China drafts environmental guidelines for firms investing abroad

September 16, 2008

China is drafting environmental guidelines for companies investing in or providing economic aid to overseas countries.

 The work is being undertaken by the Chinese Academy for Environmental Planning (CAEP), in cooperation with the Global Environmental Institute (GEI) and the University of International Business and Economics. The first draft is now being discussed, the GEI said.

 A report released by the CAEP last week said the country lacked comprehensive environmental protection policies in its overseas projects, although investment had been expanding.

 Statistics show that between 2002 and 2006, China’s overseas non-financial direct investment grew by 60 percent annually. By the end of 2006, 5,000 Chinese companies had set up nearly 10,000 directly invested firms and invested $90.6 billion in 172 countries.

China’s overseas investment and aid mainly focuses on exploring oil and other resources, processing, manufacturing, and construction in African and Southeast Asian countries. Without proper management, such projects are likely to cause environmental problems, the report said.

In April, several companies, including China Mobile, Haier Group, and China International Marine Containers, joined “Caring for Climate”, a voluntary UN initiative to combat global climate change. Liu Meng, director of UN Global Compact China Office, told China Daily earlier that these companies’ participation suggests that China’s business sector is catching up with its international counterparts on climate issues.

China National Petroleum Corporation, the country’s largest oil producer, has pledged to stick to stringent environmental requirements before deciding on overseas projects.

Currently, only four banks in China have either formulated independent environmental standards for financing, or have joined the United Nations Environment Program Finance Initiative to reduce environmental risks.

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The Do’s and Don’ts of Sustainable Banking; a BankTrack manual

December 1, 2006

BankTrack, the NGO network monitoring the private financial sector, presented their new publication, ‘The Do’s and Don’ts of Sustainable Banking; a BankTrack manual’, at the Ethical Corporations’ ‘Sustainable Finance Summit’ in London.

According to Banktrack:
The manual seeks to answer the straightforward question posed to the panel; ‘what does a really sustainable bank look like?’.

  • Banks should, for example, change their bonus schemes to emphasise implementation of environmental and social policy and long-term prudence instead of short-term profits.
  • BankTrack advises banks to ensure that sustainability policies are actually implemented, rather than used as a public relations tool.
  • International banks are told to engage with emerging banks to improve their standards, rather than just complain that there is an uneven playing field.
  • Advising investors to put their money into shares that do not meet the bank’s own minimum standards is also listed as a “don’t” by BankTrack.

It follows the outline of the Collevecchio Declaration, released in 2003, which calls upon financial institutions to embrace six commitments:

  1. Sustainability;
  2. Do No Harm;
  3. Responsibility;
  4. Accountability;
  5. Transparency; and
  6. Sustainable Markets and Governance.

The new manual should be seen as the updated implementation guidelines to the Collevechio Declaration, incorporating the latest thinking and expectations of civil society groups on the subject.


Banktrack feels new Equator Principles could be better – but are they failing to see the bigger picture?

July 10, 2006

It is interesting to consider some of the NGO views on the revisions to the Equator Principles. BankTrack (a network of civil society organisations and individuals tracking the operations of the private financial sector) have highlighted what they consider to be the key improvement to the Equator Principles, together with their main areas of concern:

BankTrack acknowledges the improvements in the new version of the revised Equator Principles (EP2), such as the expansion of the Principles to cover financial advising and the lower threshold, but also believes that the EP2 fail to live up to their potential. BankTrack’s suggestion to regularly review the Principles with an eye toward continuous improvement, was taken on board in the revision and is very much welcome.

However BankTrack feel that:

  • EP banks must adopt more robust governance and implementation systems, such as a procedure for dealing with “free riders” and a regular reporting requirement.
  • EP banks still are involved in environmentally and socially harmful projects. For example, at this time, EP banks represent the majority of financial institutions bidding on the deeply controversial and non-EP compliant Sakhalin II project.
  • BankTrack further believes that the EP banks should adopt an accountability mechanism that would allow communities affected by projects supposedly governed by the EPs to seek redress for problems they may encounter.

BankTrack welcomes the areas in which the revised EPs have embraced higher environmental and social standards. For example, the EPs now have stronger standards on labour and working conditions, and a new requirement to covenant clients to host-country environmental and social laws.

However BankTrack feels that:

  • EP2 did not adopt a new IFC requirement on revenue and contract transparency for extractive industries clients, a measure designed to promote good governance and combat corruption.
  • And on the important issue of Land Acquisition and Involuntary Resettlement, the IFC PS and EP2 actually reverses a previous World Bank policy and no longer recognizes people without ‘recognizable’ land titles.

