Public Eye on Davos 2004
Speech by Michelle Chan-Fishel (23.01.04)
A Matter of Principles: Moving from Equator to Collevecchio
23 January 2004
Public Eye on Davos
Statement of Michelle Chan-Fishel, Friends of the Earth - US
The role of the financial sector in sustainability
A Swiss investment fund admitted to me recently, the financial sector is the grease that oils the machine of corporate globalization. Whether we are talking about workers who toil in sweatshops, forests that are clearcut, or controversial projects like the Baku-Ceyhan pipeline, there is always an army of banks and investors who enable these activities to happen.
We know that finance inherently isn’t bad, it all depends on how it is applied and what kind of world it helps create. And when you think about it: most of us have savings accounts at banks, so it’s our money they are using – shouldn’t it help create a world that is just and sustainable?
This was the clear message that was sent to banks last year at the Public Eye on Davos, where over 100 civil society groups launched the Collevecchio Declaration. This Declaration says to banks that they must accept responsibility for the environmental and social harm created by their transactions. And it challenges them to take a proactive role in improving the environment, promoting equity and protecting human dignity.
The Equator Principles
As a response to this public pressure, the Equator Principles were announced last June. NGOs welcome the Equator Principles, but we have clear concerns with banks capacity to implement them. And as Andrea Baranes has told us, many Equator Banks are financing the Baku-Ceyhan pipeline and failing their first important test of whether the Principles will be applied in real life.
So why are we are still hopeful about the Principles? As Andreas mentioned, the Equator Principles have attracted many banks – and critical mass is important, otherwise corporations can always shop around for the bank with the lowest environmental and social standards. Another positive aspect about the Principles is that they are not vague and aspirational – rather they are quite specific in terms of policies, procedures and standards.
That is why we developed a set of proposals for implementing Equator. The fatal flaw of the Equator Principles is that they lack accountability mechanisms to ensure that the Principles are implemented, and we hope that our recommendations can help fix this. The Principles help establish systems within banks for identifying and dealing with environmental and social issues. If done well, these systems could provide an excellent foundation for developing other policies on issues like human rights.
But how do the Equator Principles compare with the vision for sustainability that was described in the Collevecchio Declaration? The answer is that Equator is consistent with, but falls far short of what civil society demands of banks. On the positive side, Collevecchio specifically says that banks should treat transactions differently based on their level of environmental or social impact. For example, a hydroelectric dam in Vietnam that forces thousands of people to leave their homes and farms should be treated very differently than a wind farm in Germany. Equator does this, and as Andreas said, this is a big first step.
However, the Principles, even if they were perfectly implemented, are not perfect themselves. For example, NGOs believe that banks should completely avoid the most environmentally and socially destructive projects. This is what many people call a “no-go zone” – activities which have such harmful environmental and social impacts that a line should be drawn around them and the banks should not go there. In contrast, the Equator Principles put an emphasis on trying to fix bad projects, rather than drawing “no go” lines.
Going Beyond Equator
Some banks are already starting to realize that Equator Principles don’t go far enough. HypoVereinsbank has already said that Equator’s environmental and social standards should be more broadly applied, and not just limited to project finance. And Citigroup yesterday announced a set of new environmental commitments.
Some of these new commitments actually help plug some of the holes in the Equator Principles. Here are three examples:
First, Citigroup said that they will apply Equator environmental standards not just to projects, but to companies where use of proceeds is known. That means that an oil company may request a general loan from Citibank, but plan to use the money for new activities in environmentally sensitive areas. In those cases where Citigroup knows where the money is going, they will apply Equator.
Second, Andreas has mentioned a recent audit of IFC – the World Bank organization on which the Equator Principles are based – found that the IFC itself wasn’t doing a good job of implementing their own policies. One of the reasons why is that the IFC was too trusting when borrowing companies said, “don’t worry, we will make sure to implement all your environmental conditions, just give us the money.” Citigroup’s new commitment says that they will be more critical of borrowing companies, and evaluate companies’ capacity and willingness to ensure environmental protection the rights of indigenous peoples.
Finally, Citigroup has drawn a no-go line. They have committed to not finance commercial logging operations in primary moist forests, such as vast parts of the Amazon rainforest.
These examples represent further steps on the long road to sustainability. There are still many areas in which banks must make progress – promoting human rights, forgiving Third World debt, dealing with tax evasion…
But the important thing to remember is that public pressure is driving progress. In fact, the four banks that drafted the Equator Principles were all targeted by NGOs campaigns in their home countries. Even though the Equator Principles are flawed, they are banking industry’s first attempt to develop industry-wide standards and processes to deal with environmental and social issues.
So as members of civil society, and as customers who entrust our money with banks, we should continue pressuring financial institutions to take part in our common journey toward sustainability. The journey will be difficult, but what we are really talking about is the ability of humankind to ensure its own future. And we can all agree: that is a journey worth taking.
