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Financial institutions have welcomed an update of the Equator Principles, ethical guidelines for lending on large-scale project finance. However, they say the latest adjustments will lead to only ‘minimal’ changes in the way they operate.
International banks such as ABN Amro, Barclays and Citigroup say they already implement many of the social and environmental requirements.
The revised principles, named Equator 2, reflect recent changes to the non-financial assessment standards of the International Finance Corporation. They require financial institutions to make more extensive provisions for community consultation, biodiversity protection and disclosure of greenhouse gas emissions before they issue loans.
The voluntary guidelines will now apply to projects with a total value above $10million (£5.2m), as opposed to $50m previously. However, a number of signatories have been working to this lower threshold for some time.
‘It’s not a major issue for us. Most projects are far more than $10m anyway,’ said Martin Hancock, chief operating officer at Australian bank Westpac, who added that the impact of the lower threshold was most likely to be felt by regional banks that finance smaller-scale projects.
Participating banks now have to raise compliance issues with clients well in advance of any formal application for financing. But again, many larger banks say they are doing this already.
Transparency is the greatest new challenge for the banks. Under a new tenth principle, Equator 2 commits participating institutions to publish annually how they are implementing the guidelines. As well as details of management processes, the banks are expected to reveal the volume and risk category of Equator-related deals.
Chris Bray, Barclays’ head of environmental risk policy management, claimed the Equator Principles have already led to a ‘real step change’ in banking practices. ‘Some banks have come to social and environmental risk assessment relatively late and are embracing things like Equator as a checklist of the good things to do,’ he said.
Environmental and human rights groups have generally welcomed a tightening of the Equator Principles, but some think the revision is a missed opportunity. BankTrack, an Amsterdam-based campaign group, says a suitable accountability mechanism for affected communities is missing. It also criticizes Equator 2 for failing to adopt project-specific transparency requirements and for lacking clearer human rights commitments.
Andrea Durbin, a consultant on the social and environmental impacts of financial institutions, said: ‘Perhaps the largest gap in the proposed policies is the lack of a meaningful reference to human rights and recognition of international human rights protections.’
International banks such as ABN Amro, Barclays and Citigroup say they already implement many of the social and environmental requirements.
The revised principles, named Equator 2, reflect recent changes to the non-financial assessment standards of the International Finance Corporation. They require financial institutions to make more extensive provisions for community consultation, biodiversity protection and disclosure of greenhouse gas emissions before they issue loans.
The voluntary guidelines will now apply to projects with a total value above $10million (£5.2m), as opposed to $50m previously. However, a number of signatories have been working to this lower threshold for some time.
‘It’s not a major issue for us. Most projects are far more than $10m anyway,’ said Martin Hancock, chief operating officer at Australian bank Westpac, who added that the impact of the lower threshold was most likely to be felt by regional banks that finance smaller-scale projects.
Participating banks now have to raise compliance issues with clients well in advance of any formal application for financing. But again, many larger banks say they are doing this already.
Transparency is the greatest new challenge for the banks. Under a new tenth principle, Equator 2 commits participating institutions to publish annually how they are implementing the guidelines. As well as details of management processes, the banks are expected to reveal the volume and risk category of Equator-related deals.
Chris Bray, Barclays’ head of environmental risk policy management, claimed the Equator Principles have already led to a ‘real step change’ in banking practices. ‘Some banks have come to social and environmental risk assessment relatively late and are embracing things like Equator as a checklist of the good things to do,’ he said.
Environmental and human rights groups have generally welcomed a tightening of the Equator Principles, but some think the revision is a missed opportunity. BankTrack, an Amsterdam-based campaign group, says a suitable accountability mechanism for affected communities is missing. It also criticizes Equator 2 for failing to adopt project-specific transparency requirements and for lacking clearer human rights commitments.
Andrea Durbin, a consultant on the social and environmental impacts of financial institutions, said: ‘Perhaps the largest gap in the proposed policies is the lack of a meaningful reference to human rights and recognition of international human rights protections.’
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