Dozens of commercial banks and lenders, including global heavyweights like Citigroup, JP Morgan Chase and Standard Chartered, signed an updated set of environmental and social safeguards on Thursday that binds them to shoulder more responsible lending in the future.
Under the programme, more than 40 international financial institutions have committed to financing only those projects that comply with the Equator Principles (EP), a set of voluntary environmental and social standards that seek to uphold the rights of people displaced by projects and to protect endangered ecosystems.
Signatories, including big-name banks such as ABN AMRO, HSBC, Barclays, Crédit Lyonnais, Credit Suisse Group, Dresdner Bank and Royal Bank of Canada, sometimes co-finance projects with public multilateral lenders such as the World Bank in mining, oil, gas and related sectors, often associated with pollution and major population dislocations.
The move underlines the growing pressures on private banks and public lenders to invest in more environmentally and socially friendly projects.
The Equator Principles, named for the geographic region below the equator where developers traditionally had disregarded the social and environmental impacts of their projects, derive from the newly recast environmental and social performance standards of the World Bank's private arm, the International Finance Corporation (IFC).
Although the commercial banks have been using the IFC's environmental and social standards as the benchmark for their project lending since 2003, they have now accepted the whole host of new IFC guidelines that were crafted in February.
The new guidelines differ from those in 2003 in that they require companies to integrate environmental and social considerations in their management systems and have expanded to cover financial advising for projects and not just loans.
The new standards call for signatories to apply the principles on projects costing only 10 million dollars or more, rather than projects worth 50 million dollars or more as was the case under the 2003 principles.
The lenders would be required to report on the progress and performance of Equator Principles' implementation on an annual basis and have more vigorous public consultation standards.
The banks say the guidelines give them a framework and a single set of clear standards that they can adopt, rather than having to craft their own, to go with the popular push for better environmental and social conduct.
"The Equator Principles provide a sound framework for the project finance industry worldwide," said Johnny Cameron, chief executive officer of the Royal Bank of Scotland (RBS) Corporate Markets.
"They have given an additional rigour to the way in which the social and environmental impacts of major infrastructure projects are assessed both before and during their implementation."
Together, the banks who signed the principles form a formidable financial force, operating in more than 100 countries and representing more than 80 percent of the project-finance market worldwide.
The IFC, which is the largest multilateral provider of financing such as loans, equity and risk management in the developing world, called on other private banks and financial institutions such the Export Credit Agencies, and banks in emerging markets such as those in China and India, to also adopt the Equator Principles.
"This shows that Equator Banks, instead of shying away from difficult projects, understand the business case for encouraging their client companies to undertake thorough environmental and social due diligence," said Lars Thunell, executive vice president of the IFC.
But while the principles won the applause of many critics, some still say that the Equator Principles, launched by the World Bank Group in 2003, have yet to alter how multinationals conduct business across the globe, often to the detriment of the environment and local communities.
Non-governmental organisations consulted about the process have complained that their most significant proposals to create robust governance and compliance systems, including an accountability mechanism, were not taken up in the guidelines.
Environmentalists who worked for many years to secure strong social and environmental standards for development projects financed by the World Bank say that committing to the principles still doesn't mean that those banks will be either transparent about the projects they fund or that they will cease funding harmful projects.
Nine of the banks on the list are funding the highly controversial 1,000-mile-long Baku-Tblisi-Ceyhan oil pipeline project, which runs from Azerbaijan to Turkey.
The French Bank Calyon is still under fire for bidding to finance the controversial Botnia paper mill project in Uruguay, while ABN AMRO is also bidding for the Sakhalin II oil project in Russia that threatens the last remaining population of Western Gray whales in the world.
"So the EP banks unfortunately have failed to use this revision process to correct some of the fatal flaws associated with the Principles," said Michelle Chan-Fishel of Friends of the Earth-U.S.
"And given the fact that NGO scepticism of the ultimate effectiveness of the EPs is rather high, due largely to the fact that as we speak, the majority of the banks bidding on Sakahlin II are EP banks, ensuring EP compliance and accountability should have been a high priority," she said.
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