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September 10, 2014
Reporting by Equator Banks Lacks Transparency
    by Robert Kropp

An academic paper published by the Center for International Governance Innovation concludes that only five percent of financial institutions reporting to the Equator Principles disclose all the information required of them.

The 80 financial institutions that are signatories to the Equator Principles (EP) agree to report on the social and environmental impacts of their project financing activities; in the case of projects expected to emit large amounts of greenhouse gases (GHGs), for instance, signatories are expected to disclose the total emissions expected.

The Principles, which have undergone two significant revisions since their launch in 2003 (the most recent occurring in 2013), have encountered considerable criticism from non-governmental organizations (NGOs) that have pointed out that some of the signatories are among the world's leading financiers of such environmentally destructive activities as coal-fired power plant construction and mountaintop removal.

Signatories "commit to implementing the Equator Principles in our internal environmental and social policies, procedures and standards for financing Projects. We will not provide Project Finance or Project-Related Corporate Loans to Projects where the client will not, or is unable to, comply with the Equator Principles."

But BankTrack, the Netherlands-based NGO, stated upon the publication of the third version of the Equator Principles last year, “The new Principles fail to strengthen the ability of communities to effectively invoke the Principles to defend their rights and interests.” Furthermore, BankTrack continued, “The new Equator Principles contain only two climate related ‘requirements' for clients, requirements that are so devoid of any ambition as to render them meaningless in the global fight against climate change.”

According to a new report authored by Olaf Weber for the Center for International Governance Innovation, most signatories are falling short of even the modest requirements of the third version. “many EPFIs report at least four out of the seven criteria and that 70 percent have a score of four and higher,” the report found. “Only 2.5 percent, however, report all seven aspects that are mentioned as mandatory in the EP II guidelines.”

“Only two (about five percent) EPFIs, disclose all the information required by the EP guidelines, although 85 percent meet at least four out of the seven reporting criteria,” the report continued. In general, the report found, the larger financial institutions were more compliant.

“Additional mechanisms are needed to guarantee that the EPFIs follow the EP’s demands,” the report concluded. “As long as not meeting the demands does not lead to any consequences from the EP Association, the likelihood of full disclosure of project-related information is relatively low.”

Another recent report on the environmental, social, and corporate governance (ESG) reporting, found that signatories for the most part report more effectively on ESG factors. Eighty-one percent of the financial institutions analyzed by Sustainalytics “have not signed the Principles, including a significant number of emerging market banks that are currently lending to large-scale development projects that have negative environmental and social impacts.”

“Banks are well advised to increase resources devoted to improving lending standards and developing new, innovative strategies and products that take material environmental and social impacts into account to ensure their competitiveness,” Sustainalytics concluded.


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