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Can the Equator Principles survive without the NGOs?

That’s enough tabloid-esque headlines.

Yes, of course they can. Banks can, and would, continue to use them, just face more vocal anti-Equator Principles protests and campaigns, perhaps a little tougher than today’s.

But there is a story here, about verifiable performance in corporate responsibility.

And about the credibility of how that is created.

BankTrack, together with Friends of the Earth US, has issued what could be seen as an ultimatum to the big bank signatories of the Equator Principles, all 70+ of them.

(The exact number is not on the website, which has not updated media coverage of the EP’s in two years)

BankTrack is calling on the new chair of the steering committee of the EP’s, Shawn Miller of Citigroup, to encourage the banks who have signed up to show how their following of the principles has helped poor communities surrounding projects financed by the banks.

BankTrack says: “There is almost no independently verifiable evidence coming from banks that the Principles indeed make a positive difference for project affected communities, or help preserve the environment. In contrast, we are aware of numerous serious problems with projects that are ‘under Equator’… It is precisely this self-congratulatory attitude, combined with a continuous lack of transparency and accountability that may eventually defeat the Equator Principles initiative”

However, it’s not clear what “independently verifiable evidence” might look like.

Would this be be obtained by using NGOs?

I wonder if most have the skills to do this. And who would pay for this to be done?

If local, or even international NGOs lack the skills, capacity and funding to monitor capital-intensive, heavy industry projects in developing countries, who could do it?

There is some precedent here with academia. INSEAD have worked with Unilever and SAB Miller to devise ‘economic footprint’ analyses of how those companies have an impact on countries and jobs in places such as South Africa, Honduras and Uganda.

And both Mattel and Freeport McMoRan worked with the International Center for Corporate Accountability, based in New York, an academic organisation, on monitoring progress.

So whilst there is a patchy, but slowly emerging trend for companies to work with credible outsiders with appropriate skills and credibility, this is still a vitally important question that has to be asked again and again.

My suggestion would be for the Equator Banks to team up, and create a fund between them. This fund could then be used to fund proper, credible research into how the EP’s are implemented at ground level, and would make suggestions for improvements and track progress.

This idea too, is not a new one. BP have done similar things on human rights both in Indonesia, around the Tangguh project, and the Baku-Tbilisi-Ceyhan pipeline and the work the company is doing in Azerbaijan.

Of course, the idea is not a perfect one. There are all sorts of problems with it. Finding appropriate academic capacity, corporate lawyers having kittens at the idea, the challenge of potentially overly-ideological academics, and how pragmatic NGOs are involved and consulted. Most importantly, how the NGOs who are generally anti big business/fossil fuels in developing countries are involved and consulted would be an important challenge.

No-one should be allowed to hijack this independent organisation and its processes, so a strong chairperson would be needed, along with consistent funding.

So it wouldn’t be easy. And it would take time, but I don’t see a credible alternative emerging any time soon.

Overall, BankTrack and NGO partners want the banks to do four things, in their own words:

1) Open up, by improving the transparency of the Principles through full disclosure of banks’ implementation efforts, on the project level, disclosure of all information related to a project’s social and environmental impact.

2) Be accountable, by improving the community consultation process, establishing guidelines for project grievance mechanisms, and establishing an accountability mechanism for the Principles themselves.

3) Expand the scope, by committing to apply the Principles, or an adapted version thereof, beyond project finance transactions to general corporate loans, asset management activities and Initial Public Offerings (IPOs).

4) Stop financing climate change, by developing exclusion criteria for projects and activities with a high impact on climate change, such as fossil fuel exploration projects and coal power plants, and by developing stringent climate targets for other projects financed ‘under Equator’.

These are admirable demands. Which can be met?

Number four is more or less totally out, let’s be honest. No big bank is going to stop financing fossil fuel deals any time soon. Look at how shale gas is taking off, for example.

Number three is unrealistic, given that the EP’s, in banking terms, are still fairly new, and are looked on suspiciously by lawyers. Number three also means huge shifts in how the banks work. Essentially it would mean reworking how banks look at risk altogether. Now, I’d like that to happen, but I can’t see it taking place right now.

Where I can see areas for banks to improve is on points one and two, above. These seem like reasonable requests, over time

The banks have an opportunity to look at John Ruggie’s work and learn from it, and can certainly begin having a conversation about ‘accountability mechanisms’, even though many of us are not sure what that means immediately.

The problem for the banks here is threefold, as I see it:

a) They are naturally secretive. And have a legal obligation to be, although in some cases not as much as they claim.

b) They are culturally untransparent, for historical, competitive and the previously mentioned legal reasons.

c) They are not on the front lines, unlike the companies they fund, and don’t understand really, what accountability might mean as reasons a) and b) mean they don’t really want to explore the idea in their glass towers in London, Frankfurt and New York.

So the banks need to overcome how they have traditionally looked at these issues, and not retreat all the time behind secrecy as an excuse not to engage further.

Now, I’m not saying readers, that the Equator Principles haven’t done some very good things. They clearly have. I often cite them as a successful collaboration on CR issues, albeit a work in progress. They have got a lot of big banks, over 90% of project finance, signed up. That’s a good and admirable thing.

The challenge for the EP’s, as with many other business collaborations, is to get beyond self certification.

We need capacity built in independent academic, credible institutions, where funding is secure, and expertise in place, to do this kind of thing. Or one institution, created by brave banks within the EP’s. If they could get enough traction.

They should at least try. Here’s a model that could be adapted to be more practial, over time.

This is all likely too big an ask right now.

The EP banks would have a fit at this idea. I can see the objections now: Too many cooks to get everyone to agree, who would pay, how much, what about the legal/reputational risks, NGOs hijacking the idea, left wing academics as a concern, not enough monitoring capacity available to do the job, etc etc etc.

But it would not be beyond the capacity of the banks, partnering with appropriate organisations on the human rights and monitoring front, to do this.

I wonder if, long-term, there really is any alternative?

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