Banks contest ban proposed for coal and oil extraction
Published by MAC on 2004-04-05
Banks contest ban proposed for coal and oil extraction
Financial Times, by Demetri Sevastopulo in Washington
April 5 2004
Leading international banks are expected to urge the World Bank to reject proposals to stop financing oil and coal projects in developing countries.
Citigroup, ABN Amro, WestLB, Barclays and 16 other banks involved in project finance last year signed the so-called Equator principles - an agreement to adhere to social and environment safeguards of the World Bank group.
The "Equator banks" want the World Bank to reject recommendations contained in the Extractive Industries Review - an independent study of oil, gas and mining project financing commissioned by the bank - according to a draft letter to James Wolfensohn, World Bank president, obtained by the Financial Times.
The EIR urged the bank to phase out funding of oil projects by 2008 and to stop financing coal-mining projects. The World Bank has signalled that it will reject some of the more radical proposals.
"We believe that the EIR has not given sufficient consideration to the fact that the extractive industries are essential to global economic growth and poverty reduction, and that for some countries the extractive industries represent a very important means of creating revenues for government programs," says the letter, which is unsigned and being circulated among the banks.
Citibank, one of the drivers behind the push to sign the Equator principles declined to comment on the letter.
Environmental groups and other non-governmental organisations that welcomed the agreement last year are critical of the banks desire for the World Bank to reject the EIR proposals.
"It's outrageous that the Equator banks are lobbying against proposals that would make emerging market investments better benefit the poor," said Michelle Chan-Fishel of Friends of the Earth. "We and other NGOs are calling on the Equator banks, particularly Citigroup and the leaders of this initiative, to honour the spirit of the Equator principles and to publicly support the EIR recommendations."
But the International Finance Corporation, the private-sector lending arm of the World Bank that spearheaded the effort to get the banks to sign the Equator agreement, said the letter represented a welcome increased participation in the consultative process.
"Whatever you think of the EIR everybody is now engaged in the debate about how the World Bank's leadership can be best used," said Rachel Kyte, IFC director of environmental and social development.
"I don't think there is anything negative at all about having Wall Street and London and Frankfurt engaged in [the debate about] how you finance extractive industries." The banks welcomed the EIR recommendation for increased transparency regarding oil revenues paid to governments. But they warned against making countries having "robust governance criteria" a precondition for World Bank financing.
The letter says: "A country's current inability to meet robust WBG governance criteria should not prevent that country from gaining access to the support, both financial and structural, that is required in order to develop such government mechanisms."
Separately, 126 European parliament members, affiliated with Green parties, wrote to Mr Wolfensohn on Friday urging the bank to implement all of the EIR recommendations.
Leaked Letter: Equator Banks Oppose Strengthening World Bank Environmental, Social Protections
Friends of the Earth - WWF - Institute for Policy Studies
For immediate release-- April 5, 2004
Michelle Chan-Fishel, Friends of the Earth: (202) 427-3000
Francis Grant-Suttie, WWF: (202) 778-9718
Daphne Wysham, Institute for Policy Studies: (301) 573-2468
Today, NGOs released a leaked letter to World Bank President James Wolfensohn being circulated among investment banks seeking to block approval of a report whose recommendations would strengthen environmental and social conditions at the World Bank. The investment banks’ letter comes as the World Bank Group weighs adoption of the report, known as the Extractive Industries Review (EIR). NGOs have urged the banks that have endorsed the Equator Principles to end their effort to block the EIR, and to support its recommendations.
The Review concluded that the poorest people in developing countries were being harmed rather than helped by extractive industry investments. The Review offers a set of recommendations that the World Bank should follow to increase development effectiveness, and proposes that the Bank use its limited funds to invest more in renewable energy and phase out financing of oil and coal projects. On April 2, 2004, over 100 Members of Parliament worldwide spanning the political spectrum and the European Commission called for the full implementation of the EIR recommendations.
The Equator Principles have been endorsed by 20 investment banks and are a set of environmental and social guidelines for project finance linked to the World Bank’s standards. The Principles’ preamble emphasizes the role banks can play in “promoting environmentally responsible stewardship and socially responsible development.”
“It’s outrageous that Equator Banks would consider opposing recommendations designed to benefit the poor, particularly since that’s the World Bank’s mission,” said Michelle Chan-Fishel, Program Manager of the Green Investments project of Friends of the Earth – US. “We call on the Equator Banks, particularly Citigroup and the leaders of this initiative, to honor the spirit of the Equator Principles by publicly supporting the EIR recommendations.”