Contact: Michelle Chan-Fishel, Friends of the Earth at mchan@foe.org
Public Eye on Davos
Statement of Michelle Chan-Fishel, Friends of the Earth - US
The role of the financial sector in sustainability
A Swiss investment fund admitted to me recently, the financial sector is the grease that oils the machine of corporate globalization. Whether we are talking about workers who toil in sweatshops, forests that are clearcut, or controversial projects like the Baku-Ceyhan pipeline, there is always an army of banks and investors who enable these activities to happen.
We know that finance inherently isn’t bad, it all depends on how it is applied and what kind of world it helps create. And when you think about it: most of us have savings accounts at banks, so it’s our money they are using – shouldn’t it help create a world that is just and sustainable?
This was the clear message that was sent to banks last year at the Public Eye on Davos, where over 100 civil society groups launched the Collevecchio Declaration. This Declaration says to banks that they must accept responsibility for the environmental and social harm created by their transactions. And it challenges them to take a proactive role in improving the environment, promoting equity and protecting human dignity.
The Equator Principles
As a response to this public pressure, the Equator Principles were announced last June. NGOs welcome the Equator Principles, but we have clear concerns with banks capacity to implement them. And as Andrea Baranes has told us, many Equator Banks are financing the Baku-Ceyhan pipeline and failing their first important test of whether the Principles will be applied in real life.
So why are we are still hopeful about the Principles? As Andreas mentioned, the Equator Principles have attracted many banks – and critical mass is important, otherwise corporations can always shop around for the bank with the lowest environmental and social standards. Another positive aspect about the Principles is that they are not vague and aspirational – rather they are quite specific in terms of policies, procedures and standards.
That is why we developed a set of proposals for implementing Equator. The fatal flaw of the Equator Principles is that they lack accountability mechanisms to ensure that the Principles are implemented, and we hope that our recommendations can help fix this. The Principles help establish systems within banks for identifying and dealing with environmental and social issues. If done well, these systems could provide an excellent foundation for developing other policies on issues like human rights.
But how do the Equator Principles compare with the vision for sustainability that was described in the Collevecchio Declaration? The answer is that Equator is consistent with, but falls far short of what civil society demands of banks. On the positive side, Collevecchio specifically says that banks should treat transactions differently based on their level of environmental or social impact. For example, a hydroelectric dam in Vietnam that forces thousands of people to leave their homes and farms should be treated very differently than a wind farm in Germany. Equator does this, and as Andreas said, this is a big first step.
However, the Principles, even if they were perfectly implemented, are not perfect themselves. For example, NGOs believe that banks should completely avoid the most environmentally and socially destructive projects. This is what many people call a “no-go zone” – activities which have such harmful environmental and social impacts that a line should be drawn around them and the banks should not go there. In contrast, the Equator Principles put an emphasis on trying to fix bad projects, rather than drawing “no go” lines.
Going Beyond Equator
Some banks are already starting to realize that Equator Principles don’t go far enough. HypoVereinsbank has already said that Equator’s environmental and social standards should be more broadly applied, and not just limited to project finance. And Citigroup yesterday announced a set of new environmental commitments.
Some of these new commitments actually help plug some of the holes in the Equator Principles. Here are three examples:
First, Citigroup said that they will apply Equator environmental standards not just to projects, but to companies where use of proceeds is known. That means that an oil company may request a general loan from Citibank, but plan to use the money for new activities in environmentally sensitive areas. In those cases where Citigroup knows where the money is going, they will apply Equator.
Second, Andreas has mentioned a recent audit of IFC – the World Bank organization on which the Equator Principles are based – found that the IFC itself wasn’t doing a good job of implementing their own policies. One of the reasons why is that the IFC was too trusting when borrowing companies said, “don’t worry, we will make sure to implement all your environmental conditions, just give us the money.” Citigroup’s new commitment says that they will be more critical of borrowing companies, and evaluate companies’ capacity and willingness to ensure environmental protection the rights of indigenous peoples.
Finally, Citigroup has drawn a no-go line. They have committed to not finance commercial logging operations in primary moist forests, such as vast parts of the Amazon rainforest.
These examples represent further steps on the long road to sustainability. There are still many areas in which banks must make progress – promoting human rights, forgiving Third World debt, dealing with tax evasion…
But the important thing to remember is that public pressure is driving progress. In fact, the four banks that drafted the Equator Principles were all targeted by NGOs campaigns in their home countries. Even though the Equator Principles are flawed, they are banking industry’s first attempt to develop industry-wide standards and processes to deal with environmental and social issues.
So as members of civil society, and as customers who entrust our money with banks, we should continue pressuring financial institutions to take part in our common journey toward sustainability. The journey will be difficult, but what we are really talking about is the ability of humankind to ensure its own future. And we can all agree: that is a journey worth taking.
Contact: Michelle Chan-Fishel, Friends of the Earth at mchan@foe.org
