Indian Financial System and

Adoption of Equator Principles

A Case for Environmental & Social Risk Assessment in Banking &

Financial Services

March 2013

PART 1

India’s Performance on

Environment Parameters

Laggard in parameters set under the MDG by UN

Leading the list of countries which will be water-stressed in

the coming decades

Regressing in the matter of consumption of ozone depleting

CFCs

Declining dense forest cover and biodiversity - only 12%

dense forest cover

The per capita CO2 emissions have shown a growth of

100.2% over the period 1990-2009

India’s Development Challenge

Noble intentions of 12th Five Year Plan ‘Faster, More Inclusive &

Sustainable Growth’

Environmental Clearances concentrated in the hands of government

During 2007-12, 8734 projects - granted forest clearances including

276 thermal power plants

184 coal mines

203 steel plants

112 cement plants

74 projects rejected for EC since 2009

ECs granted to power projects with installed capacity of 217,794 MW

while target capacity till 2017 only 178,700 MW

No monitoring or follow-up on ECs given, whether conditions being

met by projects or not

Inadequate resources on field level compliance & penalisation

incase of non-compliance

What does BFS Globally

Say/Do?

Equator Principles, established in 2003 as a framework

for E&S risk assessment & monitoring in project finance

78 banks across the world voluntary adopters

NO Indian Bank in the list

UNEPFI’s Principles of Responsible Investment

guidelines for investment agencies

900 signatories only IL&FS & Yes Bank from India

Banktrack and other civil societies actively tracking bank

financing to unsustainable projects

3 Indian projects under their scanner

Equator Principles

Voluntary Code adopted by FIs globally

Closely aligned to IFC and WB guidelines

Applicable to:

Project capital cost > U$10mn

New projects / expansion & upgrade of existing projects

involving significant environmental impact

Applicable to all industries

Across the world

Project finance advisory is included

All is not well with EP-based funding

…..sample controversial projects

Project Country Banks RemarksBaku-Tbilisi-Ceyhan oilpipeline

Turkey, Georgia,Azerbaijan

ABN AMRO, Citigroup,Mizuho, Société

Générale,

Banca Intesa, Dexia, HVB,

ING, KBC, Royal Bank ofScotland,

and West LB

9 Equator banks involved in USD 3.6bnsyndication. This was the first acid test forEP which failed. Later some FIs withdrewfrom the project, e.g. Banca Intesa.

Chad-CameroonPipeline

Chad, Cameroon ABN AMRO Received heavy criticism from AmnestyInternational for its effect onenvironmental and social issues in bothChad and Cameroon

Sakhalin II pipeline Northern Pacific Credit Suisse First Boston Criticised for having damaged ecologicallysensitive salmon spawning grounds usedby natives for fisheries and endangeredthe grey whale species that lives in thearea

Pulp mill in Tasmania Tasmania ANZ A USD 1.4bn project expected to doublethe current rate of clearcutting Tasmania ’sold-growth forests

Unsustainable loggingin Sarawak

Malaysia HSBC Ta Ann Holdings, does not have ForestStewardship Council (FSC) certification andhas been accused of clear-felling rainforestthat is home to endangered orangutan andof cutting down conservation forest forplantations.

And yet…..

78 banks worldwide including developing

nations

Global banks extending EP application to

other areas of business

Worst critics admit an improved sensitivity to

E&S issues due to pressure from financiers

Overall positive impact felt in the area of E&S

responsibility

International Environmental

Law

Lender’s liability emerging concept in

environmental regulation globally

Natural pushback from BFS industry

Significant number of cases of successful

penalisation of lenders

More prevelant in the developed economies of US,

Europe, Australia, Canada etc.

‘Somebody watching syndrome’ works for responsible

lending

ARE SUSTAINABILITY &

DEVELOPMENT PARALLEL TRACKS?

Contrary to Popular Belief Unsustainable Development will

Adversely Impact the Weaker Sections of Society Under

Whose Name ‘Rapid Development’ is Undertaken

BASED ON DISSERTATION PAPER OF THE SAME TITLE BY THE

AUTHOR

END OF PART - I