|
Equator News Coverage
ContactContact for information about the Equator Principles |
Equator Principles — Why Indian Banks Too Should be Guided by Them THE HINDU, India, July 25, 2003 By Pratap Ravindran The Equator Principles - a voluntary set of guidelines developed for managing social and environmental issues related to the financing development projects - apply only to projects which cost $50 million or more, as those costing less represent only 3 per cent of the market. RECENT reports on the decision by 10 leading banks from seven countries to adopt the so-called Equator Principles- a voluntary set of guidelines developed for managing social and environmental issues related to the financing development projects- make for encouraging reading.However, it must be said that the conspicuous absence of Indian banks from the list is distinctly depressing. While Indian financial institutions (including banks) can hardly be described as major players in the funding of infrastructure projects at a global level, the fact remains that their adoption of the Equator Principles or other similar ones to guide their lending within the country would have given a major fillip to India's environmental initiative, such as it is. They may argue that they see no need to adopt such principles as their lending to infrastructure projects is restricted to those that have secured the environmental clearances mandated by statute. As these clearances can be purchased for a pittance, this argument is not particularly convincing. Unfortunately, the truth is that Indian financial institutions are concerned- to the exclusion of all other considerations- about the ecology of their balance-sheets and, therefore, focussed on ever-greening their assets. Banks adopting the Equator Principles undertake to provide loans only to projects whose sponsors can demonstrate their ability and willingness to comply with comprehensive processes aimed at ensuring that projects are developed in a socially responsible manner and according to sound environmental management practices. The banks which have taken the initiative- ABN AMRO Bank, N.V., Barclays PLC, Citigroup, Inc., Credit Lyonnais, Credit Suisse Group, HVB Group, Rabobank, Royal Bank of Scotland, WestLB AG, and Westpac Banking Corporation- will, henceforth, apply the principles globally and to project financings in all industry sectors, including mining, oil and gas and forestry. Their adoption of the Equator Principles is significant in that these banks, between them, underwrote approximately $14.5 billion of project loans in 2002, representing a whopping 30 per cent of the project loan syndication market globally. According to a prepared statement of the International Finance Corporation (IFC) Executive Vice-President, Mr Peter Woicke, presented at the Equator Principles press conference in Washington D.C. on June 4, the adopting banks have done something that financial institutions rarely do: Step forward to take a leadership role on global environmental and social issues. "The adoption of the Equator Principles confirms that the role of global financial institutions is changing. More than ever, people at the local level know that the environmental and social aspects of an investment can have profound consequences on their lives and communities- particularly in the emerging markets where regulatory regimes are often weak. And if financial institutions want to operate in these markets, there is a bottomline value in having clear, understandable, and responsible standards for investing." It is possible that Indian financial institutions are under no pressure to factor environmental considerations into their lending activities because most people are not aware of the Equator Principles. They were evolved when the IFC convened a meeting of banks in London in October 2002 to discuss environmental and social issues in project finance. At that meeting, the banks present decided to try and develop a banking industry framework for addressing environmental and social risks in project financing. This exercise culminated in the drafting of the Equator Principles which, in essence, represented an industry approach for financial institutions in determining, assessing and managing environmental and social risks in project financing. The preamble to the principles states that project financing plays an important role in financing development throughout the world. In providing financing, particularly in emerging markets, project financiers often encounter environmental and social policy issues. "We recognise that our role as financiers affords us significant opportunities to promote responsible environmental stewardship and socially responsible development." The preamble goes on to add: "In adopting these principles, we seek to ensure that the projects we finance are developed in a manner that is socially responsible and reflect sound environmental management practices. We believe that adoption of, and adherence to, these principles offers significant benefits to ourselves, our customers and other stakeholders. These principles will foster our ability to document and manage our risk exposures to environmental and social matters associated with the projects we finance, thereby allowing us to engage proactively with our stakeholders on environmental and social policy issues. Adherence to these principles will allow us to work with our customers in their management of environmental and social policy issues relating to their investments in the emerging markets." What, exactly, does the adoption of the Equator Principles involve? To begin with, it is important to understand that the term "adopt" does not mean that the banks sign an agreement of some kind. They do not: Instead, each bank that adopts the principles individually declares that it has or will put in place internal policies and processes that are consistent with the Equator Principles. The banks, to begin with, agree upon a common terminology in categorising projects into high, medium and low environmental and social risk, based on the IFC's categorisation process. They apply this to projects globally and to all industry sectors so as to ensure consistent approaches in their dealings with high- and medium-risk projects. Second, the banks ask their customers to demonstrate in their environmental and social reviews, and in their environmental and social management plans, the extent to which they have met the applicable World Bank and IFC sector-specific pollution abatement guidelines and IFC safeguard policies, or to justify exceptions to them. This practice allows them to secure information of the quality required for them to make judgments. And then again, the banks insert into the loan documentation for high- and medium-risk projects covenants for borrowers to comply with their environmental and social management plans. If those plans are not followed and deficiencies not corrected, the banks reserve the right to declare the project loan in default. What are the IFC safeguard policies and how do they differ from the World Bank safeguard policies? Basically, the IFC's set of environmental and social policies are based on the set used by the World Bank. However, some policies have been adapted to better reflect their applicability to the IFC's private sector client base while others have been retained in the World Bank format and, as such require, careful interpretation for private sector projects. The safeguard policies provide guidance on matters relevant to the IFC's operations, including environmental assessment, natural habitats, involuntary resettlement and indigenous peoples. The environmental assessment policy is a key umbrella policy for the IFC, and various requirements- environmental and social- flow from it. In addition, to reflect the fact that the IFC works with employers, it has adopted the Policy Statement on Harmful Child and Forced Labour. The Bank's safeguard policies are geared to its public sector activities. And what is the relationship between the IFC safeguard policies and the World Bank and IFC guidelines? The safeguard policies generally represent an approach to critical issues that cut across industry sectors, such as the protection of natural habitats or the physical or economic displacement of people (resettlement), where it is important to apply a consistent set of environmental and social principles. The guidelines, on the other hand, are sector-specific environmental standards that are applicable to the processes, technology, and issues that apply in specific industries, and represent good practice within that sector. As such, the policies and guidelines are mutually supportive of each another. The Equator Principles apply to only projects which cost $50 million or more. The question now arises: How many projects fall below $50 million and what about them? According to the IFC, a cut off point and some level of materiality are necessary. Most of the sensitive project developments involve much larger sums. While the league tables for project loans do not necessarily record all small project loans, they indicate that projects costing less than $50 million represent only 3 per cent of the market. Its proponents point out that a risk management rationale exists for banks to adopt the Equator Principles in that they will be able to better assess, mitigate, document and monitor the credit risk and reputation risk associated with financing development projects. In any case, they say, the principles will not hurt banks' business as they have been championed by the project finance business heads of banks. They believe that having a framework for the industry will lead to greater learning among project finance banks on environmental and social issues, and that having greater expertise in these areas will better enable them to advise clients and control risks. Quite simply, they observe, the principles are good for business. © 2003 The Hindu. 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 Bank of Tokyo-Mitsubishi UFJ BMO Financial Group Barclays plc BBVA BES Group Calyon Caja Navarra CIBC CIFI Citigroup Inc. CORPBANCA Credit Suisse Group Dexia Group DnB Nor 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 |
|
|
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.
Leaders challenge 'business as usual', Guardian, 6 November 2006
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
Zehn Banken werden zu Umweltschützern, Die Tageszeitung, 5 June 2003 (in German)
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