“The Equator Banks are acting like wolves in sheep’s clothing,” said Daphne Wysham, a fellow with the Institute for Policy Studies. ”Though wearing the outer trappings of higher standards, this letter reveals the Equator Banks actually trying to impede the World Bank’s attempt at implementing higher social and environmental standards.”
The letter, which was not yet signed by the banks, was leaked to members of the BankTrack network. In a December 2003 letter to Equator Banks, BankTrack specifically called for the creation of a “joint accountability mechanism” that could promote accountability among endorsers and play a positive role in strengthening World Bank environmental and social standards.
The Equator banks’ letter to Wolfensohn holds up the controversial Baku-Tbilisi-Ceyhan (BTC) pipeline in the Caspian region as a model project in terms of environmental and social standards. But according to a document leaked to the UK-based Sunday Times, BTC Co. may have hidden safety concerns about the pipeline in order to secure financing for the project.
"The BTC pipeline underscores the need to strengthen World Bank standards and policies in the extractive industries, as reflected in the EIR,” said Francis Grant-Suttie of WWF in Washington. “Full adoption of the recommendations will mitigate the risks inherent in projects like BTC. It is in the best interests of the Equator banks to support, not oppose the Extractive Industries Review.”
The letter opposes the notion that robust country governance should be a precondition of World Bank investment. It also expresses concerns with the concept of free, prior and informed consent and with the proposal that the World Bank phase out funding for fossil fuels by 2008.
For a copy of the letter, see www.foe.org or www.seen.org
RAINFOREST ACTION NETWORK STATEMENT ON EQUATOR BANKS AND THE WORLD BANK EXTRACTIVE INDUSTRY REVIEW
This morning the Financial Times reported that the “Equator Banks” - a group of 20 international banks that committed to environmental and social guidelines last June led by Citigroup (NYSE: C), ABN Amro (ABZRF.PK), Barclays (BCLYF.PK), and West LB - circulated a letter asking World Bank President James Wolfensohn to reject recommendations proposed in the independent Extractive Industries Review (EIR). The letter specifically outlined opposition to proposals to implement an immediate ban on new investments in coal, a phase-out of oil by 2008, and a requirement of free and prior informed consent of all communities affected by specific projects.
We commend the progress of Citigroup in leading the private financial sector to address the most pressing environmental problems of our time. Citigroup’s New Environmental Initiatives raised the bar for the banking industry in areas related to deforestation and indigenous rights, endangered ecosystems and no-go zones, greenhouse gases and climate destabilization, and clean energy and sustainable development. This strong commitment to sound environmental ethics must be applied more fully to the challenges of climate change and indigenous rights. However, we are deeply disappointed to see that Citigroup and the Equator Banks are working to block urgent progress necessary in the financial sector. The EIR represents the best scientific and economic vision for a sustainable and just future for capital investment. We sincerely hope that the Equator Banks will support and learn from the social and environmental advances of the World Bank Group. Phasing out of investments in polluting, non-renewable energy is one of the best ways to ensure a sustainable, just, and prosperous future. It is time for the world’s largest banks to stop capitalizing on climate chaos and profiting at the expense of indigenous rights. The World Bank, and the private financial sector, must establish targets and timelines that will facilitate what the Earth needs now and in the future.
The recommendations of the EIR have been hailed by communities and governments worldwide as the way forward in addressing critical issues including poverty reduction, responsible development, and environmental sustainability. On April 2, 2004 the European Commission issued a statement calling for full implementation of the EIR recommendations.
The Equator Principles, signed and released in June 2003, commit private financial institutions to follow the safeguard policies employed by the private arm of the World Bank Group, the International Finance Corporation. Although the Principles represent a significant step forward, their release was met with strong objections by environmental groups, including RAN, who found that the Principles did not go far enough to secure real protections for endangered ecosystems or affected communities. To date, the Equator Principles have been signed by twenty private financial institutions, including ABN AMRO Bank, N.V., Barclays PLC, CIBC, Citigroup Inc., Crédit Lyonnais, Credit Suisse Group, Dexia Group, Dresdner Bank, HSBC Group, HVB Group, ING Group, KBC, MCC, Mizuho Corporate Bank, Rabobank Group, Royal Bank of Canada, Standard Chartered Bank, The Royal Bank of Scotland, WestLB AG, and Westpac Banking Corporation.
In January 2004, Citigroup set industry best practices when it extended its Equator commitments through its New Environmental Initiatives (http://www.citigroup.com/citigroup/environment/initiatives.htm). These commitments, developed with Rainforest Action Network, provide accountability and reform in key areas not addressed by the Equator Principles including climate change, illegal logging, and informed participation of affected communities. Environmental groups have since asked other financial institutions to “meet or beat” Citigroup’s standards.