See Risk Project Finance Jul 06

8/2/2019 See Risk Project Finance Jul 06

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Error! Reference source not found. SEE risk briefingJuly2006

EIRIS 1/22

SEE r i sk br ie f i ng Ju l y 2 0 0 6

Project finance:

a sustainable future?

I n s i d e

Overv iew of t he issue.. . . . .. . .. . .. . . .1 Backg round Wha t i s p ro j ectf inan ce and th e Equat orPrinciples?... . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Poten t ia l soc ial , e th ica lenv i ronm en ta l ( SEE) r i sks andopp ort un i t ies . . .. . .. . .. . .. . .. . . .. . .. . .. . .6 Exp osur e fact or s . . .. . .. . .. . .. . .. . .. . .. .8 Managi ng t he r isk s . . .. . .. . .. . .. . .. . .10 Good prac t i ce ex am ples . .. .. .. .. .13 Com pany assessm ent s . . .. . . .. . .. .17

1 . Overv iewProject finance1 is a rapidly expandingfield, with almost USD 200bn lent tocompanies to finance particular projectsin 20042. While project finance has itsorigins in the natural resource andinfrastructure sectors, the currentdemand for infrastructure and capitalinvestments is primarily fuelled byderegulation in the power,

telecommunications, and transportationsectors; by the globalisation of product;and by the privatisation of government-owned entities in developed and

developing countries. The long-termprospects are strong, as countries withlimited government resources try tomeet the growing demand forinfrastructure assets.

Given the right applications andstructures, the benefits of projectfinance can more than offset the highertransaction costs, increased timecommitments, and higher debt ratestypically associated with projectfinancings.However, project finance may result inunsustainable practices because banksand project sponsors (bank clients)often do not carry out adequateenvironmental and social impactassessments of the projects they arefinancing. In addition, financiers oftentake inadequate steps to address theissue of sustainability, as environmentaland social regulations in some hostcountries can be weak. This isespecially true in developing countries.As a result of the adverseconsequences big infrastructureprojects may have, civil society hasincreasingly targeted the financiersinvolved in the projects to act moreresponsibly.

This briefing seeks to identify the areasof potential risk associated with projectfinance, and the ways in which thesemay materialise in the short and


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medium term for financial institutions.The briefing then examines the policies

and strategies adopted by nine of thelargest financial institutions involved inproject finance in mitigating thoserisks, against a set of indicators devisedby EIRIS (see sections 6 and 9). Finallythe paper discusses how financialinstitutions could further decrease theirrisk exposure while investing in largeand often controversial projects, as wellas looking at best practice exampleswithin the financial industry.

EIRIS chose explicitly to look at projectfinance as a financial instrument and itsrelated risks and not solely at theEquator Principles. This inclusiveapproach also allows EIRIS to lookbeyond the Equator Principles toanalyse companies involved in projectfinance who have not adopted theEquator Principles.

The key findings of this briefing are:

Three years after the firstannouncement of the EquatorPrinciples in June 2003, the numberof adopting financial institutions hasrisen from 10 to 41

All nine companies analysed in thispilot study have a global projectfinance policy that includes social,ethical and environmental criteria

Some of the companies analysed,including ABN AMRO, Barclays, JPMorgan Chase and Westpac BankingCorporation, have taken steps to gobeyond the Equator Principles byapplying the principles to a lowerfinancial threshold or to otherfinancial instruments such ascorporate loans, and byimplementing sector specific policiesin relation to project finance

However, despite a number ofpositive steps that have been taken,not all companies are mitigatingtheir risks sufficiently and only twocompanys management response is

classified as good i.e. sufficient tomitigate risks to an acceptable level

Investors need to focus on howcompanies are implementing thesecommitments to adequately mitigatecompany risks. Currently theimplementation of thesecommitments and policies varygreatly

A number of companies (six out ofnine) fail to report in detail on theircompliance, monitoring and auditing

systems Only three of the nine companies

show evidence of client diagnostictools or audits to evaluateenvironmental and social risks

Five out of the nine analysedcompanies report publicly on projectfinance but the extent and depth ofinformation varies considerately

Reputational risks in relation toproject finance could be mitigated toa greater extent by reportingtransparently on controversialprojects

The Equator Principles represent animportant advancement in financialinstitutions addressing theenvironmental and social impactsassociated with project finance.However, adoption of these, or similarprinciples, alone does not adequately

mitigate the risks facing this sector.The effectiveness of the voluntarystandards so far adopted by 80% offinancial institutions involved in projectfinance is also being disputed andcriticised by several NGOs3. Only byfocusing on the implementation ofthese commitments will the risks beadequately mitigated.


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2 . Backg round2 .1 . What i s p ro j ect f i nance?Project finance, also called non-recourse or limited-recourse finance, isa form of financing for companies andgovernments where lenders are repaidonly through the revenues generatedby the project itself e.g. the tollscollected from a toll road, the electricitygenerated by a power plant. Lenders donot have recourse to the borrower's

own assets if a project fails to generatethe revenue projected. Project financeis most commonly directed at largeinfrastructure projects. After massiveprivatisation and deregulation ofindustrial sectors in the 1990's, privatefinancing of development projects grewenormously. Although the volume ofprojects decreased in 2001 as a resultof the worldwide economic slowdownand industry-related risks (especially in

the power sector), project financebegan rebounding in 2002.

The deal cycle is typically very long(often many years), and can involvemany financiers. The initial costs ofthese projects are usually very high,while the benefits can only be reaped inthe longer term. Since all kinds of risksmay arise (financial, technical,environmental, political etc.) project

finance has evolved into a very complexfinancing method. Project finance iscomprised of a mix of equity and debt.Typically 30-40% of a project is fundedthrough equity contributions, while 60-70% is funded through debt. Projectsponsors usually contribute the equityand own the project, while debtfinance can take two forms: loans andbonds. Project loans are made bycommercial banks, with each lender

agreeing that loans will be repaid onlyfrom the revenues generated by thesuccessful, completed project. Loansnormally contain loan covenants oragreements between the lender and the

borrower about what the borrowershould or should not do, such as

providing regular reports and adequateinsurance. Larger, more risky projectsoften require syndicated loans. Theseloans are provided by a group offinancial institutions called a bankconsortium or a syndicate. The bankcoordinating the consortium and thesyndicated loan is called the arranger,and can be different from the banksproviding the debt4.

Project finance primarily benefitssectors or industries in which projectscan be structured as a separate entity,apart from their sponsors. A case inpoint would be a stand-aloneproduction plant, which can beassessed in accounting and financialterms separately from the sponsor'sother activities. Generally, suchprojects tend to be relatively largebecause of the time and other

transaction costs involved instructuring, and to include considerablecapital equipment that needs long-termfinancing. In the financial sector, bycontrast, the large volume of financethat flows directly to developingcountries' financial institutions hascontinued to be of the usual corporatelending kind.

