February 18, 2000
Shareholders Bring Banks to Account for Three Gorges Dam
A resolution with three international lenders draws attention to their role in the environmental
and human rights costs of China's colossal dam project.
At least 25 shareholder resolutions have been filed with companies over global corporate
accountability issues, ranging from vendor standards to discrimination to human rights abuses. Many
of them focus on corporate involvement in China, but an outstanding example is the resolutions with
Morgan Stanley Dean Witter, Citigroup, and Merrill Lynch concerning their involvement in financing
the construction of the Three Gorges Dam.
"I think that this dialogue regarding the
Three Gorges Dam is the beginning of a much larger discussion with the banks about how they can
incorporate environmental and human rights criteria into their underwriting business," said Simon
Billenness, Senior Analyst at Trillium Asset Management. Trillium is the lead filer of the
resolutions with Morgan Stanley and Citigroup, while Domini Social Investments filed the third with
The Three Gorges Dam project on China's Yangtze River represents the
largest hydroelectric project in the history of the world, creating a reservoir approximately 400
miles long and submerging approximately 150,000 acres. It is designed to generate over 18,000
megawatts of electricity for nearby rural provinces, and to provide flood management and improved
navigation for the upper Yangtze River.
But the potential for irreversible economic,
social, and environmental impacts from the Three Gorges Dam project are a real concern for Chinese
activists and many international human rights and environmental organizations. Up to 1.9 million
people will be displaced by the reservoir, a potential human rights catastrophe in a country
already strapped with economic and social problems and tarnished by infringements on human rights.
In addition to the economic and social upheaval of forced relocation, the dam poses
serious public health risks, including malaria, encephalitis, and schistosomiasis, earning it the
reputation of a "Chernoblyl of hydropower." Other casualties include the countless fish species and
the endangered Baiji river dolphin that rely the river for their migrations and the flow of
nutrients, as well as 16 known archaeological sites of priceless cultural value.
financial costs are enormous as well. As late as 1992 when the project began, the official cost of
the dam was $11 billion. Estimates now exceed $75 billion, and the demand for foreign assistance is
growing with the ballooning budget.
Although the World Bank has historically underwritten
such international development projects, they now have environmental and human rights criteria that
preclude their involvement in Three Gorges Dam, such as not lending to any project that results in
the relocation of more than 5,000 people. U.S. Export-Import Bank and the Asian Development Bank
have also refused to finance the project, leaving private U.S. banks to invest the funds.
In May 1999 a $500 million bond was issued by the Chinese Development Bank (CDB), whose second
largest loan commitment was to the Three Gorges Dam project. Salomon Smith Barney (now part of
Citigroup) and Merrill Lynch were responsible for underwriting most of that bond, each contributing
$225 million, followed by lesser contributions from Chase Securities, JP Morgan, Morgan Stanley and
others, thereby indirectly financing the controversial project.
The previous bond issued
by CDB in January 1997 was partly underwritten by BankAmerica, which sparked dialogue between the
bank and Trillium, as well as with environmental and human rights groups. Now Bank of America
(their name after merger with Nations Bank) is the only private U.S. investment bank with a
specific policy on the Three Gorges Project, and they refused to underwrite this last CDB bond.
"It was a decision by our senior credit officer at the time, who had input not only from
our internal officers in the field, but also from external advocacy groups," said Sharon Tucker,
Public Relations Officer at Bank of America. "Those conversations went over a number of factors,
and they included the environmental impact and the resettlement issues of the project. We want to
strike a balance between economic growth and environmental protection."
filed with Morgan Stanley, Citigroup, and Merrill Lynch laud the example of Bank of America, and
asks these other lenders to review their underwriting criteria relative to effects on the
environment and human rights. This is the second year the resolution has been filed with Morgan
Stanley, where it gained 5 percent support last year.
Simon Billenness of Trillium is
confident that the resolutions will get the 6 and 3 percent they need (for second and first year
resolutions respectively) for eligibility to be filed again last year. Often it is the continued
pressure of these resolutions which bring companies to the negotiating table, as occurred with
Morgan Stanley after filing the first resolution with them last year.
"We are in dialogue
with all three banks, which is good, so the resolutions clearly have helped stimulate discussions
with them," said Billenness. "I think that a combination of shareholder resolutions and also
coverage in the media has helped educate consumers about their banks' involvement in projects such
as the Three Gorges Dam."
While the supporting arguments in the three resolutions
specifically address the Three Gorges Dam, an environmental and human rights disaster in the
making, the resolutions themselves are more generally about environmental and human rights
criteria. As such they stand to make international lenders more accountable for the impact of
development projects around the world.