt them, but think that the
principles are a useful way of ensuring that institutions go through the
necessary steps." There is no question that banks would refuse to do business
with an institution that did not sign up, and the essential sanction at
work is that not signing up will make a lender look bad.
Nevertheless, as both Beale and Burrett say, the guidelines will have a
public place where banks will be able to state their willingness to adhere
to the principles. Moreover, they will be a useful way for activists and
stakeholders to call lenders to account. Disclosure of details will be patchy,
but will offer affected communities a way to voice concerns knowing that
some of the larger institutions will be wary of lending to contentious projects.
The principles may even become the de facto standard for all international
project lending — an embarrassment to ECAs that have so far been unable
to come up with meaningful common standards.
As this article went to press, the banks and the IFC were set to hold a
press conference to announce the launch of the principles (for more details
as they emerge, see Deals and Developments this issue). From then on starts
the slog of carrying banks and NGOs in opposite directions — that the
principles are meaningful, but adaptable enough to fit lenders and sponsors.
© 2003 Euromoney Institutional Investor PLC.
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Institutions Which Have Adopted the Equator Principles
ABN 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
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