The most prominent project finance

sectors are telecommunications, powerplants, infrastructure, natural and otherresources, petrochemical and chemicalplants. Most project finance is lent toprojects in Western Europe. NorthAmerica is another major destination,followed by Latin America, including theCaribbean, and Southeast Asia.

2.2 . The Equat or Pr inc ip les5On 4 June 2003 ten financialinstitutions launched the EquatorPrinciples (EPs), a set of guidelines formanaging social and environmentalissues related to the financing of


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projects6. According to the civil societyorganisation BankTrack7 it is the first

time that banks, which are otherwise incompetition with each other, havepresented a united approach inattempting to mitigate environmentaland social risks associated withfinancing projects.

The Equator Principles commit adoptingbanks to:

undertake to review carefully all

proposals for which our custom ersrequest proj ect financing. We will not

provide loans directly to projects wherethe borrower will not or is unable tocomply w ith our environmental andsocial policies and processes8

Three years after the firstannouncement of the EPs, the numberof adopting financial institutions hasrisen to 41. Most of the key players in

the market are on board but a numberof leading project finance banks,including BNP Paribas and SocitGnrale, continue to opt out. TheEquator Principle banks themselvesestimate that the Principles now governover 80% of all project lending9.

The banks pledge to apply thisframework to all projects with a capitalcost above USD 50m10 (GBP 26,7m;

EUR 39,3m; JPY 5,6bn), in all industriesglobally. The principles are presentedas a framework for developingindividual internal practices andpolicies. Banks are adopting andimplementing these principlesvoluntarily and independently. Banksadopt these principles but are notsignatories to them.

The environmental and social screeningprocess for projects is based on thatused by the International FinanceCorporation (IFC). Projects arecategorised as A, B or C projects(respectively, those displaying high,

medium or low environmental or socialrisk). For all Category A and Category B

projects (high and medium risk), aborrower must carry out anenvironmental assessment (EA), whichaddresses the environmental and socialissues identified in the categorisationprocess. The environmental assessmentmust show that the project complieswith host country laws, regulations andpermits required for the project; withthe World Bank guidelines; and withIFC Pollution Prevention and Abatement

Guidelines for the relevant industrysector. For projects in low and middleincome countries only11, theenvironmental assessment must alsotake into account the IFC SafeguardPolices, which provide guidance onissues such as natural habitats,indigenous peoples, involuntaryresettlement, safety of dams, forestry,cultural property and other matters. Forall Category A projects and certain

Category B projects, the borrower or athird party expert must prepare anenvironmental management plan(EMP). A number of quality controls areenvisaged: compulsory independentexpert reviews of EAs and EMPs forCategory A projects and anindependent expert review ofcompliance, when judged necessary.However, the principles do not specifywho will carry out these reviews or

their timelines, what recourse there willbe for potentially affected persons, anddo not clarify the circumstances underwhich independent monitoring will beconsidered necessary12.

While civil society organisations havevery much welcomed the developmentof the Equator Principles and thecommitments contained in them theyhave also made clear that they expectadopting banks to apply themrigorously, and in good faith, in theirdecisions on whether or not to financespecific projects. The biggest areas ofcriticism are currently accountability


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and transparency of the EquatorPrinciples, and implementation and

compliance monitoring of them. Severalcivil society groups also criticised theEPs for not providing a sufficientdescription of public consultationprocesses in relation to controversialprojects13.

However, as the Equator Principleswere just launched in a revised formone major improvement is seen in theexpansion of the scope of the

principles: the new principles apply toall new project financings with totalcapital costs of USD 10m or moreacross all industry sectors globally. Inaddition, while the principles are notintended to be applied retroactively, thefinancial institutions will apply them toall project financings coveringexpansion or upgrade of an existingproject where changes in project scaleor scope create significant additional

environmental and/or social impacts, orsignificantly change the nature ordegree of an existing impact.

The civil society response EquatorPrinciples II - NGO comments on theproposed revision of the EquatorPrinciples issued in April 2006welcomes the extension of the scope ofthe EPs as the most obviousimprovement. One of the main

criticisms in this paper is the applicationof the EPs to limited financialoperations (only project finance loansare covered; other financialinstruments, like corporate loans, arenot included) which significantlyimpedes one of the stated goals of theEPs: to promote responsibleenvironmental stewardship and sociallyresponsible development. The civilsociety response points out that it isthe scale of the impact, not the natureof the transaction that shoulddetermine the appropriate responseand approach of the financialinstitutions14.

The Equator Principles offer a

comprehensive framework for assessinga companys risks in relation to projectfinance. However, as theimplementation and compliancemechanisms are not defined within thisframework it is insufficient from aninvestors perspective to solely adoptthe Equator Principles without fillingthis framework with a meaningfulcontent which is specifically tailored toeach individual financial institution and

its business operations.

3 . Scope o f EI RI S researchEIRIS analysis in this report focuses oncompanies who are involved in projectfinance.

The selected companies are ABN Amro,Barclays, BBVA, BNP Paribas, Credit

Suisse First Boston, Deutsche Bank, JPMorgan Chase, Sumitomo MitsuiBanking and Westpac BankingCorporation. All nine companies derivea substantial amount of profit fromproject finance15.

EIRIS has selected companies from awide geographical range to present abroad overview of approaches andsteps taken to mitigate the risks in

relation to non-recourse finance.

All companies in the FTSE All WorldDeveloped Index have been classifiedas high, medium or low exposure andtheir management response will beassessed over the year.

A snapshot of EIRISs findings ispresented in section 6.1.


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4 . Pot en t ia l soc ia l ,e n v i r o n m e n ta l a n d oth e r

e th i ca l r i sks and

o p p o r t u n i t i e s

This briefing seeks to identify areas ofpotential risks and opportunitiesassociated with project finance, andways in which these may materialise inthe short to medium term. The keyrisks identified are direct risks such aspolitical, social and environmental risks

but also indirect risks such asreputational risks.

4 .1 . Di rect r i sks4 .1 .1 . Env i ronm en ta l r i sksLarge infrastructure projects often carrysignificant environmental risks that maynot be immediately visible to thebanks16. Environmental risks may have

a direct bearing on project returnswhen, for instance, the life-expectancyof a dam is shortened by unexpectedecological processes.

