Who and where are the Equator Banks? - IILJ

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= tÜó=Ü~îÉ=íÜÉ=bèì~íçê=_~åâë=~ÇçéíÉÇ=íÜÉ=bèì~íçê=mêáåÅáéäÉë\= EÅçåíáåìÉÇF= government support). It will be interesting to see whether banking supervisors will treat projects which are compliant with the Principles as contributing towards a higher supervisory rating grade and thereby requiring a reduced risk weighting. Banks that qualify for the advanced IRB approach are entitled to rely on their own internal estimates of risk components in determining the capital requirement for a given exposure. In order to achieve this standard, a bank must satisfy its supervisor that its credit risk management practices comply with certain minimum criteria. One such requirement is a credible track record in the use of internal ratings information for at least three years prior to qualification. To the extent that, based on such records, a bank has historical experience that projects which are Principles-compliant have lower default rates and loss estimates than similar projects which are not Principles-compliant, it would be entitled to allocate its own risk-weighting to the relevant risk component, which means that it could offer more competitive pricing to such a project. Similarly, compliance with the Principles could justify a bank reducing the capital charge allocated to the operational risk associated with the financing of such a project if this would mitigate the risk of the bank becoming directly liable for environmental losses. Linked to Basel II is the view of the rating agencies on the credit standing of banks and sponsors. Fitch Rating has stated that ‘in reflecting corporate governance within Fitch’s rating process, the focus primarily will be on how weak practices can impair a company’s financial position with somewhat less focus on how strong practices might help to enhance credit quality.’ However, our inquiries of rating agencies during the survey indicate that while corporate governance generally may be on the radar screen of the agencies, the Principles are not. tÜó=ëçãÉ=Ä~åâë=Ü~îÉ=çéíÉÇ=çìí= In the light of these advantages, why have some major project finance banks opted to stay out of the Equator fold? Their reluctance, of course, is not attributable to lack of concern about environmental and human rights issues, but to more sophisticated doubts about the value of the Equator process. It should be noted, incidentally, that the motivation of some (at least) of the non-Equator Banks in not adopting the Principles may bear comparison with the motives attributed by NGOs to those whom NGOs describe as ‘the PR Equator Banks’, i.e. Equator Banks which have adopted the Principles but are alleged to have done little more than emblazon the Principles on their websites. This criticism may be unjust to those banks which do not engage heavily in project finance but which have adopted the Principles in response to shareholder pressure. U= bèì~íçê=mêáåÅáéäÉë=pìêîÉó=OMMR=Ó=pìãã~êó=oÉéçêíW=m~êí=f=Ó=qÜÉ=_~åâë= cêÉëÜÑáÉäÇë=_êìÅâÜ~ìë=aÉêáåÖÉêI=cÉÄêì~êó=OMMR=
= tÜó=Ü~îÉ=íÜÉ=bèì~íçê=_~åâë=~ÇçéíÉÇ=íÜÉ=bèì~íçê=mêáåÅáéäÉë\= EÅçåíáåìÉÇF= A number of plausible reasons for staying out of the Equator group were advanced in answers to the survey. kÉÅÉëë~êó=áåíÉêå~ä=ëóëíÉãë=åçí=áå=éä~ÅÉ= Some non-Equator Banks feel that they are not yet ready to implement the Principles, because they do not have the internal mechanisms ready or the staff with the appropriate experience and expertise to enable them to review the environmental and other assessment material generated by an Equator project adequately. They are, therefore, afraid of being accused of hypocrisy if they were to adopt the Principles in such circumstances. Some of these banks, however, expressed an intention to adopt the Principles once they felt equipped to implement them properly. páãáä~ê=éêçÅÉÇìêÉë=~äêÉ~Çó=áå=éä~ÅÉ= One major UK bank already applies social and environmental review processes to all loans (not just project finance) of over £100,000 and therefore felt it would be a retrograde step to adopt the less demanding obligations in the Principles. A major absentee group is made up of the Japanese banks: only one has adopted the Principles. This phenomenon is explained by the adherence of the Japanese private sector banks to the social and environmental guidelines issued by the Japan Bank for International Co-operation (JBIC), which address similar issues to the Principles (although in a slightly different way). pÅÉéíáÅáëã= Some outsiders doubted the real value of the Principles and whether the Equator Banks had in fact the capacity to implement them properly. They also felt that Equator Banks which claim that the Principles represent ‘business as usual’ rather than a radical reform were both being disingenuous in promoting them as a new or important development and unnecessarily providing stakeholders and NGOs with another stick to beat the banks with, while the non-joiners were left relatively undisturbed. ^ííÉãéíë=íç=áåÅêÉ~ëÉ=ã~êâÉí=ëÜ~êÉ=Äó=ëí~óáåÖ=çìí= There are market rumours that some banks which have not adopted the Principles are using that fact to suggest to less particular clients that it might be cheaper, quicker and less troublesome to finance a project through a bank which will not require costly and time-consuming environmental and social assessment. While this practice may occur in some localised project finance markets, it is unlikely to occur when loan syndication in more than one country is required. Our survey produced no hard evidence to support this view. V= bèì~íçê=mêáåÅáéäÉë=pìêîÉó=OMMR=Ó=pìãã~êó=oÉéçêíW=m~êí=f=Ó=qÜÉ=_~åâë= cêÉëÜÑáÉäÇë=_êìÅâÜ~ìë=aÉêáåÖÉêI=cÉÄêì~êó=OMMR=
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Who and where are the Equator Banks? - IILJ

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