In the first ever industry-wide attempt to promote socially responsible lending, nine banks have adopted environmental and social guidelines for project finance in emerging markets, writes Jane Monahan in Washington.
After years of supporting environmentally and socially questionable projects – for instance India’s Irun dam project and Indonesia’s transmigration project – that culminated in banks and international financial institutions receiving a bad press, the group of banks has decided to take this step to avoid damage to their reputations in future.
The so-called Equator Principles were drafted by four of the private banks, ABN Amro, Barclays, Citibank and West LB, in collaboration with the International Finance Corporation (IFC), the private sector affiliate in the World Bank Group, and after consultation with environmental non-governmental organisations.
Five other private banks, Credit Lyonnais, Credit Suisse First Boston, Rabobank, HVB and Australia’s Westpac Banking Corporation, have since adopted the principles. Altogether, the nine banks underwrote more than $14bn in project finance in 2002, which is roughly 30% of the project loan syndication market globally, according to Dealogic consultants in Washington.
“The adoption of these principles by the private sector marks a profound victory for sustainable development,” said Peter Woicke, executive vice-president of the IFC and managing director of the World Bank.
Momentum for private banks to adhere to IFC rules for sustainable development has been building for some time. The principles cover a range of issues, including the degree of environmental assessment required for projects in oil, gas, infrastructure and forests, and safeguard policies on indigenous people, child labour, involuntary resettlement and natural habitats.
Under the terms of the principles, the nine banks “will not provide loans directly to projects where the borrower will not, or is unable to, comply with [the IFC’s] environmental and social policies and processes”.
In the late 1990s, the US Export Import Bank (the main lending institution in the World Bank Group) set an example for other countries’ export credit agencies by refusing to finance the controversial Three Gorges dam in China, despite fierce criticism from US companies.
