This action might not be possible to undo. Are you sure you want to continue?
AN INDUSTRY APPROACH TO MANAGING ENVIRONMENTAL AND SOCIAL RISKS
GROUP 4 Vishal Balani Vipul Jain Anuj Kant Bhagyashree Sathe Satvinder Singh Darpan Thakker Varun Verma A005 A027 A029 A048 A054 A060 A063
Announcement of Equator Principle
• Equator Principle : a new policy framework designed to guide project-finance lending decisions. Announced on June 4, 2003 • Major step towards achieving sustainable development. • Some banks were reluctant to accept the principles as a standard.
• Should Equator banks encourage adoption of the principle by other banks and Export Credit Agencies (ECAs), focus on developing implementation procedures, o r respond to the criticism directly?
• Use of Project finance increased because of : Privatization of state-owned assets Deregulation of key industries Globalization of markets .Project Finance What is Project Finance? • In general it involves the creation of a legally independent project company financed with nonrecourse debt to facilitate investment in a single-purpose capital asset.
Role of Banks Advisors • helped structure deals • Charged a small monthly fee • Time period of six months to 24 months or longer Arrangers • Helped raise capital in return for a fee Lenders • Made loans to project companies .
projects have significant financial. environmental and social effects on the communities in which they are working • For example. Chad-Cameroon Pipeline • Environmental risks including deforestation and oil spills • Potential for the greatest damage in the fragile ecosystem of the Atlantic littoral forest zone • Project‘s settlement plan was incomplete and without mechanisms to ensure enforcement Starting of a debate on ‗sustainable development‘ . developmental.Effect on Environment • Because of the large size.
Environment • Sustainable development : development that meets the needs of the present without compromising the ability of future generations to meet their own needs. • Initially it was focused only on sponsoring firms and their projects • Gradually public and private financial institutions are also included in the dialogue of sustainable development .Economy vs.
Guidelines for ECA known as “Rev. Prosperity 2 0 0 2 .A Little Doze of History 1 9 9 2 Involve Pvt. Protection Social Development Two Principles Eco. & Corporation of London Motto :To Guide behavior of FI’s in World’s Leading Financial Centers Five Principles Env.-6 ” Promote Coherent Policies for Sustainable Development Objective To develop common policies among member ECA To achieve a high level of Environmental Protection London Principles : Established by UK Govt. & Sustainable Development OECD created Env. & Public Institutions. UNEP create FI Initiative UN & FIs create UNEP Statement on Environ.
Stds & Procedures with Transparency Commitment to Sustainability Commitment to „Do No Harm‟ Commitment to Responsibility Commitment to Accountability Commitment to Transparency Commitment to Sustainable Markets & Governance .Collevecchio Declaration Identifies Environmental and Social Responsibility for Financial Institutions Fin Institutions „Legal‟ Responsible for Environmental & Social Risks they accept & create Fin Institutions accountable for Creating Policies.
Interest Permeation Moves by Dow Jones. World Economic Forum. Risks Encouraged College Students to boycott Education Loan & Services Television Commercials urging people to cut their Citibank Credit Cards . Media Campaign RAN v/s Citigroup Campaign Against Citigroup for sponsoring Large Projects with Environ. GRI and UN Efforts by RAN Holistic Solution : Control Capital flows that finance egregious investments Banks are uniquely Vulnerable to Pressure from Advocacy Groups like RAN Confrontation & Negotiation through tactics like Days of Action.
Value Forests 2001 ABN AMRO Creates Forest Policy Oct 2002 ABN AMRO and IFC convene Meeting for Project Financiers .Foundation of Equator Principles Late 1990‟s ABN AMRO approaches IFC • No established Principles for social and Environmental Risks • Not to Finance Projects that result in Resource Extraction from primary of High-Conservation.
Action for causing harm to local environmentClosure of project • Following standard policies enable faster implementation and avoid costly delays Reputation Risk • Association with bad project damages reputation of the financier .Risks Covered by Industry-wide Framework Deal Risk • Deal be delayed before closure causing opportunity cost Credit Risk • Govt.
Widely used. NGOs & other banks Introducing to other Project.Finance Banks . and Broad Industry Covering Principles Adaptation of IFC Policies • Developed over 30 years • Widely accepted • Comprehensive and covered social issues Comments invited from Clients.Forming of Equator Principles Social and Environmental Risks part of the “Equation” Credible.
