How about Canadian Equator Banks and Transparency?

Having read Olaf Weber’s publication titled, “Equator Principles Reporting: Do Financial Institutions meet their Goals?” as well as Mehrdad’s review and comments on it (Equator Banks get poor Marks on Transparency and Disclosure ), I have been prompted to submit a few observations of my own based on a survey I carried out on Canadian EPFIs last year.

Blog by Bill Kennedy -  shortlink:

The survey was undertaken at the request of the Canadian Commissioner of the Environment and Sustainable Development (CESD). The primary purpose of the survey (much like Olaf Weber’s report) was to examine transparency as it relates to environmental decision making and the management of environmental and social risks within the financial services sector.

The survey was based on a questionnaire sent to these six private Canadian Equator Banks:

The survey was submitted in February 1013 and follow up telephone interviews carried out in early March 2014. Some of the questions posed were:

  • What has been the effect of the Equator Principles on the way you do business and your investments?
  • Have any project proposals been rejected or financing denied as a result of applying the Equator Principles?
  • Are you applying the Equator Principles only to project finance and related advisory mandates that exceed US$10 million or have you expanded the concept of ESG risk to other financing activities?
  • What challenges do you see with the adoption of the new IFC Performance Standards (2012) and proposed changes in the new EPIII moving forward?

Based on the results of the questionnaire (as well as information contained on the bank websites and CSR reports) I did not find much evidence that the Equator Principles are making much of difference to Canadian EPFIs. Part of the reason for this is simply because most of the Canadian EPFIs’ investments are in Canada (a high income OECD country or, in the new language of EPIII; a Designated Country) whose laws, regulations and permits that pertain to environmental and social matters are generally considered to meet or exceed the requirements of the Equator Principles.

In addition, Canadian financial institutions do not undertake many project-based loans and when they do so they are frequently in low risk sectors such as real estate. As a result, the vast majority of Canadian EP projects are screened in Category C. However, regardless of the screening category, Canadian banks are concerned about the expanded reporting requirements of EPIII (e.g. providing the name of EP projects in their reports) which they feel will be sensitive for some of their clients and, indeed, a majority seemed to feel that the decision to report on specific environmental/social issues related to bank financed projects should be left to the client.

The survey also revealed a very important aspect of the Equator Principles for Canadian banks and that is that they are and, for the foreseeable future, will remain voluntary in nature. They see the Equator Principles as “risk based” rather than “compliance based”. If the risks remain low due to the small number of project (and project related) corporate loans which continue to be carried out in Designated Countries such as Canada and the United States, the Equator Principles will continue to have limited relevance for Canadian financial institutions.

What has been your experience with Canadian Equator Banks and the relevance of the Equator Principles?

One Comment to How about Canadian Equator Banks and Transparency?

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

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