Public Eye on Davos 2004
The Equator Principles: Drawing the line for socially responsible banks? (23.01.04)
The Equator Principles: Drawing the line for socially responsible banks?
Paneldiscussion 23 January 2004 at “The Public Eye on Davos” Conference
Participants
The panel was opened by Johan Frijns who gave a brief review of the background to the Equator Principles. He explained how in June 2003 a group of the largest commercial banks, who are together responsible for 70% of all project finance in the world, adopted the Equator Principles. These banks publicly committed themselves to apply the social and environmental policies of the World Bank, and its private arm the IFC, in their investment decisions. While cautiously welcomed by NGOs as a first step towards a socially and environmentally responsible investment policy, the adoption of the Principles has not stopped a number of the banks from financing controversial projects such as the Baku Ceyhan oil pipeline and the Landsvirkjun dam in Iceland. How much of a difference do the Equator Principles really make? Do they draw a firm line which banks will not cross, separating those projects which are sustainable from those that are destroying the environment? Or, are the Principles just another line in the sand and is a more comprehensive approach needed such as that embodied in the Colleveccio Declaration which was signed by over 100 civil society organisations?
According to Frijns the jury is still out on the value of the Equator Principles (EP), and he described how the newly created network BankTrack has made monitoring of compliance with the Principles one of its main tasks. Overall, the goal of BankTrack is to bring the financial sector within the influence of civil society in the same way other sectors have been over the last years.
Andreas Missbach of the Berne Declaration, and one of the co-founders of BankTrack, spoke of the positive potential of the Principles and outlined some of the central criticisms of it. In line with the other cases of voluntary corporate regulation in the field of accountability discussed at the Public Eye this year, he too drew attention to the fact that there are no mechanisms to ensure compliance or for censure in the case of non-compliance. He also said that the IFC standards which the EP are based upon do not reflect current best practice and furthermore, that the scope of the operations covered by the Principles are limited to direct project finance.
According to Missbach, however, one of the greatest incentives driving banks to continue to violate their own standards is the bonus system under which many of their employees work. Instead of a fixed salary, the bulk of the earnings of project managers and others is dependent on the number and value of the projects they complete. Thus, if a bank employee were to reject a project because it does not meet social and environmental standards, then this would mean they would receive a smaller bonus at the end of the year. Obviously, this is asking for an exceptional level of commitment on the part of individual employees on behalf of human rights and environmental protection. «Unless this is changed, there is little hope that there will be effective compliance with the Principles,» stated Missbach.
Andrea Baranes showed how the adoption of the Equator Principles have not stopped banks from going ahead and agreeing to finance highly damaging projects. His organisation has compiled exhaustive evidence on the Baku Ceyhan oil pipeline, which when completed will run from Azerbaijan to Turkey via Georgia and has been the subject of numerous criticisms from the peoples in the region and abroad. Baranes wondered how tough the Principles can be if such a project can be financed by banks who have signed on to the EP?
On a positive note, Baranes saw the adoption of the Principles as evidence that pressure from NGOs does have an effect. Michelle Chan-Fishel introduced the example of the American CitiGroup bank who have responded to ongoing pressure from groups such as the Rainforest Action Network, and have drawn up their own project finance guidelines that go beyond the standards contained in the EP. A particular victory is the bank’s acceptance of so-called ‘no-go zones.’ This is a commitment by CitiGroup to refrain from financing any projects in certain sectors, such as commercial logging in primary forests.
Steps like this are essential and need to be adopted by other financial institutions, according to Chan-Fishel, because «the finance sector is the oil that greases the wheels of globalisation.» The sector lags behind other industries in accepting that their business activities have social and environmental effects and that they need to take responsibility for them. Consumers can take effective actions because in the end the banks are spending their money, and by threatening to take their savings to other banks, consumers can bring about change in bank policy. The last word went to Missbach, who reminded us that in the case of Swiss banks, they are managing the money not just of the Swiss but of the rich from around the world, and much of it is here for the purpose of tax avoidance.
