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Western Banks Set Standards for Eco-Friendly Lending. Japanese Banks Far Behind. NGO Keeping Close Watch NIKKEI, Tokyo, September 5, 2003 By Yoshihiro Fujii, senior staff writer There is a growing interest in corporate social responsibility (CSR) that means the social responsibility of corporations in the area of environmental and human rights issues. Japanese banks are very slow to take interest and are absent from the scene where the world's major financial institutions are taking the initiative in establishing environment-friendly standards for project finance (PF) for developing countries. "We are too far from the equator." All of Japan's four major banking groups balk at the Equator Principles. The Equator Principles refers to the standards, established voluntarily in June by Citigroup and other banks in the West, for handling environment and human rights issues in connection with business assessment for project financing in developing countries. The Equator Principles applies to projects with a total investment of $50 million (about YEN5.8 billion) or more. Banks rate each project according to its impact on the environment and society and require the operator of the project to take measures that come in three stages. Projects ranked A are those that would make an irreversible impact on the environment or that would require residents to leave and move elsewhere. The operator of such a project is obliged to make an environment assessment and possibly come up with an alternative plan. The world's 13 banks, including Citigroup of the U.S., Barclays of U.K., Credit Lyonnais of France and Dresdner of Germany, have signed the Equator Principles, but no Japanese bank has done so. Western financial institutions that worked out the standards are keenly aware of the watchful eye coming from two directions. One is non-governmental organizations (NGO). Early this year, the world's major NGOs, which are opposed to environmental disruption in developing countries by large-scale development, urged Western banks providing funds for development to use their financial leverage and put pressure on those countries to modify their development plans. The banks responded by establishing the voluntary standards. Major Japanese banks explain, "We are not faced with such criticism. Most of our project financing for developing countries takes the form of syndicated loan with the Japan Bank for International Cooperation (JBIC). JBIC's own standards ensure that we give sufficient consideration to environmental factors," according to a bank official in charge of international business. It is true that JBIC's environmental guidelines are in line with the World Bank's standards, and Western banks' voluntary standards are based on the standards of the International Finance Corporation (IFC), a member of the World Bank group. As long as Japanese banks' project financing takes the form of syndicated loan with JBIC, there is not much difference in the procedure for making environmental assessment between Japanese and Western banks. However, the voluntary standards were established "not only to improve the situation for specific projects for financing, but also to avoid latent risk in the future," according to C. Bray, head of Environment Risk Management of Barclays Bank. Japanese banks should not satisfy themselves by saying that the impact on the environment practically poses no problem. If a bank fails to establish its internal procedure and disclose relevant information, it may end up with the risk of being criticized for "lack of attention to environmental matters." Creating a definite procedure is considered important not only by NGOs but also by socially responsible investment (SRI) funds in the West, which invest in CSR-committed companies. The watchful eye of SRI is another thing banks in the West are keenly aware of. A company would not be rated high by SRI unless its procedure for handling environmental issues is clear and definite. A bank providing a syndicated loan with JBIC may be considered as dependent on the government sector, and be downgraded by SRI. In CSR, corporations are supposed to define what their own or their group's proper behavior is and go along with that definition. In reality, they are required to keep watch over the environmental and social behavior of their domestic and overseas partners and suppliers. In Japan, major electric machinery makers and retailers have taken it upon themselves to monitor the environment and social behavior of a very large number of suppliers. What suppliers are to manufacturers, borrowers and project operators are to banks. Japanese banks cannot afford to slacken efforts on the disposal of domestic bad loans. However, if they are too busy to pay attention to environmental concerns, their position in the international financial market may decline further. |
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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