A specific current example is the Baku-Tbilisi-Ceyhan (BTC) pipeline, a projectthat spans Azerbaijan, Georgia andTurkey. It has been especially criticisedby civil society groups for the risks itposes to the environment. A direct

financial risk could materialise to thefifteen major banks that financed thecontroversial BTC oil pipeline. Thefinancial institutions have been warnedthat they could face court action if thepipeline leaks. The warning to theboards and legal departments of thefifteen banks came in a letter from UK,Georgian and Azeri campaign groupswho have been monitoring thepipeline's impacts. The banks, includingThe Royal Bank of Scotland and ABNAMRO17, would be liable to Turkish,Georgian and Azeri claimants if theyhad prior knowledge of a potentialcause of pipeline failure yet failed to act

to remove the risk of pollution. Expertshave testified that the anti-corrosion

coating chosen by BP, who own 30.1%of the project and is the operator of theAzeri-Chirag-Guneshli offshore oil fieldcomplex as well as the Shah Denizgasfield, does not stick to thepipeline.18 Peeling and cracking of thecoating has been reported in internalBP reports. The participating bankscould incur civil or criminal liabilities if acoating failure causes a leak. The bankswere informed of reports documenting

the extent of coating failure and of thepotential civil and criminal liabilitiesthat might arise if they fail to use theirpowers as lenders to take effectiveaction to prevent pollution. According tocivil society groups, such as PlatformLondon19 (a member of BankTrack), itis considered a general offence toknowingly permit a crime. Corrosionexperts have advised that the onlycourse of action that would remove the

high risk (and potential liabilities) of aleak would be for the pipeline to be re-coated with a coating that is suitablefor the purpose20.

A similar example which could pose apossible legal risk to financialinstitutions is the Sakhalin II project inRussia where an environmental impactassessment was conducted by Shell. Asnon-governmental organisations such

as the World Wildlife Fund (WWF) andBankTrack have pointed out21 Shell hasnot produced oil spill models for theSakhalin II project with sea-iceconditions, emphasising in the reportthat there are no existing mathematicalmodels to predict the movement of oilin ice. The syndicate of the financiersshould therefore be aware of the lack ofan oil spill response. In the case of anoil spill the bank could be made liablethrough their knowledge of insufficientprotection of the environment byclaimants in Russia.


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These environmental risks thus pose asignificant financial risk to lenders,

especially given that project financearrangements stipulate that lendershave little recourse beyond therevenues generated by the projectitself. The collateral in thesearrangements are lower than in normalcredit transactions, meaning that creditrisks are automatically higher. There isa direct link between the environmentalrisks of the project and the credit risksborne by the lenders22

4.1 .2 . Socia l r isk sSocial risks may have a direct impacton project returns if left unmanaged.These risks can lead to commercialconsequences for the business in boththe short-term (e.g. in relation toconstruction schedules and costs,production output and timely facilitiesmaintenance) and the long-term (e.g.

reduced access to in-country growthopportunities and damage to globalreputation).

For example, the resettlement ofpeople can have far-reaching andserious impacts. As a result ofdisplacement, systems of livelihood aredisrupted, and productive assets andincome sources lost. Communitystructures and social safety nets are

weakened, human security diminished,and there are reductions in culturalidentity, traditional authority and thepotential for self-help. Poorly managedresettlement can cause severe, long-term social degradation,impoverishment and increasedvulnerability. Wherever resettlementoccurs, there is increased potential forconflict arising from many causesincluding: disputes over ownership,rights to land or resources; inadequacyof compensation; conflicts betweenresettled people and their hostpopulations; or as a result of corruptbehaviour by implementing officials.

Project design that minimizesresettlement should be considered of

the highest importance, as well asfollowing established internationalguidelines for the management ofinvoluntary resettlement.

A meaningful engagement ofcommunities in project decision-makingcould generate substantial benefits thatmay reduce operational risks forfinancial institutions.

The mitigation of social risks in relationto project finance will gain moreimportance in the future due to therevision of the Equator Principles. Therevised principles put extra emphasison the social impacts of projects withlabour conditions, health and safety,and the impacts of projects oncommunities highlighted.

4.2 . I n d i r e ct r i s k s4 .2 .1 . Reputa t iona l r i skBanks reputational risk can be definedas the probability of being a target of apublic campaign multiplied by the costfor the bank of such a campaign. It isreasonable to assume that both theprobability and the cost of a campaignwill vary across the type, size, andgeographical location of banks. Banks

with a well established brand namelocated in countries with strong non-governmental organisations are morelikely to be the target of publiccampaigns than small specialised bankslocated in countries with weak NGOs.Banks involved in commercial retailbanking, and thus vulnerable toconsumer boycotts, will be likely toincur higher losses than specialisedfinancial institutions from NGO-ledpublic campaigns. Hence we canreasonably assume that financialinstitutions differ greatly in terms ofreputational risk. This disparity inreputational risk could generate a


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competitive advantage for some banksat the expense of others. At its

simplest, the more exposed banks areobliged to adopt voluntary standards intheir project financing business in orderto deflect NGO criticisms, while the lessexposed ones are not. However, simplyadopting the Equator Principles will notmitigate the reputational risk of a bank.Mechanisms must also be put in placeto ensure that the Equator Principlerequirements are integrated into abanks operational system.

Reputational risk can harm brand value,employee morale, ability to recruit and,in some cases, ability to write business.This is especially true in the retailmarket where boycotts haveoccasionally erupted over particularlyhigh-profile client relationships23. Insuch cases stakeholders, including agrowing number of shareholders, canbe expected to seek assurances

regarding exposure levels and riskmanagement practices. Yet banksinternal tracking mechanisms are oftenfound wanting and policies andpractices are, in many cases, notclearly articulated. This is often aconsequence of a banks concern overpotential competitive implications,which precludes internal workingpapers addressing policies and practicesfrom being publicly disseminated.

Furthermore banks cite clientconfidentiality as an additional barrierto fully disclosed practices24.There is a strong link betweenreputation and branding. Over 85% ofconsumers have a more positive imageof companies that are seen to bepursuing more responsible businesspractices and over half of Europeanconsumers say they are prepared topay more for environmentallyresponsible products25. However, it maystill take some time until consumers willchoose a bank because of their social,environmental and ethical policies andproducts.

NGO campaigns pose an indirectreputational risk to financial institutions

involved in controversial projects. TheBTC pipeline project, for example, hasbeen criticised by a consortium ofinternationally recognised NGOs forcausing significant social andenvironmental impacts, undermininghuman rights, and contributing to thedestabilisation of peace in the region.Since nine Equator Principlessignatories decided to support thecontroversial pipeline in 2004, leading

environmental and human rightsgroups have been pressing these banksto abandon providing finance to theproject as they argue that it breachesthe Equator Principles on severalcounts.

