International financiers set voluntary green standards for energy projects

Ten US and European-based banks will strive to make international oil and gas projects more environmentally responsible under a new voluntary program called the "Equator Principles," the World Bank's International Finance Corp. announced Wednesday.

June 5, 2003

3 min read

By OGJ editors
WASHINGTON, DC, June 5 -- Ten US and European-based banks will strive to make international oil and gas projects more environmentally responsible under a new voluntary program called the "Equator Principles," the World Bank's International Finance Corp. announced Wednesday.

The principles largely mirror the IFC's own guidelines for oil and gas, mining, and forestry projects pursued in developing countries. IFC is the private sector investment arm of the World Bank.

Banks adopting the Equator Principles include ABN AMRO Bank NV, Barclays PLC, Citigroup Inc., Credit Lyonnais, Credit Suisse Group, HVB Group, Rabobank, Royal Bank of Scotland, WestLB AG, and Westpac Banking Corp.

"The adoption of the Equator Principles signifies a major step forward by the financial sector to establish a standardized, common framework to address the environmental and social issues that arise from development projects," said Charles Prince, chairman and CEO Citigroup's Global Corporate & Investment Bank. "We are extremely proud to be part of this voluntary, private sector initiative and we are confident that we will see more and more banks active in project finance adopt these principles in the coming months," he said.

The banks' actions reflect ongoing pressure from environmental groups. Activists such as Greenpeace argue the World Bank should leverage its influence within the financial community to encourage private banks to support responsible development with clear environmental targets.

One environmental group, the San Francisco, Calif.-based Rainforest Action Network (RAN), said the Bank's latest effort to encourage responsible development is too weak because it is a voluntary program.

"The Equator Principles are proof that banks are feeling the heat from environmental groups worldwide," said RAN spokesman Ilyse Hogue. "Unfortunately the Equator Principles won't do anything to prevent banks from bankrolling the oil and logging companies that are kicking people out of their homes to destroy the rainforests in places like Ecuador."

Money with strings attached
Together, the group of 10 banks underwrote about $14.5 billion of IFC project loans in 2002, representing about 30% of the project loan syndication market globally, IFC said.

"In adopting the Equator Principles, a bank undertakes to provide loans only to those projects whose sponsors can demonstrate to the satisfaction of the bank their ability and willingness to comply with comprehensive processes aimed at ensuring that projects are developed in a socially responsible manner and according to sound environmental management practices," IFC said.

Banks will apply the Equator Principles to all loans for projects with a capital cost of $50 million or more.Banks will categorize projects as "A", "B", or "C" (high, medium or low environmental or social risk) by the banks, using common terminology.

For A and B projects (high and medium risk), the borrower will complete an environmental assessment addressing specific environmental and social concerns identified in the categorization process. Then, after appropriate consultation with affected local stakeholders, category A and B project borrowers will prepare environmental management plans addressing the mitigation and monitoring of environmental and social risks, IFC said.