While BankTrack criticizes Equator Principles, IFC celebrates Community of Learning

In advance of the gathering of Equator Banks for the fifth Community of Learning event hosted by the IFC this week, BankTrack published its critical review: The Outside Job -Turning the Equator Principles towards people and planet.

As blogged in greater detail previously, the Equator Principles are a derivative of the IFC Performance Standards and form a voluntary environmental and social risk-management framework used by 74 financial institutions worldwide. In addition, 15 European Development Finance Institutions and 32 export credit agencies from the Organisation for Economic Co-operation and Development (OECD) refer to the IFC Performance Standards in their operations. In 2008, the European Bank for Reconstruction and Development (EBRD) modeled its own Performance Requirements on IFC’s IFC Performance Standards.

BankTrack notes that voluntary initiatives from banks have an important role to play, “provided such initiatives are not mere window dressing but a sincere attempt to deal with the pressing social and environmental challenges faced by banks, people and planet alike, and are implemented with sufficient ambition and urgency”. Although acknowledging that the Equator Principles, as an organization, has improved its governance structures and improved reporting, BankTrack remains “disappointment with the lack of progress on transparency, accountability, effectiveness and true compliance with the Equator Principles”.

Also, BankTrack notes that “the world does not need improved risk management as a goal in itself; it needs fewer supersized dams blocking life‐supporting rivers, less mining projects scarring entire mountains and polluting community water sources with their tailings, an end to oil exploration projects destroying our seas and last remaining wilderness areas, a stop to the construction of coal power plants belching out millions of tons of greenhouse gases into our already fatigued atmosphere, a concerted effort to protect the worlds’ forests and so on.”

This raises some interesting dilemmas. In general terms, should Equator Banks go back to simplistic ‘Yes/No’ decisions on – for example – financing coal power plants? Or should banks take an incremental and best-in-class approach by financing only the most efficient/cleanest coal power plants? There is not much evidence that Equator Banks are adopting a simple ‘Yes/No’ approach.

According to a recent article in the Financial Times, HSBC, Standard Chartered, BNP Paribas and Credit Agricole – all of which are European-based Equator Banks – have responded to growing pressure to reduce their support for fossil fuels due to their Climate Change impacts. However, they have not withdrawn from financing coal power plants as a matter of policy. Instead, they have drawn up codes on lending to power plants that meet minimum efficiency/pollution standards.

Do you feel that such an incremental/best-in-class approach adopted by Equator Banks will create sufficient positive momentum to tackle issues such as Climate Change? Or should the gathering of Equator Banks (and others) at the IFC-hosted Community of Learning event contemplate more radical changes?

 About the author: Mehrdad Nazari (MBA, MSc, LEAD Fellow) is a Corporate Responsibility, Sustainability Reporting & ESIA Advisor, and Director of Prizma. He was previously an environmental consultant with Dames & Moore, Principal Environmental Specialist at the EBRD and CSR Research Director at CoreRatings. Mehrdad has delivered over 20 courses on the application of the IFC Performance Standards, the Equator Principles and GRI's sustainability reporting framework. Access Prizma’s latest newsletters here.