23.1.2004/sp
Participants
 | Andreas Missbach, Berne Declaration, Switzerland |
| | Michelle Chan-Fishel, Friends of the Earth USA |
| | Andrea Baranes, Campagna per la Riforma della Banca Mondiale, Itlay |
| | Representative of ABN Amro (did not attend) |
| | Moderation: Johan Frijns, Coordinator BankTrack Network, Netherlands |
The panel was opened by Johan Frijns who gave a brief review of the background to the Equator Principles. He explained how in June 2003 a group of the largest commercial banks, who are together responsible for 70% of all project finance in the world, adopted the Equator Principles. These banks publicly committed themselves to apply the social and environmental policies of the World Bank, and its private arm the IFC, in their investment decisions. While cautiously welcomed by NGOs as a first step towards a socially and environmentally responsible investment policy, the adoption of the Principles has not stopped a number of the banks from financing controversial projects such as the Baku Ceyhan oil pipeline and the Landsvirkjun dam in Iceland. How much of a difference do the Equator Principles really make? Do they draw a firm line which banks will not cross, separating those projects which are sustainable from those that are destroying the environment? Or, are the Principles just another line in the sand and is a more comprehensive approach needed such as that embodied in the Colleveccio Declaration which was signed by over 100 civil society organisations?
According to Frijns the jury is still out on the value of the Equator Principles (EP), and he described how the newly created network BankTrack has made monitoring of compliance with the Principles one of its main tasks. Overall, the goal of BankTrack is to bring the financial sector within the influence of civil society in the same way other sectors have been over the last years.
Andreas Missbach of the Berne Declaration, and one of the co-founders of BankTrack, spoke of the positive potential of the Principles and outlined some of the central criticisms of it. In line with the other cases of voluntary corporate regulation in the field of accountability discussed at the Public Eye this year, he too drew attention to the fact that there are no mechanisms to ensure compliance or for censure in the case of non-compliance. He also said that the IFC standards which the EP are based upon do not reflect current best practice and furthermore, that the scope of the operations covered by the Principles are limited to direct project finance.
According to Missbach, however, one of the greatest incentives driving banks to continue to violate their own standards is the bonus system under which many of their employees work. Instead of a fixed salary, the bulk of the earnings of project managers and others is dependent on the number and value of the projects they complete. Thus, if a bank employee were to reject a project because it does not meet social and environmental standards, then this would mean they would receive a smaller bonus at the end of the year. Obviously, this is asking for an exceptional level of commitment on the part of individual employees on behalf of human rights and environmental protection. «Unless this is changed, there is little hope that there will be effective compliance with the Principles,» stated Missbach.
Andrea Baranes showed how the adoption of the Equator Principles have not stopped banks from going ahead and agreeing to finance highly damaging projects. His organisation has compiled exhaustive evidence on the Baku Ceyhan oil pipeline, which when completed will run from Azerbaijan to Turkey via Georgia and has been the subject of numerous criticisms from the peoples in the region and abroad. Baranes wondered how tough the Principles can be if such a project can be financed by banks who have signed on to the EP?
On a positive note, Baranes saw the adoption of the Principles as evidence that pressure from NGOs does have an effect. Michelle Chan-Fishel introduced the example of the American CitiGroup bank who have responded to ongoing pressure from groups such as the Rainforest Action Network, and have drawn up their own project finance guidelines that go beyond the standards contained in the EP. A particular victory is the bank’s acceptance of so-called ‘no-go zones.’ This is a commitment by CitiGroup to refrain from financing any projects in certain sectors, such as commercial logging in primary forests.
Steps like this are essential and need to be adopted by other financial institutions, according to Chan-Fishel, because «the finance sector is the oil that greases the wheels of globalisation.» The sector lags behind other industries in accepting that their business activities have social and environmental effects and that they need to take responsibility for them. Consumers can take effective actions because in the end the banks are spending their money, and by threatening to take their savings to other banks, consumers can bring about change in bank policy. The last word went to Missbach, who reminded us that in the case of Swiss banks, they are managing the money not just of the Swiss but of the rich from around the world, and much of it is here for the purpose of tax avoidance.
23.1.2004/sp