For the 2005 report on the EquatorPrinciples, Banking on Responsibility,32 financial institutions were asked bythe international law firm Freshfields

Bruckhaus Deringer to state their mainreasons for adopting the EquatorPrinciples. Among reasons such asprotection of market share, levelplaying field and financial risk rating itwas stated that reputation andstakeholder and NGO activism weresignificant drivers in the decisionmaking process26.

5 . Exposu r e fac to rsIn identifying the companies mostexposed to risks related to projectfinance EIRIS has taken the followinginto account: a) whether the companyis a mandated arranger27 or aprovider in specific project financedeals; b) the location of the majority offinanced projects; and c) whetherfinanced projects are located in a high

risk sector.


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5 .1 . Role in p ro j ec t f i nan ce dea lEIRIS considers mandated arrangersand providers to be at highest risk asthey are essentially the operators of aproject and those that provide thelargest proportion of financing. Theseterms are defined below.

Manda ted a r range r status is assignedto the banks awarded the mandate bythe borrower. These banks take theleading roles in the negotiation of

contracts and covenants. The title isassigned to all banks within such agroup.

Prov ide rs finance the project on anon-recourse or limited recourse basis.A syndicate of banks from differentcountries may be required to gather theamount of money necessary for theproject.

The other two key players are legaladvisers and project sponsors. Projectsponsors are parties with a direct orindirect interest in the realisation of theproject such as contractors, suppliers,purchasers or users of the projectsproducts or facilities. Neither of thesegroups will be analysed within thisbriefing as it is focused upon theindirect impact of the financial sector.

5 .2 .Locat ion

EIRIS has developed a model ofgeographical categorisation to identifyregions where projects face a higherexposure to risks. The following tableillustrates this categorisation:

Region Exposure

Asia HighAustralia & Japan Low

Europe LowLatin America HighMiddle East & Africa HighNorth America Low

This is based on identifying regionswhere there is limited regulation to

prevent environmental or socialdamage.

5.3 . SectorEIRIS has also identified four sectors asthe largest and most significant sectorsfor project finance. This is based onannual league tables compiled byDealogic28.These league tables provideinformation on the aggregate annual

number and US dollar volume of allsyndicated loans and in particularproject finance (PF) loans by country ofthe borrower and year of the signing.

As major oil and gas or power projectspose a much higher risk to theenvironment and surroundingcommunities they have been classifiedhas high risk. EIRIS may allocate ahigher risk rating to controversial

projects within the Public PrivatePartnership (PPP) category after lookingat a specific project and its relatedrisks.

The sectors have been classified asfollowing:

Type o f p ro j ec t Exposur e

Oil & gas HighPower High

Transport MediumPPP Low

5.4 . Exposure c lassi f icat ionOverall, a company will be classified ashigh exposure if it is identified to be inat least two high exposure categories.A company in the medium exposurecategory will be exposed to a maximumof one high risk factor. Low exposure

companies will only be exposed to lowexposure factors and to a maximum ofone medium exposure factor.


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EIRIS has chosen the followingselection of companies to analyse in

this paper. It represents a mixture ofsignificant high and medium riskcompanies from a broad geographicalrange to offer an overview ofapproaches and steps taken in relationto project finance. All companies arealso providers.

Company

MandatedAr range r -

Tota l LoanA m o u n t

2 0 0 4 2 9

Exposure

BNP Paribas(France)

USD 2019m High

BBVA (Spain) USD 1741m HighSumitomoMitsui Banking(Japan)

USD 1618m High

Deutsche Bank(Germany)

USD 1479m Medium

WestpacBankingCorporation(New Zealand)

USD 1313m Medium

Barclays(UnitedKingdom)

USD 1264m High

ABN Amro(Netherlands)

USD 1240m Medium

JP MorganChase (USA)

USD 1083m High

Credit SuisseFirst Boston(Switzerland)

USD 899m High

All companies in the FTSE All WorldDeveloped Index have been classifiedas high, medium or low exposure andtheir management response will beassessed over the year.

6 . M a n ag in g t h e r i s k sIn order to manage the risks described

above financial institutions shouldundertake in-depth environmental andsocial risk assessments in their duediligence process.

To analyse the ways in which thefinancial industry can manage the risks

identified by this study, EIRIS hasassessed the selected companies policyand strategy statements, riskassessment tools, public reporting anddialogue, and their performances andinnovations in relation to projectfinance. These indicators support thespirit of the EPs but also aim to gobeyond the reach of them. Theassessments are made on the basis ofpublicly available statements and

information provided to EIRIS directly.

EIRIS has identified 22 key indicatorsfor assessing companies managementof risks related to project finance.Detailed definitions of indicators areprovided in Annex 9.1. The indicatorsfall into five categories:

St r a tegy and r espons ib il i t y Global project finance policy

including social, environmental andethical (SEE) criteria Public Equator Principle (EP)

commitment within policy Policy commitment only to enter

loan syndication with EP banks, or ifEPs are fully applied to the project

Commitment to environmentalmanagement plan / environmentalimpact assessment for all projectfinance deals

Commitment to social managementplan / social impact assessment forall project finance deals

Commitment to environmentalmanagement plan / environmentalimpact assessment for all projectfinance deals considered Category A(IFC)

Commitment to social managementplan / social impact assessment forall project finance deals consideredCategory A (IFC)

Environmental and social impactassessment (if appropriate) forCategory B (IFC) projects


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Risk assessmen t Client diagnostic tool to assess

clients on their sustainability profilesfor approval of project finance deals(specific sector or all sectors)

Environmental audits and site visitsto evaluate environmental risks of aspecific project

Social audits and site visits toevaluate social risks of a specificproject

Com p l i ance and m on i to r i ng Training of relevant staff by

consultants on environmental andsocial risks relating to projectfinance

Guidance notes for understanding ofpossible risks related to PF availableto staff

Attach conditions to loan agreementrelating to SEE issues wherenecessary

Monitor compliance with any SEEconditions attached to the loan

agreement

Repor t i ng and d ia l ogue Engagement on proactive basis with

stakeholders (throughout projectlife)

Detailed public response to NGOallegations concerning the financingof controversial projects (whererelevant)

Public reporting on project finance :project finance business data;proportion of loans; types of loans(A, B or C as classified by the IFC)

Quantitative reporting onimplementation of project financepolicies including KPIs

Qualitative reporting of challengesand compliance

Reporting on how many clientcompanies/ projects were deniedcredit due to social, environmentaland ethical reasons or due toEquator Principles screening (whererelevant)

Disclosure of person/committeeresponsible for approving project

finance deals

Per fo rm ance and i nnova t i on Project finance policy applied

beyond scope of Equator Principlescommitment threshold: policyapplicable below threshold of USD10m or the Equator Principles areapplied to other financialinstruments such as corporate loans

Policy leadership policy goingbeyond EP policy guidelines inrelation to project finance

6.1 . Snapsho t o f EI RI S f ind ingsSet against the indicators describedabove, two of the nine companiesmanagement responses has beenassessed as good. Where anassessment of good represents acompany which EIRIS considers has

mitigated the risks to an acceptablelevel. Two of the nine companies havebeen assessed as intermediate. Asshown in the table, the companieswhich reached the grade good wereABN AMRO and Barclays. BBVA andWestpac Banking Corporation havebeen assessed as intermediate. Theremaining five companies are assessedas mitigating the business risksassociated with project finance in a

limited way. These companies are BNPParibas, Credit Suisse First Boston,Deutsche Bank, JP Morgan Chase andSumitomo Mitsui Bank.

