Equator PrinciplesA bright beacon for responsible banking

Equator PrinciplesA bright beacon for responsible banking

Update on current approaches taken by project finance banks in assessing social and environmental impacts of new projects. Overview of their application and benefits for the Palm Oil

Industry.

David A. GlenisterSGS United Kingdom Ltd

TBLI Conference _SGS Presentation Slide 2 of 21

Agenda

Introduction to Equator Principles

The Equator Principles Financial Institutions (EPFIs)

The Benefit

The Factual sheet

Testimonial

Application of Equator Principle in Palm Oil Industries

Conclusion



The Equator Principles is a set of environmental and social benchmarks for managing environmental and social issues in development project finance globally.

The Equator Principles were developed by private sector banks – led by Citigroup, ABN AMRO, Barclays and WestLB and were launched in June 2003.

The banks chose to model the Equator Principles on the environmental & social standards of the World Bank and International Finance Corporation (IFC).



In July 2006, the Equator Principles were revised, increasing their scope and strengthening their processes.

The principles apply to all new project financings globally with total project capital costs of US$10 million or more, and across all industry sectors.

the Principles also apply to all project financings covering expansion or upgrade of an existing facility where changes in scale or scope may create significant environmental and/or social impacts, or significantly change the nature or degree of an existing impact.


The Equator Principles Financial Institutions

Sixty financial institutions from twenty-three countries have adopted the Equator Principles. These financial institutions operate in over 100 countries. As a result, the Equator Principles have become the project finance industry standard for addressing environmental and social issues in project financing globally.

Once adopted by banks and other financial institutions, the Equator Principles commit the adoptee not to finance projects that fail to follow the processes defined by the Principles.



ABN AMRO Bank, N.V.

ANZ

Banco Bradesco

Banco de la Republica Oriental del UruguayBanco do Brasil

Banco Galicia

Banco Itaú

BankMuscat

Bank of America

BMO Financial Group

BTMU

Barclays plc

BBVA

BES Group

Calyon

Caja Navarra

CIBC

CIFI

Citigroup Inc.

CORPBANCA

Credit Suisse Group

Dexia Group

Dresdner Bank

E+Co

EKF

Export Development Canada

Financial Bank

FMO

Fortis

HBOS

HSBC Group

HypoVereinsbank

Institutions Which Have Adopted the Equator Principles



ING Group

Intesa Sanpaolo

JPMorgan Chase

KBC

KfW

la Caixa

Lyod TSB

Manulife

MCC

Mizuho Corporate Bank

Millennium bcp

National Australia Bank

Nordea

Nedbank Group

Rabobank Group

Royal Bank of Canada

Scotiabank

SEB

Societe Generale

Standard Chartered Bank

SMBC

TD Bank Financial Group

The Royal Bank of Scotland

Unibanco

Wachovia

Wells Fargo

WestLB AG

Westpac Banking Corporation

Institutions Which Have Adopted the Equator Principles


The Benefit

Demonstration of responsible project financing.

Provide effective project finance risk management, through the incorporation of screening process for projects which are based on IFC’s environmental and social screening process.

Protect Financial Institutions from the environmental and social liabilities of the project development. This can happen if the borrower disappears from the scene, or if they are held to have been complicit in the risks the development ran and failed to seek preventative measures

Protect the environment and provide more sustained approach to corporate social responsibility, borrowing money to finance development projects can often be like doing battle with a very different kind of ‘green-eyed monster’. But with the right preparation and advice, it’s a struggle well worth having.


The Factual Sheet

Equator Principles Projects - Risk Category

High Risk78 projects, 9%

Medium Risk626 projects, 70%

Low Risk191 projects, 21%

Summarized from :EP website at http://www.equator-principles.com/join.shtml


The Factual Sheet

86

50

121

108

59

0

20

40

60

80

100

120

140

Oil, Gas,Petrochemical

Metal and Mining Power Infrastructure Other

Equator Principles Project - Sector Industries

Summarized from :EP website at http://www.equator-principles.com/join.shtml


The Royal Bank of Scotland Group (RBS)

RBS was one of the first ten financial services organizations to adopt

the Equator Principles when they were launched in June 2003 in

Washington. We felt they could bring a level of social and

environmental evaluation, transparency and discipline to projects

which might otherwise be absent

(RBS 2006 Corporate Social Responsibility Report)

CITI GroupOne of the biggest challenges of EPFI’s is demonstrating that compliance with the Equator Principles leads to improved environmental and social outcomes. CITI has consequently reviewed its project finance portfolio for examples of how its environmental and social due diligence led to improved outcomes (Citizenship Report 2006 )

