The Equator banks have improved their record in implementing and applying the Equator Principles but their effect on the ground remains unclear, concludes a new BankTrack report on the Equator Principles (EP), a bank-led initiative to establish common environmental and social standards for project finance that was launched two years ago.

The report, titled ‘One Step up; not time to pause, The Equator Principles at age two’,  reviews EP banks’ efforts on the implementation and application of the Principles. The review is based solely on what EP banks have publicly disclosed, as this is the only basis on which civil society is able to judge banks’ progress.

The report notes some positive developments, such as the decision of six banks – ABN AMRO, Barclays, Citigroup, HSBC, JPMorgan Chase, and Westpac – to expand the scope of EPs, to transactions that fall under the $50 million threshold, and/or to certain corporate loans. In addition, ABN AMRO, HSBC, ING, and Westpac all reported that the EPs played a role in the bank either declining or putting extra environmental conditions on projects.

However, the report also finds that transparency regarding EP implementation has been lacking.  Although rates and quality of EP reporting have improved compared to last year, the vast majority of adopting banks (80%) provide limited or no disclosure, thus undercutting public confidence in the EPs.
Also like last year, implementation of the EPs has varied greatly among banks.  While a few banks have made significant efforts, less than half reported creating new procedures, standards, tools, etc. to implement the EPs.  Moreover, it appears that at least four banks -- Banco Bradesco, BBVA, EKF, and MCC -- do not have existing systems to manage environmental/social credit risks, which reduces the ability of these institutions to “mainstream” the EPs into existing operations.

“We welcome the handful of banks that are really trying to follow the ‘spirit of Equator,” but they do not offset the practices of others that have failed to demonstrate that they are even following the ‘letter of Equator’,” said Johan Frijns, coordinator of BankTrack, an international network of advocacy NGOs monitoring the financial sector.  “Unless all Equator banks provide timely evidence that they are
making a good faith effort to implement Principles, the EPs risk becoming greenwash.” 

“We are still hopeful about the Equator Principles, but our patience is wearing thin,” said Michelle Chan-Fishel of Friends of the Earth – US, a BankTrack member.  “It’s too early to tell whether the Principles improving the lives of local communities, but it’s too late for banks to still be doing business as usual.”

An accompanying Statement issued by BankTrack points out that the EPs are at a critical stage: While there are some promising signs among certain Equator banks, the EPs still face accountability problems, which if remain unchecked, could create serious problems in the future. The Statement also mentions several controversial deals that will test the Principles, particularly the Sakhalin II project, which according to an earlier BankTrack study violates the EPs on several counts.

BankTrack notes that two years after the EP launch, several key project finance banks, such as BNP Paribas, Societe Generale and Sumitomo Mitsui Banking continue to opt out. At the same time, the development of other environmental and social financing standards has challenged the Equator Principles’ leadership.

“BankTrack has welcomed the launch of new environmental and social financing standards that have been developed in the past year,” said Frijns, referring to recent standards such as HSBC’s freshwater policy which is based on World Commission on Dams recommendations, and the weapons financing policies of KBC, ING, Dexia and Fortis.  “As banks develop new policies addressing issues like human rights or specific sectors, the Equator Principles become less of a vanguard for sustainability and more of a minimum expectation for project finance banks.”