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Sectors and Themes Water Dams and Development E-paper
Private Sector Financing InstitutionsFor information on recent initiatives in the private sector, see:
Equator PrinciplesThe Equator Principles are 'An industry approach for financial institutions in determining, assessing and managing environmental & social risk in project financing.' The Principles apply to project finance activities on the signatories on projects more than $50million. The Principles require screening of projects according to IFC criteria and compliance with IFC safeguard policies. Four of the sixteen commercial banks supporting the Nam Theun 2 project in Lao PDR are Equator signatories and therefore were required to consider application of the Equator principles. Section 3 states 'For all Category A and Category B projects, the borrower has completed an Environmental Assessment (EA), the preparation of which is consistent with the outcome of our categorisation process and addresses to our satisfaction key environmental and social issues identified during the categorisation process.' Commitment of the borrower to an Environmental Management Plan, consultation processes and appointment of independent environmental experts is covered under sections 4,5 and 7. The Equator Principles started as an initiative of four banks in April 2003. As of September 2004, 28 institutions had adopted the Equator Principles. News and updates can be found on the Equator Principles website. Training for signatory institutions in application of the principles is provided by IFC. NGO Review of financing institutionsA cautious welcome to the Equator Principles came from NGOs pressing for environmental and social responsibility from financing institutions. In the NGO Collective Analysis on the Equator Principles, they state: 'However, whether or not the Equator Principles (EPs) represent a major step or a negligible one will be demonstrated through banks' commitment to transparency and implementation of the Principles. The undersigned NGOs believe that the EPs, aptly implemented, can be helpful springboard from which financial institutions can examine and confront their role in destructive projects. Modeled after guidelines from multilateral lending institutions, the Principles are only as good as the commitment behind them.' A review undertaken for WWF International, Policies and Practices of Financing Large Dams assesses and evaluates 'the funding mechanisms, policies and practices of globally operating financial institutions with regard to large-scale dam projects.' Twelve commercial and three development banks were selected for the research. The International Rivers Network has an active International Finance Campaign. An example of a dam-specific guidanceSwiss ReIn 2003, one of the largest reinsurance firms, Swiss Re, published a Focus Report on Dams The report notes that 'The benefits provided by dams are many and substantial, including irrigation, water supply, power generation and flood control. At present, hydroelectric plants are still the only large-scale, low emission means of generating electric power with renewable energy.' 'Yet dams have disadvantages particularly for the residents of the areas immediately affected, and often for the natural environment. Past dam projects have not always met sustainability goals….' HSBC GroupOn 27 May 2005, a press release from HSBC Group announced its first Freshwater Lending Guideline with specific reference to dam projects. The Guideline states: "HSBC's sector guidelines expand on our Environmental Risk Standard, issued in 2002, and on our adoption in 2003 of the Equator Principles, a set of voluntary guidelines that apply to project finance. In adopting the Principles, the Group has undertaken to ensure all new, applicable project finance proposals fall within its requirements. In addition, in respect of facilities involving dams, the Group will follow the World Commission on Dams (WCD) Framework for Decision-making ('WCD Framework'). In particular, we will not provide facilities and other forms of financial assistance, including any involvement in debt and equity capital markets activities and advisory roles, to:
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