An Industry Approach To Managing Environmental and Social Risks
An Industry Approach To Managing Environmental and Social Risks
An Industry Approach To Managing Environmental and Social Risks
GROUP 4
The adaption of these principles by the private sector marks a profound victory for sustainable development
Were glad to see banks responding to pressure thats been brought on them. But I think that youll find broad consensus around the NGO community that the Equator Principles dont go far enough. The loopholes are wide enough for bulldozers to move through
The dilemma: Should Equator Banks encourage adoption by other banks and develop implementation procedures or should they respond to the criticism directly ?
PROJECT FINANCE
WHAT IS PROJECT FINANCE ?
Involves the creation of a legally independent project company financed with non recourse debt to facilitate investment in a single purpose capital asset Used for both infrastructure assets as well as industrial assets
FACT FILE
Total project lending grew at a CAGR of 23% from 96 - 01 Total amount of capital assets financed grew at a CAGR of 18% reaching a peak of $217 BN in 2001 Power, telecom and infrastructure have been the major sectors which have availed of project finance bank loans Bulk of project financing happened in Americas, Europe, Africa and Middle East with Asia Pacific accounting for just 15.2% of total financing between 98 - 02
A $3.7 billion project which consisted of an inland oil-extraction facility and a 670 mile pipeline to loading facilities on the African coast Large development benefits in two of the worlds poorest countries Opposed by environmental groups which claimed that there were environmental risks such as deforestation ad oil spills as well as damage to the fragile ecosystem of the Atlantic littoral forest zone in Cameroon Resettlement of native tribes such as the Bakola people from the forest regions was also an issue The pipeline closed in 2001
Sustainable Development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. - The World Commission on Environment and Development, 1987
Why?
The best way to predict the future is to invent it. - Alan Kay
LONDON PRINCIPLES
Economic Prosperity
Principle 1: Provide access to finance and risk management
products for Investment Principle 2: Promote transparency and high standards of corporate governance
Environmental Protection
Principle 3: Reflect the cost of environmental and social risks in
the pricing of financial and risk management products
Social Development
Principle 6: Exercise equity ownership to promote high
standards of corporate social responsibility by the activities being financed; Principle 7: Provide access to market finance and risk management products to businesses in disadvantaged communities and developing economies.
IMMEDIATE STEPS
Measurement of Environmental & Social Impacts Continuous Improvements based on Environmental & Social Impacts Fostering Sustainability Implementation & Capacity Building Sustainability Procedures Sustainability Standards Bear Responsibility for Impacts of Transactions Recognize Role in Developing Country Debt Crisis Public Consultation Stakeholder Rights Corporate Sustainability Reporting Information Disclosure
To SUSTAINABLE MARKETS Public Policy & Regulation Financial Practices & GOVERNANCE
Need for Equator Principles For a number of years, banks working in the Project Finance sector had been seeking ways to assess and manage the environmental and social risks associated with such investment activities.
Risks Deal risk Credit Risk Reputation Risk
London, October 2002 nine international banks convened together with the International Finance Corporation, to present their cases describing issues in controversial projects
Equator Principles were announced on June 4 2003. 4 drafting banks + 6 other banks adopted EP
IFC Safeguard Policies World Bank Pollution Prevention Abatement Guidelines (IFC Performance standards) EQUATOR PRINCIPLES
Action Plan and Management System: the borrower has to prepare an Action Plan which addresses the relevant findings, and draws on the conclusions of the Assessment
Consultation and Disclosure: borrower or third party expert needs to consult with project affected communities in a structured and culturally appropriate manner
Independent Review: an independent social or environmental expert will review the Assessment, Action Plan and consultation process documentation Covenants: the borrower will add social and environmental covenants in financing documentation and where a borrower is not in compliance with covenants, EPFIs will work with the borrower to bring it back into compliance to the extent feasible Independent Monitoring and Reporting: the borrower retain qualified and experienced external experts to verify its monitoring information which would be shared with EPFIs EPFI Reporting: Each EPFI adopting the Equator Principles commits to report publicly at least annually about its Equator Principles implementation processes and experience
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A. Significant Adverse
Sensitive, diverse or unprecedented impacts EA examines potential + and impacts Compared with feasible alternatives Measures recommendeda full EIA required
B. Potential Adverse
Potential impacts on population or important areas Site-specific impacts Easier mitigation than Category A Very few risks are irreversible Eg: Pulp & Paper, Cement, Hospitals
C. Minimal or Nil
No adverse environmental impacts Beyond screening no EA action
Environmental Audit
TYPES of E.A
Social Assessment
REACTIONS
Mixed Reactions- Praised for Commitment but Particularly Criticized by the Collevecchio NGOs
Fallen short of Societys need and scope for Sustainability in Financial Sector IFC policies- foundation of EPs criticized- especially Sustainability Indicators used Ecologically sensitive areas ignored
MAIN CATEGORIES
1 2 3
SCOPE
IMPLEMENTATION PROCEDURES
ENFORCEMENT MECHANISMS
BNP Paribas
Too Vague, No clear implementation rules and timetable Need to work on issues, we will re-evaluate the merits on a ongoing basis
July 2011, EP Association launched EP III update process. Key Areas: Scope of EPs, Reporting and Transparency, Governance issues, Membership Criteria, Stakeholder Engagement, etc.
CONCLUSION
Tool to leverage resources, skills and expertise towards addressing societal challenges such as climate change and environmental protection Acknowledge the importance of inclusive finance Play a vital role in combating environmental challenges and catalyzing sustainable development Ensure that financing and investment policies are structured around strongly embedded social, ethical and environmental criteria Advise on potential environmental and social sensitivities at both the client and transaction level Provision for continuous monitoring and evaluation once the business engagement is clinched. Each FI needs to define the process and governance model Spreading awareness of potential environmental and social risks and mitigation opportunities
THANK YOU
Presented By : Group 4
Ishant Bhatia Agrim Bothra Tanya Chaudhary Rajat Goel Manoj Jain Virang Shah C007 C008 C011 C020 C025 C050