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June 05, 2013

Revised Equator Principles Fall Short, BankTrack Says
    by Robert Kropp

The third version of the Equator Principles fails to adequately safeguard community rights while continuing to allow signatory banks to fund high impact sectors such as coal and tar sands. -- The Equator Principles were launched in 2003 to bring the management of environmental and social risks to the Project Finance transactions of global banks. Given that the greenhouse gas (GHG) emissions of financial institutions are predominately indirect, the concept of holding banks to account for the environmental and social consequences of their lending portfolios is in itself laudable.

But as many concerned observers have pointed out, the aspirational aspect of the Principles has resulted in many banks, especially some of the largest in the US, failing to live up to their commitments. The four banks providing the most financing of coal-fired power plant construction are headquartered in the US, and three of those four—JPMorgan Chase, Citigroup, and Bank of America—are signatories to the Principles.

Signatories to the recently published third iteration of the Equator Principles "commit to implementing the Equator Principles in our internal environmental and social policies, procedures and standards for financing Projects. We will not provide Project Finance or Project-Related Corporate Loans to Projects where the client will not, or is unable to, comply with the Equator Principles."

"The approval of EP III will mean many more projects will be captured under the EP framework, which has been welcomed by financial institutions who want to manage environmental and social risk better," Leonie Schreve, Head of Sustainable Lending at ING, and Chair of the EP Association Steering Committee said. "Importantly, it is good news for the environment, and for communities around the world, as economic development continues to bring both benefits and challenges."

However, commenting on the updated Principles, Johan Frijns of BankTrack said, "The new principles are outright disappointing in their absence of any new commitments on strengthening community rights and on combating climate change."

According to BankTrack, communities affected by projects financed by Equator Principles Financial Institutions (EPFIs) are not considered rights holders in consultations; thus, EP III fails "to strengthen the ability of communities to effectively invoke the Principles to defend their rights and interests."

The absence of accountability mechanisms "makes a mockery of stated ambitions of EPFIs to set a gold standard in social and environmental risk management," Michelle Chan of Friends of the Earth said.

Furthermore, proposals by BankTrack and others "to include financed emission reduction targets and opt for the categorical exclusion of certain high impact sectors" have been left out of EP III. "There still seems to be no appreciation whatsoever of the magnitude of the threat posed by climate change to all of us, banks included, let alone any corresponding ambition level," Yann Louvel of BankTrack said.

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