Equator Principles lead to increased third party pressure

As this situation demonstrates, once banks sign up to the Equator Principles Banks their finance decisions and come under greater scrutiny. While EP banks generally apply more stringent environmental and social policies than other financial institutions, NGOs increasingly use the Equator Principles as a means to place increased pressure on EP banks not to finance projects that the NGOs consider to be environmentally and socially unacceptable.

In the face of this third party pressure, the EP banks need to consider the specialist environmental and social reports prepared by their consultants to make a fully informed decisions. This will ensure their finance decisions are based on the scientific evidence, opposed to responding to excessive pressure. Particularly, if these reports indicate that the risks can be managed in an acceptable manner and the project sponsor demonstrates a clear comittment to improving their environmental and scoial perfromance.

Conversely, NGOs need to recognise that project finance provides opportunities for substantial economic improvements and simply not financing a project may not be the best way of managing the environmental and social risks – after all you can have a greater influence from the inside opposed to the outside.

While the anticipated increased scrutiny may make financial institutions think twice about signing up to the principles, the additional risk management the EPs provide and the shareholder support for such actions can be expected to make it worthwhile.

An example of the ongoing pressure placed on EP banks – this project is considere by many to be a tesing ground for the effectiveness of the Equator Principles:

Thursday May 18th, 2006 – Nine organizations including broad civil society networks in 6 countries, filed a complaint today against Calyon, the international financial investment arm of Crédit Agricole of France, for violations of the Equator Principles, in Calyon’s support of the highly controversial Finnish papermill in Uruguay in construction by Botnia. The complaint was modeled after an earlier complaint presented to ING Group of Netherlands, soon after which ING withdrew US$480 million in pledged support to Botnia. The filing will be followed by public protests outside of the French Embassy in Buenos Aires, the headquarters of Calyon and Crédit Agricole in Paris, and launches what will be a rigorous international campaign against Calyon and Crédit Agricole to withdraw its support to the mills being constructed on the Uruguay River, the natural waterway border between Argentina and Uruguay.

The complaint was discussed and prepared in collaboration between the 9 institutions, in 6 countries and consists of 17 pages of evidence that Botnia does not comply with the Social and Environmental Safeguards of the International Finance Corporation (IFC), and suggests that if Calyon finances Botnia, it will be complicit in violations of human rights and environmental law.

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