Westpac Banking Corporation is close toachieving a good assessment. In orderto achieve a good assessment, WestpacBanking Corporation needs to report ingreater detail on the following threecategories:1. Risk assessment:Does the Company have a Clientdiagnostic tool to assess clients on theirsustainability profiles for approval ofproject finance deals?


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or Does the Company conduct

environmental and (where relevant)social audits and site visits toevaluate environmental and socialrisks of a specific project?

2. Compliance and monitoring Does the Company attach conditions

to loan agreement relating to SEEissues where necessary?

or Does the Company monitor

compliance with any SEE conditions

attached to the loan agreement?3. Reporting and dialogue Does the Company respond in detail

and publicly to NGO allegationsconcerning the financing ofcontroversial projects?

Credit Suisse is closest to achieving anintermediate assessment. In order toachieve an intermediate assessmentCredit Suisse should indicate that its

compliance and monitoring processescontain at least one of the followingpoints: Training of relevant staff by

consultants on environmental andsocial risks relating to projectfinance

Guidance notes for understanding ofpossible risks related to PF availableto staff

Attach conditions to agreementrelating to SEE issues wherenecessary

Monitor compliance with any SEEconditions attached to theagreement

EIRIS research, based on the analysisof these nine medium and highexposure companies, has found that inorder to mitigate their environmentaland social risks in relation to projectfinance all of the companies have setup global project finance policiesincluding non-financial criteria. Five outof nine companies are committed todrawing up an environmental

management plan or to conduct anenvironmental impact assessment.

The Equator Principles, which weredeveloped by a consortium of banks in2003, have gained more credibilitysince their launch. Seven out of ninecompanies analysed within this briefinghave adopted these principles. Threeyears after the first announcement ofthe Equator Principles in June 2003 thenumber of adopting financialinstitutions has risen from 10 to 41.

This indicates that the EquatorPrinciples are becoming an industrystandard in international projectfinance.

However the Equator Principlesadopters need to develop greaterinternal awareness of the EquatorPrinciples through awareness-raisingstrategies and training programmes fortheir staff, and the professionals with

whom they work. This should relate tothe application, interpretation andimplementation of the EquatorPrinciples. Only three out of theseseven EP adopters indicate that trainingis offered to relevant staff on theEquator Principles and environmentaland social risks in relation to projectfinance.

To strengthen their risk management

approach in relation to direct andindirect risk the project finance banksneed to focus specifically on developinga proactive dialogue with NGOs andother stakeholders and sponsors bymeeting them on a regular basis todiscuss general issues and specificconcerns relating to project finance andits possible risks. Only three of the ninefinancial institutions analysed in thispaper state that an engagementprocess and proactive discourse withcivil society groups has beenimplemented.


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There also still seems to be a need toproactively identify relevant

stakeholders as soon as possible in theproject finance cycle to be able torecognise any potential problem withina project.

To better understand how the risksarising from project finance deals relateto a companys business model, thefollowing additional questions could beconsidered:

Quest ion s fo r ana lys t s

Wh a t l eve l o f f i nanc ia l r i skdoes the Com pany a t t r i bu t e toenv i ronm en ta l and soc ia lfac to rs i n p ro j ect f i nance and

w h a t s t e p s a r e t h e y t a k i n g t om in im ise th i s r i sk?

Wha t p ro j ects does the

Com pany i den t i f y as mos tpo ten t i a l ly r i sky and how a reth ese r i sks being m i t i ga ted?

How does the Com pany i den t i f y

p ro j ect s takeho lde rs (e .g .c om m u n i t y ) f o r e a ch p r o j e c tand addr ess th e i r concern s?

Wh ich NGOs are s ign i f i can t t oth e Com pany s p ro j ec t f i nance

bus iness and how i s theCom pany engag ing w i th t hemon t h is i ssue?

7 . Good p rac t i ce exam p lesCompanies are addressing the risksrelated to project finance by applyingsome of the approaches identified inthe EIRIS indicators.

Regarding the scope of EP application,some banks have embraced the best

practice approach of following the spiritof the Equator Principles. Barclays,

Citigroup, HSBC and JP Morgan Chasehave pledged to apply the EquatorPrinciples more broadly, for example tocorporate credits where use of proceedsis known. HSBC perhaps goes furthestin this respect, stating that the EPs willapply to project advisory roles,corporate lending where the end use ofproceeds is for a project, and to otherforms of financial assistance such asbonding and guarantees directly linked

to projects30

; furthermore, it reportedthat in 2004 it applied the EPs to sevenadditional transactions which did notfall under the Equator Principlesthreshold.

Westpac disclosed that in 2004 itapplied the EPs to a project under theUSD 50m threshold, while JP MorganChase has announced that it is loweringthe EP application threshold to USD

10m rather than USD 50m. However,as the Equator Principles have justchanged one major improvement isseen in the expansion of the scope ofthe principles: the new principles applyto all new project financings with totalcapital costs of USD 10m or moreacross all industry sectors globally. Inaddition, while the principles are notintended to be applied retroactively, thefinancial institutions will apply them to

all project financings coveringexpansion or upgrade of an existingproject where changes in project scaleor scope create significant additionalenvironmental and/or social impacts orsignificantly change the nature ordegree of an existing impact. Severalbanks have gone beyond the EPs inother ways, by adopting new sectorstandards for instance. Examples ofcurrent best sector policies would beABN AMROs forestry policy, HSBCsclimate change policy and forestrypolicy and the wide range of social andenvironmental policies adopted byCitigroup.


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EIRIS 14/22

Some of the Equator Banks, such asABN AMRO, have required non-Equator

Banks to undertake to comply with theEquator Principles in the administrationof project financing as a condition fortheir participation in a facility arrangedby the Equator Banks. Furthermorenon-Equator Banks have arrangedfacilities to ensure compliance with theEquator Principles in order to securethe widest possible participation in asyndication.

