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June 04, 2004
Are the Equator Principles Sincere or Spin?
    by William Baue

A report calls into question whether signatory banks are complying with the Equator Principles.

Today, the Equator Principles (EPs), a framework promoting environmental and social responsibility at financial institutions in their project financing, turns one year old. To mark the anniversary, BankTrack, a consortium of global nongovernmental organizations (NGOs) that tracks the social and environmental impacts of the private financial sector, released a report that assesses the progress of the EPs thus far. While the report praises the two US signatories --Citigroup (ticker: C) and Bank of America (BAC)--for making environmental commitments that exceed EP guidelines, the report finds the 25 signatories' compliance with EP standards sorely lacking.

The report, entitled Principles, Profits, or Just PR? Triple P investments under the Equator Principles, criticizes the EP banks for financing projects that violate EP standards, and for a lack of transparency about implementation of the EPs. ("Triple P" stands for the balancing of people, planet, and profits.)

The report cites specific projects financed since the launch of the EPs that contravene multiple EP standards, such as the $3.6 billion Baku-Tbilisi-Ceyhan (BTC) oil pipeline from the Caspian Sea in Azerbaijan to the Mediterranean in Turkey.

"The Equator Principles can be used in three ways--to exclude financing of projects which fail to meet certain minimum standards, to set markers for improving projects' design and performance, and to hold clients accountable for meeting environmental and social performance standards," writes Greg Muttit of UK-based Platform in the report. Co-authors include other BankTrack members such as Friends of the Earth (FoE) and the Rainforest Action Network (RAN). "In the BTC case, which the Equator banks themselves touted as a key test of the Principles, the banks failed all three parts of the test."

Nine of the fifteen banks that made loans in February 2004 to the project, which is led by British Petroleum (BP), were EP signatories, including Citigroup, ABN-AMRO (ABN), and Royal Bank of Scotland (RBOS.L).

"In October 2003, fourteen organizations from eleven countries wrote to the Equator banks, pointing out that the BTC plans violated the Equator Principles on numerous counts including the Indigenous Peoples policy on 30 counts, four other World Bank standards (with which the Equator Principles require compliance) on 97 counts, and nine other clauses of the Equator Principles on 30 counts," Mr. Muttit writes.

For example, Derek Mortimore, a BP consultant who is an international expert on weld coatings, reported to the company in November 2002 that the paint coating used to seal the pipeline's joints against leakage was faulty.

"I have witnessed many failures in specifications . . . but the situation on the pipeline is unique in my 41 years' experience," wrote Mr. Mortimore.

In November 2003, cracks were discovered in the coating of sections of pipe yet to be laid, after an estimated 15,000 joints had already been buried in Azerbaijan and Georgia.

The BankTrack report also criticizes a letter sent by eleven EP banks in April 2004 to World Bank Group (WBG) President James Wolfensohn urging him to reject recommendations of the WBG-commissioned Extractive Industries Review (EIR). The banks opposed the proposal that the WBG withdraw from lending to coal immediately and to oil by 2008, arguing that these extractive activities provide developing countries with the revenues necessary to alleviate poverty. The BankTrack report points out that the "entire purpose of the EIR was to determine how and under what conditions limited World Bank extractive investments could benefit the poor."

"One of the most distressing things we have seen this year is how Equator banks have formed themselves into a lobby group to block pro-poor reforms at the World Bank," said Simon McRae of Friends of the Earth UK. "Certainly Equator banks have a right to express their own opinion, but when they band together to become obstructionists it deals a blow to their integrity."

The BankTrack report ends with a series of recommendations to address what it considers a potentially "fatal flaw" of the EPs: the lack of transparency and accountability. Specifically, the report proposes an "Independent Accountability Mechanism" with several different options for implementation, and it urges the banks to shift their focus away from recruiting new signatories to instead focus on regular public reporting.

"This report, and the recommendations it contains, signals that NGOs still have some hope for the Principles, and that we want to see them work," said Michelle Chan-Fishel of Friends of the Earth US. "However, if the Equator banks continue to finance controversial deals, pursue an anti-environmental lobbying agenda, and cloak themselves in secrecy and unaccountability, public confidence will be irretrievably lost."


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