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NGOs Bring Bank Scrutiny Back on Track Ethical Corporation Online, 2 May 2004 By Andrew Newton NGOs have woken up to the importance of the global private finance sector in influencing major infrastructure projects, but will they wake up to the need to broaden their own agenda? asks Andrew Newton Big banks are facing NGO pressure The secondary impacts of banks are the target of BankTrack, "a new network of civil society organisations tracking the operations of the private financial sector and its effect on people and the planet". Announced at a Public Eye event at Davos in January, BankTrack is led by groups including Friends of the Earth and the Rainforest Action Network (RAN). CS Mott, a private foundation in Michigan, financed the new network hub. Is bank-NGO engagement in for a change? The unique degree of control that major lending institutions exert over large-scale infrastructure projects has long attracted attention. Until a ceasefire was announced early last year, Citibank was the subject of constant pressure from RAN. And at this moment, the website of Friends of the Earth UK invites activists to submit pro forma emails to the Chairmen of both HSBC and the Royal Bank of Scotland to dissuade the banks from financing the Baku-Tbilisi-Ceyhan pipeline because of environmental concerns about the project. And of course the banks keep an eye on NGO websites for their views on projects in progress. For all this, however, private sector banking institutions have not received the sustained and broad-based scrutiny experienced by their clients, or by the international finance institutions (IFIs) and export credit agencies (ECAs) that lend in parallel to major projects. Creative destruction Collaboration between NGOs on this issue is not new. In January 2003 a group of eight NGOs drafted the Collevecchio Declaration on Financial Institutions and Sustainability. This declaration, subsequently endorsed by over 100 civil society groups, sets out the commitments into which, the group argues, banks should enter on issues including sustainability, doing no harm, responsibility, accountability, transparency, and sustainable markets and governance. Friends of the Earth used to host an active group tracking the finance sector called "Quantum Leap". This has been absorbed into BankTrack along with the activities of the Focus on Finance project run by AIDEnvironment in the Netherlands. Still, "BankTrack looks to me a lot like the old FoE initiative", comments Sandra Odendahl, Royal Bank of Canada's Senior Manager, Environmental Risk Management. Evolution or revolution? So does BankTrack signify a real change in the nature of bank-NGO engagement? For engagement front-runners like ABN AMRO and Citibank the answer is almost certainly "no". ABN AMRO's Paul Mudde points out that the bank awoke two years ago to the fact that they faced "the same indirect or 'chain responsibility' to which manufacturers have been growing accustomed." Simon McRae of Friends of the Earth confirms that ABN AMRO led the way in stakeholder engagement long before this year's deal between Citibank and RAN. The resulting policies have continued to evolve and now cover human rights through ABN AMRO's engagement with Amnesty International and Oxfam. NGOs for their part "have come to realise that there is little point in focusing only on the wrongdoings of IFIs or ECAs without taking the third source of financing into account", explains Johan Frijns, BankTrack coordinator. BankTrack is thus now seen as "the third pillar of comprehensive NGO campaigning on financing projects". But the network is not just about unified campaigning. The intricate linkages between these three sources of finance is reflected also in the parallel development of policy in this area. Clearly "this is a vast area to cover", says Frijns, "so some sort of task division is needed." With a dedicated co-ordinator and a web-based clearinghouse under construction, BankTrack could give the efficiency and effectiveness of NGO activity in relation to bank finance a significant boost. When the world became round For a small proportion of the global banking community, the focus of engagement has been the sectoral initiative that gave rise to the launch of the Equator Principles in June last year. These Principles commit signatories - so far just twenty-one banks, though they represent over two thirds of global private lending capacity - to apply in all their project lending the social and environmental policies of the International Finance Corporation of the World Bank group. Signatories gain the benefit of being grouped with others bodies around an international standard already in broad use. The risk of future changes being made to the standard is offset by the