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Indian financial system and adoption of equator principles part 1


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Indian financial system and adoption of equator principles part 1

  1. 1. Indian Financial System and Adoption of Equator PrinciplesA Case for Environmental & Social Risk Assessment in Banking & Financial Services PART 1 March 2013
  2. 2. India’s Performance onEnvironment 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
  3. 3. 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
  4. 4. What does BFS GloballySay/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
  5. 5. 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
  6. 6. All is not well with EP-based funding…..sample controversial projectsProject Country Banks RemarksBaku-Tbilisi-Ceyhan oil Turkey, Georgia, ABN AMRO, Citigroup, 9 Equator banks involved in USD 3.6bnpipeline Azerbaijan Mizuho, Société syndication. This was the first acid test for Générale, EP which failed. Later some FIs withdrew Banca Intesa, Dexia, HVB, ING, KBC, Royal Bank of from the project, e.g. Banca Intesa. Scotland, and West LBChad-Cameroon Chad, Cameroon ABN AMRO Received heavy criticism from AmnestyPipeline International for its effect on environmental and social issues in both Chad and CameroonSakhalin II pipeline Northern Pacific Credit Suisse First Boston Criticised for having damaged ecologically sensitive salmon spawning grounds used by natives for fisheries and endangered the grey whale species that lives in the areaPulp mill in Tasmania Tasmania ANZ A USD 1.4bn project expected to double the current rate of clearcutting Tasmania ’s old-growth forestsUnsustainable logging Malaysia HSBC Ta Ann Holdings, does not have Forestin Sarawak Stewardship Council (FSC) certification and has been accused of clear-felling rainforest that is home to endangered orangutan and of cutting down conservation forest for plantations.
  7. 7. 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
  8. 8. International EnvironmentalLaw 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
  9. 9. 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