Who and where are the Equator Banks? - IILJ

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= iç~å=ÇçÅìãÉåí~íáçå=áëëìÉë=EÅçåíáåìÉÇF to be taking action to enforce environmental requirements that have been agreed to by the borrower. We do not expect that syndicate members who are non-Equator Banks or other co-financiers or borrowers will accept this argument. However, it may be that a similar result could eventually be achieved by the use of a step-down process applying a progressively reducing percentage of lenders whose decision is required to take the relevant action such that ultimately the Equator Banks could act alone if the majority is not prepared to act after an agreed period. A more acceptable solution may be to allow the Equator Banks to exercise negative control over the relevant decision by providing that the lender consent level is set sufficiently high, say 80 per cent of outstanding commitments or participations, to include at least one of the Equator Banks, thereby at least ensuring that the environmental requirements negotiated at the outset of the financing cannot be avoided by a majority that does not include the Equator Banks. póåÇáÅ~íáçå=áëëìÉë= A common component of primary syndication is conduct of roadshows by the lead arrangers and representatives of the borrower. This is an opportunity for Equator Banks who are considering participating in the financing to put questions to the lead arrangers and the borrower about the social and environmental impacts of the project. Given the growing importance of compliance with the Principles, lead arrangers may choose to market this as a selling point to potential participants. Participant banks are generally permitted to request that the reports produced by the arranger’s technical adviser be provided to them and should avail themselves of the opportunity to review this material. Lead arrangers should (and in our experience often do) make the point to sponsors that rigorous compliance with the Principles will aid syndication (keeping the door open to Equator Banks that form the significant majority of project financiers). As for secondary syndication, Equator Banks who are considering participating can mitigate risk to their reputation by demanding copies of the technical adviser reports (even if there is no opportunity to discuss these with the technical advisers) and having their internal environmental experts review these together with the information memorandum. Equator Banks should also request discussions with the Environment Bank to ascertain: (i) whether the environment-related provisions in the loan documentation are being properly monitored; and (ii) the borrower's compliance with the same. OO= bèì~íçê=mêáåÅáéäÉë=pìêîÉó=OMMR=Ó=pìãã~êó=oÉéçêíW=m~êí=f=Ó=qÜÉ=_~åâë= cêÉëÜÑáÉäÇë=_êìÅâÜ~ìë=aÉêáåÖÉêI=cÉÄêì~êó=OMMR=
= tÜÉêÉ=åÉñí=Ñçê=íÜÉ=bèì~íçê= mêáåÅáéäÉë\= _ÉóçåÇ=éêçàÉÅí=Ñáå~åÅÉ\= The most obvious limitation is that the Principles only apply to project finance. There are good reasons for applying the Principles to project finance as detailed due diligence is carried out on the proposed project and covenants can be tailored to performance relevant to social and environmental standards. Clearly, other financial structures, such as equity financing of offshore projects, general corporate lending and project bonds (whether or not wrapped by monoline insurers) are widely used to fund developments with significant social and environmental impacts. Many of these developments, of course, will be subject to other environmental impact assessment requirements, even if not subject to the Principles. Several Equator Banks extend the application of the Principles to areas of banking other than project finance, by adopting an ‘Equator-Lite’ approach to other forms of lending or sometimes by applying policies more stringent than the Principles to some areas of their activities. dççÇÄóÉ=íç=íÜÉ=ARMã=íÜêÉëÜçäÇ\= The $50m threshold was originally a concession made to some initially reluctant banks to encourage them to adopt the Principles. The threshold is said to be particularly damaging in developing countries where the capital costs of quite significant projects may be less than $50m and local laws may not require stringent environmental and social impact assessment. Another issue is the possibility of ‘salami-slicing’ projects so that each part of the project falls below the $50m threshold. For many banks, however, this clearly is impractical and simply does not make financial sense. It is doubtful whether many of the Equator Banks would have any interest in subdividing projects to come below this threshold value, although that is not to say that we have evidence that it is not done. In fact, our survey showed that the threshold is being quietly abandoned by a number of Equator Banks. fc`=êÉîáÉï= The scope of the Principles is about to undergo a major overhaul. The IFC has recently embarked on an integrated review of its Safeguard Policies, Policy on Disclosure of Information and Environmental, Health & Safety (EHS) Guidelines. The review involves a comprehensive update of the IFC’s policies and guidelines, subsequent to stakeholder consultation and expert guidance. The revised policies are scheduled to be presented to the IFC’s management and Board for approval in early 2005 5 . 5 See www.ifc.org/ifcext/policyreview.nsf OP= 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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