Who and where are the Equator Banks? - IILJ
Who and where are the Equator Banks? - IILJ
Who and where are the Equator Banks? - IILJ
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The most obvious limitation is that <strong>the</strong> Principles only apply to project<br />
finance. There <strong>are</strong> good reasons for applying <strong>the</strong> Principles to project<br />
finance as detailed due diligence is carried out on <strong>the</strong> proposed project <strong>and</strong><br />
covenants can be tailored to performance relevant to social <strong>and</strong><br />
environmental st<strong>and</strong>ards. Clearly, o<strong>the</strong>r financial structures, such as equity<br />
financing of offshore projects, general corporate lending <strong>and</strong> project bonds<br />
(whe<strong>the</strong>r or not wrapped by monoline insurers) <strong>are</strong> widely used to fund<br />
developments with significant social <strong>and</strong> environmental impacts. Many of<br />
<strong>the</strong>se developments, of course, will be subject to o<strong>the</strong>r environmental<br />
impact assessment requirements, even if not subject to <strong>the</strong> Principles.<br />
Several <strong>Equator</strong> <strong>Banks</strong> extend <strong>the</strong> application of <strong>the</strong> Principles to <strong>are</strong>as of<br />
banking o<strong>the</strong>r than project finance, by adopting an ‘<strong>Equator</strong>-Lite’ approach<br />
to o<strong>the</strong>r forms of lending or sometimes by applying policies more stringent<br />
than <strong>the</strong> Principles to some <strong>are</strong>as of <strong>the</strong>ir activities.<br />
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The $50m threshold was originally a concession made to some initially<br />
reluctant banks to encourage <strong>the</strong>m to adopt <strong>the</strong> Principles.<br />
The threshold is said to be particularly damaging in developing countries<br />
<strong>where</strong> <strong>the</strong> capital costs of quite significant projects may be less than $50m<br />
<strong>and</strong> local laws may not require stringent environmental <strong>and</strong> social impact<br />
assessment. Ano<strong>the</strong>r issue is <strong>the</strong> possibility of ‘salami-slicing’ projects so<br />
that each part of <strong>the</strong> project falls below <strong>the</strong> $50m threshold. For many<br />
banks, however, this clearly is impractical <strong>and</strong> simply does not make<br />
financial sense. It is doubtful whe<strong>the</strong>r many of <strong>the</strong> <strong>Equator</strong> <strong>Banks</strong> would<br />
have any interest in subdividing projects to come below this threshold<br />
value, although that is not to say that we have evidence that it is not done.<br />
In fact, our survey showed that <strong>the</strong> threshold is being quietly ab<strong>and</strong>oned by<br />
a number of <strong>Equator</strong> <strong>Banks</strong>.<br />
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The scope of <strong>the</strong> Principles is about to undergo a major overhaul. The IFC<br />
has recently embarked on an integrated review of its Safeguard Policies,<br />
Policy on Disclosure of Information <strong>and</strong> Environmental, Health & Safety<br />
(EHS) Guidelines. The review involves a comprehensive update of <strong>the</strong><br />
IFC’s policies <strong>and</strong> guidelines, subsequent to stakeholder consultation <strong>and</strong><br />
expert guidance. The revised policies <strong>are</strong> scheduled to be presented to <strong>the</strong><br />
IFC’s management <strong>and</strong> Board for approval in early 2005 5 .<br />
5 See www.ifc.org/ifcext/policyreview.nsf<br />
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