BankTrack views the EPs as a baseline, rather than best practice, in the field of sustainable financing policies. A recent BankTrack study found that many banks have already adopted individual environmental and social financing policies that go beyond the Equator Principles.

As BankTrack has found out, some banks are already going far beyond the requirements of the Equator Principles, which has been a very positive outcome from this process. BankTrack are generally very supportive of the changes, and have clearly valued the opportunity they were given to comment on the proposed changes.

However, there is a need to recognise that whether or not EP banks finance a particular project is not necessarily the best measure of the success of the Equator Principles. A greater emphasis should be placed on the magnitude of the improvements that are made to individual projects as a result of an EPs banks involvement. NGOs often fail to recognise the need for client confidentiality in relation to particular projects and tend to have overly ambitious desires for disclosure.

It should be recognised that the recently completed Equator Principle revisions process has been a remarkable exercise in itself, with an impressive number of Financial Institutions getting together to discuss and reach a general consensus on how they will manage environmental and social risks. The outcomes have included clear and highly progressive improvements to the Equator Principles, which will certainly result in improved projects and increased shareholder satisfaction.


EBRD Decision on Sakhalin II Postponed

July 7, 2006

The EBRD has put back its decision on whether to take part in the financing of the US$20 billion Sakhalin II LNG project till September. Previously, it was hoped that a decision would be delivered by May following a four month assessment and consultation stage started last December. The EBRD has set up a Sakhalin II project page on its website setting out its decision making process and providing information on the project and the EIA.

The EBRD opened public consultation on the potential financing of Sakhalin II (Phase 2) on 20 December 2005. This will be a tough decision for the EBRD to make, as there has been a large amount of campaigning in relation to this project, yet equally there has been a vast quantity of environmental and social assessment undertaken to identify and investigate the potential risks. It is clear that the EBRD will make a fully informed decison.

The EBRD’s final decision is likely to to influence other Financial Insitutions who are considering financing the project.

sakhalin_map_2.jpg

For those who are interested in reading some of the environmental concerns raised by third parties, the Sakhalin Environmental Watch Website provides a compilation of the various NGO’s campaigns in relation to the project.


Equator Principles lead to increased third party pressure

June 19, 2006

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.


EIB and EBRD will apply the EU’s principles on environmental protection to project financing

June 19, 2006

London, 1 June: The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) have signed a declaration promising to apply the EU’s principles on environmental protection to project financing.In order to secure a loan from the banks, a project should now adhere to the European Principles for the Environment (EPE), which are based on EU environmental legislation and the environmental principles enshrined in the treaties underpinning the EU.

However, campaign groups are already saying that the declaration does not go far enough, because the requirement is subject to the banks’ environmental policies and, outside of Europe, subject to local conditions.

Stoczkiewicz also expressed concern about how the principles would be applied to projects financed by the EIB in Latin America and Asia. “These conditions will not necessarily come from the country’s legislation or the country’s government itself,” she said.

Arango said that it would not be practicable to expect projects in developing countries to adhere to some EU legislation. He said: “We do not go down the line of dumping environmental externalities on developing countries. When you go into developing countries, you have to be realistic.”


NGO Position Paper on Equator Principles II now available

April 28, 2006

For those who wish to read around the subject here is a link to some of the critiques on the Equator Principles, The NGO Position Paper on Equator Principles II is now available. Unsurprisingly, the NGO’s do not think the revised Equator Principles go far enough.

However, the revision process has been a huge achievement, with an impressive level of co-operation from the financial institutions involved. They have certainly paved the way for more effective environmental and social risk mangement in project finance, and now wider financial transactions too.

NGO response in summary:

After analyzing the proposed revision, it is our sense that the EPFIs have failed to grasp this opportunity. While the draft EPII does offer some improvements, the overall approach is based on establishing the lowest common denominator and allowing some of the least committed institutions to hold the standards back.

Furthermore, the rushed engagement and review process does not allow the time necessary to address the fundamental problems and shortcomings of EPI. We share the concern of the EPFIs for a timely and efficient revision and adoption process, but we also strongly believe that excessive haste will result in a final product that does not address weaknesses and lack of clarity in the revised principles, which will be much more costly in the longer term.

They identify 2 particularly problematic projects that EP banks are considering financing as demonstrating that the EPs are not working effectively.

We especially consider two projects now under consideration as highly problematic, namely the Sakhalin II oil and gas project in the Russian Far East and the Botnia/ENCE pulp and paper mill projects in Uruguay.

BankTrack member groups and others have documented extensively that both projects are in gross violation of the Equator Principles. Yet, some of the very same banks that took the lead in EPI are now are seeking a lead role in financing these operations. It is these financial decisions that will ultimately determine whether or not the Principles are seen as credible and effective.