London Calling: Not seeing the wood for the fees

London Calling: Not seeing the wood for the fees

by Nostromo Research

18th May 2006

These days, reports on corporate social responsibility rattle out at a rate of knots. They clamour for our response even though they say little substantially new. But, as a staffer for London-based Control Risks Group told a business seminar about ten years back: "So long as you keep your opponents talking, you're okay. The moment they refuse to dialogue - watch your back!" (We may not have the exact words, but we certainly carry the right gist).

So it's fairly refreshing to find an offering which, though funded by the European Commission and Tony Bliar's Department for International Development (DfID), hits where most previous studies haven't.

The new report is by Indonesian based CIFOR. Okay, so it's on timber and pulp, but it's far from papier mache. And it has a definite relevance to mining, demonstrating that:

* international investors have banked billions on unsustainable timber projects without performing due diligence;

* the World Bank's IFC has skimped environmental appraisal of projects it proceeds to support;

* at least one least one investment bank, heavy into mining, has backed a project which is probably environmentally unsustainable. (That's Merrill Lynch);

* the "Equator Principles" - to which some forty-one international banks now subscribe - don't cover most of the loans and bonds used to finance expansion of pulp mills. The principles must, says the study's coordinator, "be broadened to cover syndicated loans, and issues of notes, bonds and equity, as well as project finance."

And, of course, that's of distinct relevance to mining, since banks often manage bond issues which are then converted into inequitable equity for a renegade mining company.

A recent example of this is Barclays Capital running a bond issue for Vedanta so it can
fund its predatory new aluminium refinery in Orissa.

Crossing the Equator

CIFOR also praises ABNAmro for "agree[ing] not to finance the clearing of primary forest or the purchase of illegally harvested timber."

But, hang on a moment - wasn't ABNAmro one of the lead banks that launched the disreputable Vedanta in the first place? And have they ever repudiated banking on this awful UK company after it illegally cleared primary forest for its Lanjigarh refinery site? (The answer - if you didn't know already - is a resounding "Nahin!")

The day the CIFOR study was launched, US-based Rainforest Action Group gave a "virtual" award to the leading Dutch Bank for "outstanding environmental hypocrisy". ABNAmro is accused of backing the Sakhalin II oil and gas project in Russia's Far East - one of the "most environmentally and socially destructive projects in history".

There's an even greater irony here. Just four months ago BankTrack (which also recently condemned the Sakhalin II project) along with WWF published their own estimate of how banks had met the (fairly relaxed) requirements of the Equator Principles. It gave ABNAmro the highest rating among the forty-one banks for fulfilling at least some of those principles with regard to “environmental and social management” in extractive industries. *

God only knows where this leaves the rest of the recalcitrant international funders.

Or indeed where it leaves DfID as co-sponsor of the CIFOR report. For, if there's one thing the UK's "development agency" never deigns to criticise, it's British-based extractive companies.

And those dastards, Vedanta, are key among them.

* See “Shaping the future of Sustainable Finance”, WWF-UK, in association with BankTrack, Godalming, January 26 2006