Shareholder pressure means banks can not afford ‘not to adopt’ the Equator Principles

Banks are clearly going to need to take further steps to demonstrate their projects are environmentally and socially sound in the face of increasing shareholder pressure.

  • EP banks now feel that they ‘can not affords to not adopt the Principles, due to the potential longterm losses associated with displeasing shareholders.
  • This is clearly a driving force for banks to adopt the Equator Principles, as the cost of implementing the the processes to adopt the Principles is recognised as being far lower that the risk of being associated with a poorly performing project.

The following extract sets out the main focus of the shareholder interest, during the ING Annual General Meeting (AGM) 25th April 2006:

  • Recent research claims to demonstrate the financial links between ING and companies that have been criticised due to practices such as support for dictatorial regimes, forced relocations of population, and forced labour. This is published in the report ‘Where do you draw the line? by Netwerk Vlaanderen.
  • ING has financed the BTC pipeline and the Trans Thai-Malaysia pipeline, and is also on the shortlist of banks that could become ‘lead arranger’ for the financing of the Sakhalin II gas project in Russia. These projects have been criticised because it is claimed that they support undemocratic regimes, the fuelling of regional conflicts, the violation of human rights, and environmental damage.

Shareholders will question ING about its human rights policy. They support Netwerk Vlaanderen’s demand towards the banks to make their human rights policy public, along with a list of the companies and governments in which they are investing.

Irrespective of whether these third party claims are valid or not, this demonstrates how careful banks need to be when making investment decisions. In this case the shareholders proposed a pragmatic approach to risk management, namely the development of a robust human rights policy.

It also call into question just how accountable financial institutions can be expected for the organisations they work with, a financial institutions may simply not have the resources to investigate the vast range of activities a large company may be involved in.

Equally, they may not have the authorisation for such investigations, and while clients will generally accept that it is reasonable to request information that related to a specific project, they may baulk at requests by Financial Institutiions for information for unrelated projects.

It is also necessary to consider the nature of a “financial connection”, is it reasonable to expect a financial institutions financing a low risk project, to investigate other projects being undertaken by their client, if they are satisfied with the environmental and social practices of the project they are actually involved with?

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