Today in London, the Equator Banks – a group of about 40 financial institutions that together represent more than 80 percent of global project financing – pledged to strengthen their environmental and social risk management. They met to adopt the revised version of the Equator Principles, which follows IFC's approval of its new social and environmental performance standards, upon which the Equator Principles are based.
I welcome this evolution. It is an important recognition of IFC’s work in developing world-class standards for project finance. I also welcome the Equator Banks’ commitment to a wider application of their principles and to greater transparency. The principles will now apply to projects with a capital cost of $10 million or above, instead of a $50 million threshold, and will also cover project finance advisory services. In addition, each Equator financial institution is pledging to report annually on its implementation of the principles.
Embracing Sustainability as a Norm
As an international development organization, IFC should be concerned about the sustainability of its projects. But why should private banks care?
A little while ago, private banks cared about sustainability because it was good for their reputation and brand. Now it is about their bottom line. There is emerging evidence of a correlation between good environmental and social behavior and good financial performance. We find plenty of examples of this in IFC’s own portfolio.
Key Results |
- In a recent survey of bankers, IFC found that 65 percent reported tangible benefits from sustainable policies. The Sustainable Banking Awards co-organized by the Financial Times and IFC have shown that banks are using sustainability as a driver for business growth and asset quality.
- The Sustainability Yearbook 2006, published jointly by Sustainable Asset Management and PriceWaterHouseCoopers, says that it has been able to show a conclusive link between performance on sustainability issues and financial performance, and a correlation to creation of shareholder value.
This trend has not gone unnoticed by private investors:
- In the United States, the Social Investment Forum published a report in January of this year which found that socially responsible assets grew faster than the entire universe of managed assets in the United States during the past 10 years.
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More funds are taking a controlling interest in investee companies to ensure that they are well managed, that they have in place good corporate governance structures, and that they are paying attention to environmental and social issues.
In 2004, net private capital flows to developing countries increased to $300 billion – that is, four times the amount of governmental development aid provided to these countries. Private sector investment, rather than aid, is now the driving force for development. With more and more financial institutions taking on board environmental and social issues, responsible banking stands to be a leader in sustainable development.
Next Steps
IFC will continue to encourage the adoption of its sustainability standards by all institutions that do project finance, from bilateral and multilateral development organizations to local banks in emerging markets. The Equator Principles are good business and as such are an instrument for sustainable development.
By Lars Thunell, Executive Vice President
International Finance Corporation, World Bank Group
July 6, 2006
For further information contact:
Lucie Giraud
Communications Officer
Tel: (202) 458-4662
E-mail:
LGiraud@ifc.org 