To improve the implementation ofproject finance policies or EquatorPrinciples policies some institutionshave created noteworthy new guidancefor their bankers. Citigroup developedguidance notes explaining when an EMPis required and when it should becovenanted; it also produced aguidance note on advisory functions.When Mizuho realised that the WorldBank Pollution Prevention and

Abatement Handbook did not coverpipelines or LNG plants two areaswhere Mizuho actively lends itproduced its own technicalenvironmental standards to assist in EPimplementation.31

Some of the challenges illustrated inthis briefing have recently beenincorporated in the new EquatorPrinciples Draft following the revision of

the IFC safeguard policies. The first setof EPs expired on 6 July 2006 and thenew set of EPs came into effect on 7July 2006.

No te s

1 See definition in Chapter 2.12 Harvard business school

http://www.exed.hbs.edu/programs/pf/print.html

3 E.g. BankTrack, Platform London,Rainforest Action Network

4 www.banktrack.org5 After the IFC revised its safeguard

policies the Equator Principles Financial

Institutions (EPFIs) reworked theoriginal EPs. The draft for the revised

EPs was released in March 2006. Therevisions to the existing EPs wereundertaken to 1)reflect implementationlearning from the past 2 years, 2)incorporate comments from variousstakeholders received during thisperiod, and 3) to ensure incorporationof, and consistency with, the IFCPerformance Standards. The first set ofEPs expired on 6 July 2006 and the newset of EP came into effect on 7 July2006.

6 The first adopters were ABN AMROBank, Barclays, Citigroup, CrditLyonnais (now Calyon), Credit SuisseFirst Boston, HVB Group, RabobankGroup, The Royal Bank of Scotland,WestLB, and Westpac BankingCorporation

7 BankTrack is a forum which unitesorganisations with a proven track recordin monitoring and campaigning on theprivate financial sector

8 Equator Principles, June 2003,Preamble, page 2

9 Equator banks arranged over 80% ofthe global project loan market byvolume. See www.equator-principles.com

10 The scope of the principles has beenextended in the revised version of theEP to the following: The Principlesapply to all new project financings withtotal capital costs of USD 10 million ormore across all industry sectorsglobally. In addition, while the Principlesare not intended to be applied

retroactively, we will apply them to allproject financings covering expansion orupgrade of an existing project wherechanges in project scale or scope createsignificant additional environmentaland/or social impacts or significantlychange the nature or degree of anexisting impact. The Principles alsoextend to project finance advisoryactivities wherein EPFIs commit to makeour clients aware of the content,application and benefits of applying the

Principles to the anticipated project. TheEPFI requests that the clientcommunicate to the EPFI its intention toadhere to the requirements of thePrinciples when seeking futurefinancing.


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EIRIS 15/22

11 See the World Bank DevelopmentIndicators Database, available at

12www.worldbank.org/data/countryclass/classgroups.htm

13 Franck Amalric: The Equator Principles:A step towards Sustainability? WorkingPaper No. 01/05, Center for CorporateResponsibility and Sustainability at theUniversity of Zurich, p 3f(www.banktrack.org)

14 Banktrack: Equator Principles II: NGOcomments on the proposed revision ofthe Equator Principles, April 2006, p5.

15 Dealogic; all companies are listed inproject finance league tables,presenting those companies with asubstantial involvement in non-recoursefinance.

16 See Akerlof, George A: The m arket forLemons: Quality Uncertaint y and theMarket Mechanism. The QuarterlyJournal of Economics, 84 (30), 1970, p488-500. For the classic statement ofthe economic problem that arises fromthe interaction between unequal qualityand uncertainty.

17 The following commercial banks arefinanciers for the BTC pipeline: leadarrangers Citigroup, ABN AMRO,Mizuho, Societe General; other banks:The Royal Bank of Scotland, KBC,Dexia, West LB, Hypovereinsbank, BNPParibas, Natexis Banques Populaires,Calyon, ING, San Paulo IMI , BancaIntesa.

18 See articles such as: Michael Gillard andDavid Connett: BP covered up pipelineflaw In: The Sunday Times, 17/04/2005

19 Platform London is a memberorganisation of the financial monitoringand campaigning forum Banktrack. It isa UK-based organisation tracking theactivities of British oil and gascompanies. Platform has done extensiveresearch on the compatibility offinancing the Baku Ceyhan oil pipelineand the Sakhalin oil project with thesocial and environmental policies of thebanks involved.

20 Platform London, Banks warned ofliability if Baku-Ceyhan pipeline

leaks17/02/2006.21 Anthony Field / WWF: Shell posesunacceptable oil spill threat,28/04/2006; also: Banktrack/Platform:Sakhalin II gas and oil project, Further

breaches of the Equator Principles,03/2004-03/2005;

22Franck Amalric: The Equator Principles:A step towards Sustainability? WorkingPaper No. 01/05, Center for CorporateResponsibility and Sustainability at theUniversity of Zurich, p 9.

23 Note the Morgan Stanley Dean Witterand Citigroup consumer boycotts thatdeveloped over these banks associationwith funding the China DevelopmentBank, financing arm of the ThreeGorges Dam. Source: ISIS:Benchmarking Study: EnvironmentalCredit Risk Factors in the Pan-EuropeanBanking Sector, September 2002.

24 Freshfields Bruckhaus Deringer;Banking on Responsibility, July 2005.

25 Gareth Chadwick: Profit with aconscience. Financial Times21/03/2005.

26 Freshfields Bruckhaus Deringer;Banking on Responsibility, July 2005, p50.

27 Mandated Arrangers: mandatedarranger status is assigned to the banksawarded the mandate by the borrower.

In the event that a group of banksunanimously agree the mandatedarranger group, the title is assigned toall banks within such group. Provider:providers finance the project on a non-recourse or limited recourse basis.

