Description
It basically talks about the Equator principles, what exactly is Equator principle and background on project finance and sustainable development
Case Study Presentation
The Equator Principles: An Industry Approach to Managing Environmental and Social Risks
What are Equator Principles??
• Set of environmental and social benchmarks for managing environmental and social issues in development project finance globally • Refrain the adoptees from financing projects that fail to follow the processes defined by the principles • Banks modeled the equator principles of the World Bank & International Finance Corporation • As of April 2008, 60 financial institutions have adopted the Equator Principles
Background on Project Finance & Sustainable Development
• Project Finance - Generally involved the creation of a legally independent project company to finance investment in a single purpose capital asset • Following three trends increased the use of project finance
– Privatization of state owned assets – Deregulation of industries – Globalization of markets
Background on Project Finance & Sustainable Development
• Large projects could have significant financial, developmental, environmental and social effects on the communities in their location • Definition of sustainable development: Development that meets the needs of the present without compromising the ability of the future generations to meet their own needs. • By early 1990s the sustainability debate expanded to include public and private FIs
The Equator Principles
1. Review and Categorisation by the FIs 2. Social and Environmental Assessment by the borrower 3. Applicable Social and Environmental Standards are addressed in EA 4. Action Plan and Management System by the borrower
The Equator Principles
5. Consultation with the affected groups and Disclosure to the public 6. Comply with EMP, provide regular reports and decommission the facilities 7. Independent monitoring and review 8. Incorporation of covenants linked to compliance 9. Apply to projects with capital cost of $50 mn or more
Reaction to the Principles
• Mixed reactions from the NGO sector and some Banking communities too • Environmental Defense, a New York based group supported the step but Collevecchio Consortium did not support it because of 2 major reasons:
– Poor track record of other initiatives within the financial sector & – Lack of Broader commitments towards sustainability in the Equator Principles
Collevecchio NGOs’ Stance
• Their concerns could be grouped into 3 major categories:
– Scope:
• Ecologically sensitive areas not protected by exclusive mention • Protection of Local inhabitants not incorporated
– Implementation procedures:
• The Principles applied only to Project Finance deals & not to corporate loans and bonds • Uniform implementation standards across all participating banks were desired
– Enforcement Mechanisms:
• Banks were not required to report their decisions or publicize them with regards to a specific project • The problem of Free-Riders (Banks that endorse policies, but do not comply with them)
Other Financial Institutions’ views
• BNP Paribas decided not to join the EP declaration now, but was open to joining it later • ANZ Investment Bank supported the spirit of EP but inclined to draft their own policy framework consistent with their corporate values which will apply to all asset classes and not just project finance • “Morally EP is an important concept to be established in a region”, said a banker from the Middle-East
Thank You
doc_313914902.pptx
It basically talks about the Equator principles, what exactly is Equator principle and background on project finance and sustainable development
Case Study Presentation
The Equator Principles: An Industry Approach to Managing Environmental and Social Risks
What are Equator Principles??
• Set of environmental and social benchmarks for managing environmental and social issues in development project finance globally • Refrain the adoptees from financing projects that fail to follow the processes defined by the principles • Banks modeled the equator principles of the World Bank & International Finance Corporation • As of April 2008, 60 financial institutions have adopted the Equator Principles
Background on Project Finance & Sustainable Development
• Project Finance - Generally involved the creation of a legally independent project company to finance investment in a single purpose capital asset • Following three trends increased the use of project finance
– Privatization of state owned assets – Deregulation of industries – Globalization of markets
Background on Project Finance & Sustainable Development
• Large projects could have significant financial, developmental, environmental and social effects on the communities in their location • Definition of sustainable development: Development that meets the needs of the present without compromising the ability of the future generations to meet their own needs. • By early 1990s the sustainability debate expanded to include public and private FIs
The Equator Principles
1. Review and Categorisation by the FIs 2. Social and Environmental Assessment by the borrower 3. Applicable Social and Environmental Standards are addressed in EA 4. Action Plan and Management System by the borrower
The Equator Principles
5. Consultation with the affected groups and Disclosure to the public 6. Comply with EMP, provide regular reports and decommission the facilities 7. Independent monitoring and review 8. Incorporation of covenants linked to compliance 9. Apply to projects with capital cost of $50 mn or more
Reaction to the Principles
• Mixed reactions from the NGO sector and some Banking communities too • Environmental Defense, a New York based group supported the step but Collevecchio Consortium did not support it because of 2 major reasons:
– Poor track record of other initiatives within the financial sector & – Lack of Broader commitments towards sustainability in the Equator Principles
Collevecchio NGOs’ Stance
• Their concerns could be grouped into 3 major categories:
– Scope:
• Ecologically sensitive areas not protected by exclusive mention • Protection of Local inhabitants not incorporated
– Implementation procedures:
• The Principles applied only to Project Finance deals & not to corporate loans and bonds • Uniform implementation standards across all participating banks were desired
– Enforcement Mechanisms:
• Banks were not required to report their decisions or publicize them with regards to a specific project • The problem of Free-Riders (Banks that endorse policies, but do not comply with them)
Other Financial Institutions’ views
• BNP Paribas decided not to join the EP declaration now, but was open to joining it later • ANZ Investment Bank supported the spirit of EP but inclined to draft their own policy framework consistent with their corporate values which will apply to all asset classes and not just project finance • “Morally EP is an important concept to be established in a region”, said a banker from the Middle-East
Thank You
doc_313914902.pptx