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