Testimonial


BARCLAYS

All financial organizations must act together in ensuring greater

accountability and sustainable innovation from themselves and the

companies they finance. Proven adherence to such standard by our

clients is a positive indicator from a risk management perspective(Barclays Corporate Responsibility Report 2006 – Responsible Banking)

WestLB

WestLB Actively participated in the amendment of the Equator

Principles in 2006. In 2007, WestLB and other financial institutions

received the International Finance Corporation’s “Chairman’s Award

for Leadership in Sustainable Project Finance” in recognition of their

leading role in the establishment and refinement of the Principles(WestLB 2007 Sustainability Report)

Testimonial



Equator Principles Criteria

Principle 1 : Review and Categorization (of projects)

Principle 2 : Social and Environmental Assessment

Principle 3 : Applicable Social and Environmental Standards

Principle 4 : Action Plan and Management System

Principle 5 : Consultation and Disclosure

Principle 6 : Grievance Mechanism

Principle 7 : Independent Review

Principle 8 : Covenants

Principle 9 : Independent Monitoring and Reporting

Principle 10 : EPFI Reporting.



The Equator Principles can bee seen closely mirror the International Finance Corporation (IFC) Performance Standards on Social and Environmental Sustainability,:

Performance Standard 1: Social and Environmental Assessment and Management System

Performance Standard 2: Labor and Working Conditions

Performance Standard 3: Pollution Prevention and Abatement

Performance Standard 4: Community Health, Safety and Security

Performance Standard 5: Land Acquisition and Involuntary Resettlement

Performance Standard 6:Bio-diversity Conservation and Sustainable Natural Resource Management

Performance Standard 7: Indigenous Peoples

Performance Standard 8: Cultural Heritage



Equator Principles Roundtable Sustainable Palm Oil (RSPO)

P1: Review and Categorization (of projects) RSPO does not address this requirement

P2: Social and Environmental Assessment Compliance with applicable laws and regulation (RSPO-2)

Use of appropriate best practices by growers and millers (RSPO-4)

Environmental responsibility and conservation of natural resources and biodiversity (RSPO-5)

Responsible considerations of employees and of individuals and communities affected by grower and mills (RSPO-6)

P3: Applicable Social and Environmental Standards Compliance with applicable laws and regulation (RSPO-2)


Environmental responsibility and conservation of natural resources and biodiversity (RSPO-5)Responsible considerations of employees and of individuals and communities affected by grower and mills (RSPO-6)

Cross Reference Equator Principles and Roundtable Sustainable Palm Oil



Equator Principles Roundtable Sustainable Palm Oil (RSPO)

P4: Action Plan and Management System RSPO does not address this requirement

P5: Consultation and Disclosure Comitment to transparency (RSPO-1)

P6: Grievance Mechanism Some of requirement is addressed in Comitment to transparency (RSPO-1)

P7: Independent Review RSPO does not address this requirement

P8: Covenants Section a of this requirement is addressed in compliance with applicable laws and regulation (RSPO-2)

Section b, c, d of this requirement are not addressed in RSPO

P9: Independent Monitoring and Reporting RSPO does address this requirement through certification audit.

P10: EPFI Reporting. RSPO does address this requirement through certification audit.

Cross Reference Equator Principles and Roundtable Sustainable Palm Oil



IFC Performance Standard Roundtable Sustainable Palm Oil

PS 1: Social and Environmental Assessment and Management System Comitment to transparency (RSPO-1)

Compliance with applicable laws and regulation (RSPO-2)



PS 2:Labor and Working Conditions


PS 3:Pollution Prevention and Abatement Compliance with applicable laws and regulation (RSPO-2)


Cross Reference IFC Performance Standard and Roundtable Sustainable Palm Oil





PS 4: Community Health, Safety and Security Comitment to transparency (RSPO-1)




PS 5: Land Acquisition and Involuntary Resettlement Compliance with applicable laws and regulation (RSPO-2)

PS 6: Bio-diversity Conservation and Sustainable Natural Resource Management


Responsible development of new planting (RSPO-07)




PS 7:Indigenous Peoples Comitment to transparency (RSPO-1)


Commitment to long term economic and financial viability (RSPO-3)

PS 8:Cultural Heritage Comitment to transparency (RSPO-1)




Conclusion

The Equator Principles is leading recognized approach and can be applied to smaller projects such palm oil processing and plantation.

This will bring benefit success in strengthening the control on social and environmental impact

Roundtable Sustainable Palm Oil can be used as baseline to fulfill requirements of International Finance Corporation (IFC) Performance Standard and Equator Principles


Any Question ?

David Glenister

SGS United Kingdom LtdSGS House, 217-221 London RoadCamberleySurrey GU15 3EYUnited Kingdom

Phone : +44(0) 1276 697 877 Fax : +44(0) 1276 697696Web : www.sgs.com

Equator PrinciplesA bright beacon for responsible banking

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