Equator Principles Epilogue

1
Equator Principles Epilogue

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• Environmental Risk Management (ESM 286)
• Winter 2008

2
After the ten banks introduced the Equator
Principles in 2003

• Equator banks recruited more financial
  institutions to join them
• Banks moved forward in varying degrees toward
  implementation
• Banks responded directly to NGO criticism
• One year after 24 banks had adopted
• Two years after there were 31 adopters
• Currently (March 2008) 57 banks have adopted
• 80 of funding for project financing globally

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Lessons Learned

• The extent to which the banks and the NGOs
  goals overlap

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Revised Equator Principles Effective July 2006

• Equator Principles update
• http//www.equator-principles.com/documents/AARFoc
  usProjectFinance20August202006.pdf
• Revision include
• Principles apply to projects with capital costs
  of 10 million (down from 50 million)
• Principles apply to project finance advisory
  activities
• Covers project upgrades and expansions
• Streamlined for application of standard in
  countries that have high environmental and social
  standards
• Each equator principle financial institution is
  required to report annually on progress and
  performance of Equator Principle implementation
• Stronger and better social and environmental
  standards including more robust public
  consultation standards

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NGOs response

• NGOs welcomed the revision but remained cautious
• Equator banks still suffered from fundamental
  governance and accountability problems
• They want stronger implementations systems
• They would like a system to deal with free
  riders
• They would like a regular reporting requirements

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Project Finance in Developing Countries

• See geographic breakdown in Exhibit 2
• In 2004, private capital flows to developing
  countries increased to 300 Billion
• This is 4 times the amount of government aid
  provided to these developing countries

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International Finance Corporation (IFC) quotes

• Private sector investment rather than aid is now
  the driving force for development.
• With more and more financial institutions taking
  on environmental and social issues, responsible
  banks stand to be the leader in sustainable
  development.

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What did you expect?

• Did you expect the Equator Principles to make
  this much progress?
• Have the NGOs had an impact?
• Firms must manage reputation risk and their
  ability to negotiate with NGOs and government
  regulators

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Equator Principles in China

• The State Environmental Protection Administration
  (SEPA) signed a deal with the International
  Finance Corporation (IFC) in Beijing yesterday
  (1/24/08) to introduce the Equator Principles in
  China.
• "It was proved an effective instrument to curb
  pollution and lower financial risk," said Yang
  Chaofei, director of the SEPA's policy
  department.
• Communications between environmental monitors and
  banks saw some plants blacklisted from receiving
  loans because of their pollution record.

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More information

• http//www.equator-principles.com/principles.shtml