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Ten banks from seven countries announced in
June their adoption of the Equator Principles (EPs), a voluntary
set of guidelines for promoting social and environmental responsibility
in financing development projects, especially in emerging markets.
Social investors and nongovernmental organizations (NGOs) welcome
the establishment of the principles, but they caution that the
EPs do not necessarily represent a panacea, and they point out
many potential pitfalls and loopholes.
“We applaud the banks for being willing to publicly acknowledge
that they do have responsibility for the negative social and environmental
impacts of the projects they finance,” said Elizabeth McGeveran,
vice president of governance and socially responsible investment
(SRI) at ISIS Asset Management. In conjunction with other SRI firms
and NGOs, ISIS has been in conversation with EPs signatory bank
Citigroup since late 1999, when the bank was involved in negotiations
concerning the controversial Three Gorges Dam project in China.
“Banks love to take credit for all the good that providing
capital does, especially in developing nations, but they’ve
not been willing to date to take any responsibility for the many
negative
repercussions of their role in financing globalization,” McGeveran
commented.
The Equator Principles specifically address many of these negative
repercussions, such as involuntary resettlement of indigenous people
and pollution of local and regional environments. The EPs are based
in large part on the policies and guidelines of the International
Finance Corporation (IFC), the private-sector investment arm of
the World Bank.
The EPs require signatory banks to categorize all projects as A
(high), B (medium), or C (low) in environmental or social risk
as a precondition of consideration for financing. Borrowers must
conduct an environmental assessment (EA) and prepare an environmental
management plan (EMP) for category A and B projects. The EPs apply
to projects with a total cost of $50 million or more.
Only those banks that are participating in EPs are responsible
for implementation and compliance of the principles. Banks which
have adopted the EPs include:
- ABN AMRO Bank, N.V.
- Barclays plc
- Citigroup, Inc.
- Crédit Lyonnais
- Credit Suisse Group
- HVB Group
- Rabobank Group
- The Royal Bank of Scotland
- WestLB AG
- Westpac Banking Corp.
Eight NGOs from five countries, such as Friends of the Earth US
and UK, Rainforest Action Network (RAN), and World Wide Fund for
Nature (WWF), banded together to critique the EPs over their omissions
and loopholes, among other things.
“The principles blackout what we call ‘no-go zones,’ and
that’s the recognition that there are [geographical] areas
that are so critical for long-term sustainability that any short-term
gains off investment do not outweigh the long-term benefits of
leaving them intact,” said Ilyse Hogue, a global finance
campaigner for RAN. “The principles are also very weak on
social issues.”
“For example, there’s not enough in the principles that recognize
and assure indigenous communities’ right to prior and informed
consent for development on their land, much less a straight-out
right to veto like you or I would have if these companies came
into our homes.”
The eight NGOs compared the EPs to the “Collevecchio Declaration
on Financial Institutions and Sustainability,” a document
signed in Italy in January 2003 by more than 100 NGOs worldwide
(see next page). The declaration called on financial institutions
to make six commitments to sustainability, to “do no harm” (according
to the Precautionary Principle), to responsibility, to accountability,
to transparency and to sustainable markets and governance. This
comparison found the EPs significantly lacking.
McGeveran identified other potential problems with the EPs, expressing
specific concern over so-called “free riders.”
“Some banks will be best practice implementers, and other banks
could just sign and do nothing,” she said. “Because
the principles don’t have clear enforcement or review mechanisms,
how are the best practitioners going to police the system to ensure
that free riders don’t undermine it?”
Hogue summarized the concerns over achieving best practice.
“What we want to see is the sector brought up to the best existing
practices, not settling for the least common denominator,” she
said. “These Equator Principles are a good first step only
if there is a second, third and fourth step.”
This article originally appeared on www.SocialFunds.com, the largest
personal finance site devoted to socially responsible investing.
William Baue works with SRI World Group, Inc., the publisher of
www.SocialFunds.com. |