Minimum standards for pollution discharge . 2003: Adoption of Equator Principles by 10 Banks Applicable on Projects worth more than $ 50 Million Important for Developing Nations who tended to ignore environment protection and human rights IFC Safeguards.Assess impact on natural environment and society World Bank Pollution guidelines.Announcing Equator Principles June 4.
Methodology Categorize Projects Depending on type of project and location A (High) B (Medium) C (Low) A & B Required Environmental assessment All „A‟ required EMP outlining risk mitigation procedures followed Inclusion of steps into Loan Covenants Declared as default if failed to comply .
.Impact Leadership Role in Global Environmental and Social Issues Affect Project Financing in Dozens of Industries globally Could impact investments worth $ 100 Billion in 10 Yrs.
the Collevecchio Declaration & London Principles that lack broader commitments to sustainability Criticized IFC policies – focus on revenue generation & economic growth and not sustainable development indicators Concerns on 3 Fronts – SCOPE. IMPLEMENTATION PROCEDURES & MECHANISMS. .Reaction to the EPs Mixed Reaction from the NGO and the banking communities Applauded by ―Environmental Defense‖ group – praised Citigroup committing to this and being ahead of other supposedly green export credit agencies Collevecchio NGOs did not endorse the Equator Principles – consider it a mix of other principles such as UNEP-FI.
which have an unclear meaning.. Instead the words ―socially responsible‖ were included. . (e.SCOPE EP did not contain ―no-go‖ zones. unlike the IFC guidelines Need for overt transparency & greater commitment to social issues EP does not prevent banks from financing the oil and logging companies that are kicking people out of their homes & destroying rain forests EP focussed on project – finance lending and not on other financial vehicles such as IPOs and bonds.g. forestry projects) It did not adequately address Human Rights.
leading to competitive disadvantage .Implementation & Acceptance Issues : No standard implementation standards Lack of enforcement mechanisms No disclosures No review mechanism Why other banks stayed away: BNP Paribas: Declaration of intent too vague with no clear implementation rules and timetable ANZ : Principles not applied universally.
2003 Onwards Revised in 2006EPII Significant growth in the number of EP adopters from the original 10 to 75 financial institutions from 32 countries across the globe In 2010. stakeholder engagement and governance The EP III Update process was launched in July 2011 and consists of three distinct phases • PHASE I: Internal Consultation and Initial Drafting of EP III (July 2011 .reporting and transparency. climate change.Finalisation and Launch of EP III (October 2012 – January 2013) .October 2012) • PHASE III .EP.August 2012) • PHASE II: Formal 60 day Stakeholder Consultation and Public Comment Period (August . the EP Association initiated a Strategic Review • Series of recommendations on key thematic areas. namely scope. human rights .
Respect and Remedy" Framework for Business and Human Rights and Guiding Principles on Business and Human Rights .EP III Draft Key themes and areas of development proposed in the EP III draft include: An extension in the scope of the EP to Project-Related Corporate Loans and Bridge Loans Changes reflecting the recent update of the International Finance Corporation (IFC) Performance Standards New requirements related to managing impacts on climate Greater emphasis on human rights considerations in due diligence and an acknowledgment of the UN "Protect.
Where does India Stand? •Project developers are required by regulation to undertake an Environment Impact Assessment (EIA) in order to obtain the Environmental Clearance •Major prerequisite for starting projects and demanded by banks in all project finance deals •Although the process appears sound. the EIA reports are not authentic. . there are loopholes in its implementation •In many cases. the public consultation does not take place as per the Act •Sometimes the project's impact on local communities and the surrounding environment remains unclear In December 2007 the Reserve Bank of India (RBI) issued a circular •citing the importance for banks to act responsibly and to contribute to sustainable development •referred banks to the Equator Principles •suggested that there is a need for Indian banks to evolve institutional mechanisms to enshrine sustainability.
Some of the Initiatives by Banks SBI Green Home Loans • Support environmentally-friendly residential projects • Offer various concessions—reduced margins. These loans will be sanctioned for projects rated by the Indian Green Building Council (IGBC) ICICI Bank's Support for Clean Technology • Clean Coal Technologies • Zero Emission Vehicles • Finance for Innovative Products . lower interest rate and zero processing fee.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.