28 Financier tables are based on equalapportionment between all arrangers ofloans and final takes for participants.The Dealogic league tables calculaterankings based on the entire amount ofdebt the bank arranged (or helped to

arrange) in that tranche. In some cases,this has the effect of making a banksfinancial arranging numbers higher thanits total amount financed figure.Second, not all arrangers are equal:Dealogic gives more credit tomandated arrangers than arrangers andco-arrangers. Finally, when figures aregiven for the number of financialarrangements, it refers to the numberof projects arranged, not the number oftranches. Often a bank may arrange

several tranches for one project. Thetotal project financing is sometimesdivided up in separate tranches witheach having a distinct interest rate,maturity, etc.. Where banks are rankedin terms of their dominance, the


16/22


EIRIS 16/22

rankings are based on closed andsigned deals. In contrast, when

countries and regions are ranked, it iscalculated on the basis of the total valueof all projects, both in finance and thosethat have been signed. See:http://www.projectfinancereview.com/

29 Global top mandated arrangers (projectfinance) in 2003, source: Dealogic,project finance magazine, 01/03/2004.

30 BankTrack: Unproven principles. June2005, p 8

31 BankTrack: Unproven principles. June2005, p 9


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EIRIS 17/22

8 . Com pany assessm en t s

ABN

AMRO

Barclays

BBVA

BNP

Paribas

Credit

Suisse

First

Boston

Deutsche

Bank

JPMorgan

Chase

Sumitomo

Mitsui

Banking

Westpac

Banking

St ra t egy and po l i cy Global policy incl. SEE criteria Public Equator Principles commitment Policy commitment covering loan syndication Commitment to env mgmt plan/ EIA for all PF Commitment to social mgmt plan / SIA for all PF Env management plan/ EIA for all PF dealsconsidered category A (EP) Social management plan/ SIA for all PF dealsconsidered category A (EP)

Env & social impact assessment (if appropriate)for category B projects

Risk assessmen t Client diagnostic tool to assess clients on theirsustainability profiles for approval of PF deal(specific sector or all sectors)

Env audits & site visits to evaluate env risk ofproject and (where relevant) social audits & sitevisits to evaluate social risk of project

Com pl iance and mon i to r i ng

Training of relevant staff by consultants on env &social risks relating to PF or guidance notesoutlining possible risks related to PF available

Attach conditions to agreement relating to SEEissues where nec.

Monitor compliance with any SEE conditionsattached to agreement

Repor t i ng and d ia logue Engagement on proactive basis with stakeholders(throughout project)

Detailed public response to NGO allegationsconcerning the financing of controversial projects

Public reporting on project finance

Quantitative public reporting on implementationof PF policies incl. KPIs

Qualitative reporting of challenges & compliance Reporting on companies/ projects denied creditfor social or env reasons

Disclosure of person/committee responsible forapproving PF deals

Per fo rm ance and innova t ion PF policy applied beyond scope of EquatorPrinciples commitment threshold

Policy leadership

Assessment G G I L L L L L I

NE no ev idence ; L l im i ted ; I i n t e rmed ia te ; G good ; A advanced

Detailed grading methodology is provided in section 9. NB Assessments apply to companies and anysubsidiaries and associates over 20% owned. Data analysis June 20 06


18/22


EIRIS 18/22

9 . A sse ss m e n t m e th o d o lo g yNo

ev idenceL im i ted I n te rm ed ia te Good Advanced

Requ i remen tsNoindicators

Any oneindicator

Any fourindicators frommarked sections

Allmarkedindicators

All markedindicators

St ra t egy & respons ib i l i t y

Global policy incl. SEE criteria * * Public Equator Principles commitment Policy commitment covering loansyndication

Commitment to EMP/ EIA for all PF Commitment to social MP / SIA for all PF

Env management plan/ EIA for all PFdeals considered category A (EP)

Social management plan/ SIA for all PFdeals considered category A (EP)

Env & social impact assessment (ifappropriate) for category B projects

Risk assessmen t Client diagnostic tool to assess clients ontheir sustainability profiles for approvalof PF deal (specific sector or all sectors)

Env audits & site visits to evaluate envrisk of project and (where relevant)social audits & site visits to evaluate

social risk of project

Any oneindicator

Com p l iance and mon i to r i ng

Training of relevant staff by consultantson env & social risks relating to PF orguidance notes outlining possible risksrelated to PF available

Attach conditions to agreement relatingto SEE issues where nec.

Monitor compliance with any SEEconditions attached to agreement

Any oneindicator

Any twoindicators

Repor t i ng and d ia logue

Engagement on proactive basis withstakeholders (throughout project)

Detailed public response to NGOallegations concerning the financing ofcontroversial projects

Public reporting on project finance

Quantitative public reporting onimplementation of PF policies incl. KPIs

Qualitative reporting of challenges &compliance

Reporting on companies/ projectsdenied credit for social or env reasons

Disclosure of person/committeeresponsible for approving PF deals

Any twoindicators

(reporting andperformance)

Per fo rm ance and innova t ion

PF policy applied beyond scope of EPcommitment threshold

Policy leadership

* Additional indicator required


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EIRIS 19/22

9 .1 I n d i ca to r d e f i n i t i o n s

St ra t egy and po l i cy

Global Finan ce Pol icy in cl. SEE r i skc r i te r i a : the Company discloses a publicpolicy including how it tackles social,environmental and ethical risks

Pub l ic Equa to r P r incip le com m i tm en t :the Company has publicly adopted theEquator Principles and refers in its policy tothese voluntary principles. EIRIS looks forthe following steps: use commonterminology in categorising projects intohigh, medium and low environmental and

social risk, based on the IFC'scategorisation process; apply categorisationto projects globally and to all industrysectors.

Pol i cy com m i tm en t on l y to en te r l oansynd ica t ion w i th Equator Pr inc ip le (EP)

( o r w i t h a n i n st i t u t i o n t h a t h asim p lemen ted adequate po l i ci es and

system s) bank s or on ly i f EPs are fu l l yapp l i ed to t he p ro jec t : the Company hasa policy outlining how to proceed if one ormore parts of the syndicate have not

adopted the EP. The policy must be madeavailable to EIRIS.

Loan synd ica t ion : a group of financialinstitutions who join together to work on abig project. The banks in the syndicateshare the risk of large, indivisibleinvestment projects.

Co m m i tm e n t t o e n v i r o n m e n ta lm a n ag e m e n t p l a n / EI A f o r a ll PFdeals: applies to all project finance dealsover a threshold of USD 50m

EI A : environmental impact assessment

Com m i tm en t to socia l m anagem en tp lan / SI A fo r a l l PF dea ls : applies to allproject finance deals over a threshold ofUSD 50m

SI A : social impact assessment

Co m m i tm e n t t o e n v ir o n m e n ta l a n d / o r

socia l m anagem en t p lan / EI A and o rSI A fo r a l l PF dea ls cons ideredCategor y A ( EP) as de f ined by th e I FC:

the Company commits to have anenvironmental and/or social managementplan; Category A projects are likely to havesignificant adverse environmental impactsthat are sensitive, diverse, or

unprecedented. A potential impact isconsidered sensitive if it may be

irreversible (e.g., lead to loss of a majornatural habitat) or affect vulnerable groupsor ethnic minorities, involve involuntarydisplacement or resettlement, or affectsignificant cultural heritage sites. Theseimpacts may affect an area broader thanthe sites or facilities subject to physicalworks. Lead arrangers have to reach aconsensus on the categorisation of theproject (A, B or C) and on the nature of theappropriate environmental assessment andcovenant package.

