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October 12, 2012

BankTrack not Satisfied with new Draft of Equator Principles
    by Robert Kropp

While acknowledging that the new draft is an improvement, the Netherlands-based NGO finds insufficient commitments by signatory banks to transparency, human rights, and climate change mitigation.

SocialFunds.com -- Some of the most environmentally damaging practices of the extractive industries—mountaintop mining and extensive deforestation, to name but two—remain perfectly legal, despite their contributions to climate change and destructive effects on communities. Such operations require a great deal of money; and since policymakers in the US and elsewhere seem unprepared to outlaw the practices, the Equator Principles were launched in 2003 to bring the management of environmental and social risks to Project Finance transactions.

Currently, 77 financial institutions in 32 countries are signatories to the Principles, including five—Bank of America, CitiGroup, Ex-Im Bank, JPMorgan Chase, and Wells Fargo—that are headquartered in the US. However, despite their expressions of commitment to the Principles, four of the five are among the leading financiers of the construction of coal-fired power plants in the world.

Following last year's updating of the Sustainability Framework of the International Finance Corporation (IFC), the Equator Principles Association has released a draft of the updated Equator Principles (EP III). The draft attempts to establish new requirements for the management of climate impacts; emphasize the importance of human rights, especially in the aftermath of John Ruggie's Guiding Principles on Business and Human Rights; and strengthen reporting and transparency requirements.

This week, BankTrack, a Netherlands-based nongovernmental organization (NGO) whose member groups include the US-based Friends of the Earth and the Rainforest Action Network, submitted comments on the draft version of EP III. While finding the draft an improvement over EP II, BankTrack was unsparing in its criticism of what it described as a "watered down compromise."

"Far bigger steps must be taken by the EPFIs (Equator Principles Financial Institutions) for the Equator Principles to regain their position as leading industry initiative on sustainable finance," BankTrack states in its comments. The NGO argues, for example, that "the strong public demand for greater transparency of banks… will not be satisfied by the feeble commitments in Principle 10 to list number and categories of transactions, but without providing any information on the nature of these transactions and their potential impact on people and planet."

Furthermore, despite the draft's reference to the Guiding Principles, "EPIII will also not provide any mechanism accessible to affected communities or the public to address cases of non-compliance with the Principles in a transparent, fair, or effective manner."

Finally, "By merely requiring borrowers to assess alternatives and consider them when financially feasible' or by suggesting borrowers to assess the 'viability of Project operations, of reasonable foreseeable changing weather patterns/climatic conditions, together with adaptation opportunities' without in any way addressing the direct and indirect impact on these 'climatic conditions' of projects," the draft fails to adequately address the impacts of climate change.

Yann Louvel, BankTrack's climate and energy campaign coordinator, said, "It is astonishing and disappointing that the Equator Principles banks, while claiming to adhere to the gold standard for managing environmental and social risk by banks, continue to turn a blind eye to the severe risk they pose on the planet and on themselves by financing projects that exacerbate and accelerate climate change such as tar sands, coal fired power plants or Arctic drilling."

BankTrack Director Johan Frijns added, "There is a real risk that EPIII will not be the commitment we need from banks to take up their responsibilities towards stakeholders, impacted communities and the planet."

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