Equator Banks get poor Marks on Transparency and Disclosure

Equator Principles Reporting Do Financial Institutions meet their GoalsAs a practitioner involved in bankable ESIAs, and supporting developers and financial advisors/institutions for projects ranging from wind farms to mining, I follow the developments around the IFC Performance Standards and the Equator Principles closely. This is why Olaf Weber’s publication “Equator Principles Reporting: Do Financial Institutions meet their Goals?” caught my eye. -- Link: http://wp.me/p27qSt-FG

Olaf Weber, who holds the Export Development Canada Chair in Environmental Finance, authored a recently published report entitled Equator Principles Reporting: Do Financial Institutions meet their Goals? This report is a comprehensive study reviewing the reporting practices of the Equator Principles Financial Institutions (EPFI) – better known as Equator Banks.

Olaf Weber notes that only about half of the Equator Banks reported annually as proposed in the Equator Principles guidelines. He also points out that only two (about five percent) of Equator Banks disclose all the information required by the Equator Principles reporting guidelines, although 85 percent meet at least four out of the seven reporting criteria he reviewed. Olaf Weber opines that, because individual projects are not usually listed in a way that makes them identifiable, the reports by Equator Banks are non-transparent.

The lack of project-level disclosure by Equator Banks has been lamented by advocacy NGOs in the past. Being used to (and still criticizing) the detailed project-level disclosure offered by multilateral financial institutions, such as the European Bank (EBRD) or the International Finance Corporation (IFC), BankTrack, an advocacy NGO, complained about being "underwhelmed" when the updated Equator Principles (EPIII) were published in June 2013 (see also: While BankTrack criticizes Equator Principles, IFC celebrates Community of Learning).

Where does Olaf Weber’s very interesting study lead us? wallstreetposter

Olaf Weber concludes that additional mechanisms, such as standardization of reporting or third-party validation would be needed to “guarantee” that the Equator Banks meet their reporting obligations more fully. Perhaps the Equator Principles Association needs to ‘take a page out of the book’ of the International Council on Mining and Metals (ICMM). On behalf of its membership, the mining industry club adopted the GRI reporting guidelines along with the requirement for third-party assurance (see also here: 15 of 18 ICMM Company Members Produced A+ GRI Reports and Should Equator Banks use Assurance?)

Looking at the latest Equator Principles (EP3) guidelines, it is worth pointing out that the Equator Banks, for the first time chaired by one of its Asian member banks (see Equator Principles Looking East?), have adopted more expanded disclosure requirements. Specifically, Principle 10 on Reporting and Transparency includes the following (note also the qualifications):

 

Project Name Reporting for Project Finance

The EPFI will submit project name data directly to the Equator Principles Association Secretariat for publication on the Equator Principles Association website.

Project name reporting is:

  • applicable only to Project Finance transactions that have reached Financial Close,
  • subject to obtaining client consent,
  • subject to applicable local laws and regulations, and
  • subject to no additional liability for the EPFI as a result of reporting in certain identified jurisdictions.

 

The EPFI will seek client consent at any time deemed appropriate but no later than Financial Close.

The EPFI will submit the following project name data directly or via a web link:

  • Project name (as per the loan agreement and/or as publicly recognised),
  • Calendar year in which the transaction reached Financial Close,
  • Sector (i.e. Mining, Infrastructure, Oil and Gas, Power, Others),
  • Host country name.

Individual EPFIs may want to publish the data as part of their individual reporting, but there is no obligation to do so.

The above shown disclosure requirements still fall short of those commonly used by the benchmark setting multilateral financial institutions. They generally disclose project details before their board meetings and subsequent financial close to enable stakeholder review and engagement. However, some very excited conversations during recent Prizma short courses on the Equator Principles and IFC Performance Standards suggests that the new disclosure requirements under EPIII will create more transparency and perhaps new stakeholder engagement opportunities.

Checking the Equator Principles website today (September 5, 2014), I could not find any listing of project-level disclosures (yet). Do you expect that the new reporting guidelines will become a game changer in terms of project level disclosure and transparency for Equator Banks? Or do you feel that this is only window dressing?

See also Dr. Bill Kennedy's blog on How about Canadian Equator Banks and Transparency?

5 Comments to Equator Banks get poor Marks on Transparency and Disclosure

  1. Very interesting Mehrdad.
    How far do you think project-level disclosure needs to go?
    Just a summary of projects or down to project performance i.e. ESG performance disclosure.
    Greetings
    Petrus

  2. Mehrdad says:

    Thanks, Petrus. – Level of disclosure at project level should be done by the project/developer and vary by level of risk, context and stakeholder interest. – Bank’s are being asked to show which specific projects they are financing to avoid the ‘disconnect’ which exist in many cases. Many Equator Banks may feel reluctant to get in the middle of the stakeholder engagement process for controversial project and being used as a lever for publicity or pressure.

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