strength of their new collective global voice. NGOs needed to respond in kind not least because with globalisation comes harmonisation of the transparency standards demanded. "You need to approach the sector as a whole, otherwise you get one bank to get it right and there are nine others prepared to go in there", points out McRae. Privileging the flat-worlders Even before the Principles were launched, the same group of NGOs was beginning to argue that the principles did not go far enough. Now the campaigns can focus on the specifics of what is and is not there rather than remain ephemeral. In its first broadside against the Equator group on behalf of the network, BankTrack has focused on implementation and accountability issues arising from the Principles, as well as adding to the pressure for higher standards. The difficulty with sectoral engagement through a vehicle like Equator is that by focusing campaigning action on the standard and on those companies that have signed up, NGOs risk giving advantage to those who choose to remain out in the shadows. Acknowledging the valuable role played by NGOs in holding banks accountable, Odendahl asks what the NGOs are doing "about the thousands of banks that have not signed the Equator Principles and don't demonstrate any decent environmental or social policies?" Perhaps the answer is simply "leading the way". A group of Italian NGOs has been inspired by the RAN deal with Citi to form their own network, mancaintesa, targeting Banca Intesa, Italy's largest bank, on ethical and environmental issues. Single-minded But there are other problems with BankTrack. The Equator Principles cover social and economic impacts as well as environmental, arguably an attempt to embrace the full complexity of a lending decision. BankTrack's member NGOs are focused on the single issue of the environment. Complex trade off decisions faced by the government of a developing country, or even a bank, are therefore anyone's problem but their own. "We base decisions on consultations with a broad range of stakeholders, not just environmental NGOs." remarked Barclays' Philippa Birtwell. "NGO insights are valuable but trade offs have to start somewhere", confirmed ABN AMRO's Mudde. This could become a credibility issue for the NGOs. Towards a new kind of dialogue? The greatest impact the NGOs could have is "by investing in getting the Equator Principles to work as an international standard" said one banker. Banks need clear standards to work to and they now look to the Equator Principles on social and environmental issues. To do this, BankTrack's membership may need to expand to embrace and reconcile other agendas covered by the likes of Amnesty International, Oxfam and Christian Aid. "It would be great to see BankTrack become a platform for NGOs in the same way that corporations use the World Business Council for Sustainable Development", remarked Mudde. It is too early to say whether BankTrack will make a difference, indeed, most banks interviewed for this article had not yet heard of it. Instead, we have seen RAN, fresh from its success with Citigroup, turning its attention to another solo effort against ten other US banks. The domino effect may work, but ultimately BankTrack's success will depend on its members' ability to speak with one voice on a broader agenda. PRINTER-FRIENDLY VERSION | E-MAIL THIS PAGE |
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Environmental standards loom ever larger in banks' lending decisions, by Susanne Bergius, ENDS Report, December 2008
60 Second Profile on the Equator Principles, Good Practice Newsletter from ICMM, December 2008
Banks increase their environmental requirements
Promoting Greater Responsibility in Project Financing by Natasha Cappon, Canada, Spring, 2008
China to bring in green loan benchmark, 25 January, 2008
A Question of Principles, Infrastructure Magazine, by Kimberley Gaskin, June 2007
Citigroup to scale up its green spending,The Financial Times, 8 May 2007.
Polluters Clean Up Act to Attract Lenders, The Moscow Times, 12 October 2005
Mizuho To Adopt Environmental Standards In Project Financing, CNNfn, 26 October 2003
Dexia adhθre aux "Equator principles", La Tribune, 22 September 2003 (in French)
Western Banks Set Standards for Eco-Friendly Lending. Japanese Banks Far Behind. NGO Keeping Close Watch, Nikkei, 5 September 2003
Equator Principles Why Indian Banks Too Should be Guided by Them, The Hindu, 25 July 2003
Project finance Standards for Lending, Financial Mail, 25 July 2003
Banks' green pledge earns mixed response, swissinfo, 10 June 2003
Major Banks Endorse Equator Principles, The Peninsula, Qatar, 5 June 2003
Loan rules with an eye on nature, International Herald Tribune, 5 June 2003
IFC Head's Remarks at Equator Principles Press Conference, 4 June 2003