Co m m i tm e n t t o e n v i r o n m e n ta l a n dsoc ia l im pact assessm ent ( i fapp rop r ia te ) f o r Ca tego ry B p ro j ects asdef ined by t he I FC: a proposed project isclassified as Category B if its potentialadverse environmental impacts on humanpopulations or environmentally importantareasincluding wetlands, forests,grasslands, and other natural habitatsareless adverse than those of Category Aprojects. These impacts are site-specific;few if any of them are irreversible; and in

most cases mitigatory measures can bedesigned more readily than for Category Aprojects. The scope of an EIA for aCategory B project may vary from projectto project, but it is narrower than that of aCategory A EIA. Like Category A EIAs, itexamines the project's potential negativeand positive environmental impacts andrecommends any measures needed toprevent, minimise, mitigate, or compensatefor adverse impacts and improveenvironmental performance.

Env i r onm enta l and soc ia l assessm entshave a t l east conside red the fo l l ow ingin assess ing t he imp act o f a p ro ject

( w h e r e r e l eva n t ) : assessment of thebaseline environmental and socialconditions; requirements under hostcountry laws and regulations, applicableinternational treaties and agreements;labour conditions; sustainable developmentand use of renewable natural resources;protection of human health, culturalproperties, and biodiversity, including

endangered species and sensitiveecosystems; use of dangerous substances;major hazards; occupational health andsafety; community health, safety andsecurity; fire prevention and life safety;


20/22


EIRIS 20/22

socio-economic impacts; land acquisitionand land use; involuntary resettlement;

impacts on indigenous peoples andcommunities; cumulative impacts ofexisting projects, the proposed project, andanticipated future projects; participation ofaffected parties in the design, review andimplementation of the project;consideration of feasible environmentallyand socially preferable alternatives;efficient production, delivery and use ofenergy; pollution prevention andabatement; biodiversity, includingendangered species and sensitiveecosystems

Risk assessment

Cl ien t d iagn ost ic too l : mechanism forassessing and considering borrowersenvironmental, social and/or culturalexpertise in relation to particular projects;a tool to assess clients on theirsustainability profiles for approval of PFdeal (specific sector or all sectors)

Env i ronm en ta l and / o r socia l aud i t s ands i te v i s i t s to eva lua te env i ronm en ta l

and / o r socia l r i sk o f p ro jec t: to becommissioned by the financial institution;includes announced or unannounced sitevisits by the financial institution to verifythe environmental and social assessmentsconducted by either the borrower or thelender

Com p l iance and m on i to r i ng

Tra in ing o f r e levan t s ta f f : regulartraining of relevant employees by experts;includes training by the IFC or internalenvironmental and social experts

Gu idance no tes fo r unde rs tand ing o fposs ib le r isks re la t ed t o PF ava i lab le :sector specific or risk specific notes forrelevant staff outlining main environmentaland social risks associated with a range ofprojects

A t tach cond i t i ons to ag reemen t : theCompany attaches conditions if theenvironmental and social impactassessments highlighted the necessity ofparticular actions. Conditions should be

applied to each agreement where it isrelevant.

Mon i to r com p l iance w i th any SEE

cond i t i ons at t ached to t he ag reem en t :

the Company will monitor the compliance ofimposed conditions on a regular basis

throughout the project lifeRepor t ing and d ia logue

Engagemen t on p roac t i ve basi s w i ths takeho lde rs : stakeholders e.g. non-governmental organisations, affectedcommunities, ethnic minorities, governmentof host country as applicable, etc. should beconsulted throughout project life

Deta i led pub l ic r esponse to NGOal lega t ions: the Company responds in itsannual financial report, in its corporate

social responsibility report, or on its websiteto NGO allegations in relation tocontroversial high-profile undertakings (ifapplicable)

Pub l ic r epo r t i ng o f p ro jec t f i nanceda ta: this could include general PFbusiness data; proportion of loans e.g.sector analysis, area analysis, types ofloans (A, B or C as categorised by the IFC)

Quan t i t a t i ve pub l i c r epo r t i ng onimp lemen ta t i on o f p ro jec t f i nance

po l ic ies inc lud ing KPI s: e.g. safetyperformance, environmental performance,compensation for resettlements, training ofemployees

Qual i ta t iv e repor t in g o f cha l lenges and

compl iance : The Company reports publiclyon challenges it faces on implementation,monitoring and compliance with EquatorPrinciples and international standards inrelation to project finance

Repor t i ng on com pan ies / p ro jec tsden ied cred i t : The Company reportspublicly on projects or companies deniedcredit due to environmental, social andethical risks

Per fo rm ance and innov a t ion

PF po l icy app l ied beyond scope o fEqua to r P r incip les comm i tm en tth resho ld : the Company applies theEquator Principles below USD 50m or theCompany applies the principles to otherfinancial instruments (such as corporateloans) where environmental, social or

ethical risks are apparent

Pol icy leadersh ip : the Company hasdeveloped policies going beyond the


21/22


EIRIS 21/22

safeguard policies of the IFC, e.g.freshwater policy, human rights policy

Disc losu re o f pe rson o r com m i t teeresponsib le fo r approv ing PF dea l : theperson does not have to be at senior level

SEE: social, ethical and environmental

See also section 6 Managing the risk

Disc la imer

Clients using this information should do sowith caution and not rely on thisinformation in making any investment

decisions. EIRIS does not and cannot givefinancial advice and recommends thatindividuals seek independent professionaladvice. While every effort is made toensure the accuracy of the informationpresented, clients should be aware that it isderived from a variety of sources and thatEIRIS does not itself seek to verify theinformation those sources provide. EIRIScannot accept responsibility for any errorsor omissions. It is important to note thedate of this document as circumstances

may have changed since then.This briefing is supplied for the use of therecipient alone and its contents may onlybe supplied to third parties with priorwritten consent of Ethical InvestmentResearch Services (EIRIS) Ltd. Thecopyright and all other intellectual propertyrights in material supplied as part of thisservice shall remain the property of EthicalInvestment Research Services (EIRIS) Ltd.

Statements contained in this paper applyonly to companies named in the documentand not to those that are not subject toEIRIS assessment.

The purpose of the paper is to present themethodology and situation at the time ofpublication. Updated information on thecompanies in this briefing and others will beavailable from [email protected].

SEE r isk br i e f in g ser iesOther issues in the series include Access to

medicines in the Developing World; Mobilephone health concerns; and Obesityconcerns in the food and beverageindustry:www.eiris.org


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