Michelle Chan-Fishel is coordinator of the Green Investments Program at Friends of the Earth-USA (FoE) in San Francisco. She has been a strong proponent of reforming the international finance sector so that it becomes more environmentally and socially responsible to the communities in which it invests. Chan-Fishel founded BankTrack, an international network of financial advocacy NGOs, and also has been a vocal advocate for implementation of the Equator Principles. In an interview with Charles Stewart Mott Foundation Communications Officer Maggie I. Jaruzel, she discusses issues related to the Equator Principles and FoE’s interest in the field of private finance reform.
Mott: Describe the Equator Principles and why the average person should care about them.
Michelle Chan-Fishel (MCF): The Equator Principles are a set of environmental and social norms that apply to project finance. Project finance is the way that many controversial development projects, such as large dams, power plants and oil pipelines, are funded. Many of these projects, especially in the developing world, have tremendous environmental and social impacts. For example, they could be oil pipelines that go through ecologically sensitive or biodiverse areas or dams that require people to resettle. These obviously have huge impacts on ecosystems and the people whose livelihoods depend upon them.
In the mid-1990s, as privatization started becoming more common in developing countries, and as more national corporations started going abroad to do business, private banks and financiers started to bankroll these sensitive projects. It wasn’t just the World Bank anymore.
The private sector was beginning to drive development in a lot of these emerging market countries. Environmental groups who viewed the World Bank as a key actor in international development soon realized that these private-sector actors were coming in and usurping the World Bank as the real power players in development finance.
Mott: How did the work of non-governmental organizations (NGOs) lead to development of the Equator Principles?
MCF: A group of NGOs launched something called the Collevecchio Declaration in 2003. It was the first broad civil society statement on the role and responsibility of the financial services sector in sustainability, and really symbolized a wake-up call for Wall Street. With increased globalization in the late 1990s, everybody had put a lot attention on the World Trade Organization (WTO), the World Bank and multinational corporations. But somehow private finance slipped right off the radar. People just didn’t come out in force and put that whole financial sector on alert, saying: “You guys have a role to play. It’s not just the WTO and the Bretton Woods institutions.”
By the time the Collevecchio Declaration was launched, NGOs were very active, campaigning in their own countries and putting pressure on banks. We had also organized ourselves into a network called BankTrack. So the Principles didn’t just come out of nowhere. They made sense for banks as a way to respond to the public pressure to be more socially and environmentally responsible.
The Equator Principles were drafted in late 2002 and finally came out in June 2003. There were four drafters — an American bank, a Dutch bank, a U.K. bank and a German bank, all of which had experienced pressure from NGOs and/or shareholders in their home countries.
“I don’t think that corporate executives get up in the morning, twist their mustaches, and say, “Oh, how can I harm the environment today?”
— Michelle Chan-Fishel
Mott: Who benefits from adoption and implementation of these Principles?
MCF: Communities benefit because the Equator Principles require certain procedures for bank clients. If a client is to get a loan from an Equator bank, it has to release an Environmental Impact Analysis (EIA) in the local language and do public consultations.
So if you lived in a community that was going to be affected by a pipeline — and the World Bank was not involved — you might never have been able to learn about how this investment would really affect you, especially if you lived in a country where the national laws do not require the disclosure of an EIA. Because of the Equator Principles, your community will get a consultation process, which never really happened before.
This means someone is hired to go in and alert communities about the pipeline, and show a summary of what impact the project is going to have on the environment and on the people’s livelihood. The summary would be in the local language and there also would be a meeting for local citizens to talk about it.
Mott: What obstacles or challenges are on the horizon for the Equator Principles?
MCF: The Equator Principles need to address seriously the question of governance and accountability. In the absence of any transparency requirements, and in the absence of any kind of formal governance structure, there is nobody responsible for ensuring the integrity of the Equator Principles or dealing with problems as they come up. There’s no one to make sure there is adequate implementation, which is a continuing challenge. If unchecked, that will ultimately harm the Equator Principles.
Mott: Discuss the importance of the recent environmental announcement by the investment banking firm of Goldman Sachs Group, including its plan to invest $1 billion in projects that generate energy from sources other than gas and oil, and its commitment to allocate $5 million to establish the Center for Environmental Markets.
MCF: Although it does not break any new ground in terms of environmental issues, the policy is important because it represents the first time an investment bank — which focuses on underwriting rather than lending — has developed such a detailed environmental policy. In contrast, investment banks such as Merrill Lynch and Morgan Stanley may have environmental policy statements but they are relatively general.
Regarding Goldman Sachs’s $1 billion commitment, I think that it’s important to note that they will commit “up to” $1 billion, so I hope they meet that target. In the drafting of the policy, I also had urged Goldman Sachs to define renewable energy to not include nuclear nor large dams that do not comply with the World Commission on Dams standards. However, this never got in.
It makes a lot of sense that Goldman Sachs would want to establish a Center for Environmental Markets. After all, they are market makers and are expert at understanding how markets can efficiently allocate resources. They are very keen to explore how ecosystem services can be monetized, and I think that this is an appropriate role for them.
Mott: How do the Equator Principles tie in with FoE’s mission and its work?
MCF: Our mission is to work on a broad array of environmental issues, but our approach has tended to rely on looking at key levers for environmental change. For example, if we are looking at a specific patch of habitat that is very important and we want to protect it, we will ask, “What are the drivers that are threatening this habitat?” They are usually economic, political and financial in nature. We have been looking at these high leverage institutions — the WTO and World Bank — because they set economic and financial policies, so they are really key targets in our work.
FoE hired me 10 years ago to begin an advocacy program on banks and Wall Street investors. I don’t think that corporate executives get up in the morning, twist their mustaches, and say, “Oh, how can I harm the environment today?” They are doing what they do because there has been unrelenting pressure to demonstrate to their shareholders every quarter — every 12 weeks — that they are making more and more money, and that they are meeting analysts’ earnings expectations. We have to take a look at what is driving this really short-term corporate behavior.
Some things are changing. Certain segments of the investment community are starting to push back and say, “Look, we are long-term investors and in the long term it makes sense to care about sustainability.” FoE advocates in support of these shareholders. We are defining what it really means to be loyal to shareholders’ interests. It is not just making money now, it reflects a longer-term thinking. It is very disheartening to see a lot of corporate decisions being made for short-term gain at the expense of damaging our sensitive planet or at the expense of communities.
But there are other investors — socially responsible investors. They recognize that they have a role and a responsibility in promoting sustainability. They recognize that their investments create the world we live in and that we want a healthy and just world.