The Equator Principles: The Next Stage for Activists
By Bart Mongoven
July 13, 2006
http://www.stratfor.com/products/wtr/wtr.php (must be a subscriber
to view original article)
A coalition of dozens of the world's largest banks has released a new
version of a voluntary code of conduct for the banking industry. The
guidelines, called the Equator Principles, address social and environmental
impacts of lending, and signatories agree to abide by them in lending for
development projects in poor countries.
Nongovernmental organizations (NGOs) have pressed banks for years to adopt a
code of conduct on lending, and the revised Equator Principles are a
significant victory for these groups. These NGOs, which call themselves the
BankTrack coalition, claim that the principles are a "minimum standard" and
not a summary of best practices. BankTrack acknowledges, however, that there
are several significant, positive differences between the new Equator
Principles and its predecessor, established in 2003. The changes to the
principles reflect the increasing power that these NGOs have attained during
the past three years -- as well as the wish of the banks to satisfy the
demands of activist groups.
Among the changes made to the Equator Principles is that banks now would
agree to submit to an annual performance review by an internal auditor -- a
term not included in the first version of the code of conduct. This change
is important, but even more important is that the change was made at the
urging of NGOs whose input the banks had sought as they revised the
Having had a discernible impact on development lending, the NGOs have
expressed cautious support for the new Equator Principles. But they now must
face difficult questions as to whether they want to continue working for
social change and development within the Equator Principles process -- or
seek faster or more dramatic change by working from the outside.
BankTrack appears satisfied that most of the world's major private lenders
now publicly support the principles (80 percent of private project finance
is now subject to the guidelines); thus, the first stage of the NGOs'
campaign is coming to an end. The challenge they face now is to strengthen
the regime -- particularly how it is interpreted -- and to monitor its
For NGOs, this next phase entails a number of risks. It will require that
the groups learn to live with the limitations as well as the power of the
position they have won. It also will require patience; defining terms and
monitoring implementation is not as exciting as direct-action campaigns
against corporations, and it wins few headlines. But the most significant
risk for the BankTrack coalition is that its members will split -- with one
faction becoming critical of the pace and style of the changes taking place
-- and that those who want to remain at the table will lose credibility as a
Maintaining focus will be critical, since BankTrack's strategy remains
highly indirect. Bringing about a philosophical change among the world's
largest banks is an important victory, but in the bigger context of
globalization, a more significant prize would be gaining the ability to
influence the guidelines used by the World Bank's International Finance
Corporation (IFC). This is a set of standards that is quickly coming to be
regarded as the global authority on the larger social rules for
A Response to Globalization
The IFC's guidelines and the Equator Principles were developed -- more or
less in tandem -- in response to a decades-long campaign by NGOs, begun in
the 1980s, to change project finance in developing countries.
The activists who launched the project-finance reform movement argued that,
while effective labor laws, environment regulations and so forth assured
certain protections in industrialized countries, there were few such laws in
developing countries -- and those that did exist were rarely enforced. As a
result, activists began to search the private sphere for mechanisms to
improve social and environmental protections in the developing world.
The major industries in developing countries -- construction, oil
exploration and mining -- together comprise hundreds of corporations of all
sizes that are based in dozens of countries, and which respond differently
to public pressure or attacks on their brand names. To build a single code
of conduct that would address the activities of these numerous and diverse
actors would be very difficult. Winning the support of banks for a code of
conduct pertaining to a dozen different industries, on the other hand,
seemed possible. Therefore, for activists to change industrial development
in poorer countries, a two-part strategy emerged: One part focused on
lending to development projects from the World Bank, the other focused more
directly on lending from major private banks.
The better-known strategy of the two has been directed at the major
international financial institutions -- the World Bank group first and
foremost, but also the European Bank for Reconstruction and Development, the
Inter-American Development Bank and others.
The World Bank-focused campaign famously brought anti-capitalist,
anti-globalization activists together with labor rights groups,
environmentalists and human rights advocates, who called attention the
bank's shortcomings and to the controversial projects it supported. World
Bank meetings became the platform for the now-familiar anti-globalization
protests featuring police in riot gear, oversized puppets, teargas,
choreographed mass arrests and the occasional police car lit afire. Behind
the scenes, activists in business suits and armed with PowerPoint
presentations -- playing "good cop" to the street protesters' "bad cop" --
met with bank officials to lobby for a code of conduct in lending.
The "good cop-bad cop" strategy was effective. The World Bank launched
several reform efforts, the most important of which was a study of rules
that could apply to lending to extractive industries. This study formed the
basis for the code of conduct that has been developed by the IFC.
The second path that activists followed was bringing pressure to bear
directly against banks. On the surface, this would seem quixotic; private
loans are a confidential exchange that legally cannot be discussed by a
bank. Nonetheless, in the late 1990s, a coalition of organizations began a
market campaign against the banking industry, highlighted by Rainforest
Action Network's four-year campaign against Citigroup. As a result of this
action, the bank eventually agreed to follow a code of conduct in its
Campaigns in Europe created similar pressures for some larger banks -- such
as WestLB and ABN AMRO -- to quell protests by cooperating with the NGOs.
This cooperation is what gave birth to the first version of the Equator
Principles, which were modeled after guidelines adopted by the IFC for its
own lending practices in 1997. Under pressure from NGOs, the banks
essentially agreed that the Equator Principles would follow IFC rules as far
At first, the agreement to adopt a code of conduct was fairly easy. The
terms of loans being secret, the agreements were completely unenforceable.
Nonetheless, banks tend to place quite a bit of emphasis on their Equator
Principles signatory status in communications with the public. In fact, it
is in this way that the Equator Principles themselves have captured
significant attention. Being an "Equator Bank" has become a crucial aspect
of many participants' public images, brands and growth strategies. It also
is a way that "Equator Banks" differentiate themselves from competitors when
bidding for government contracts and major public projects.
Banks that try to profit, in terms of brand equity or social capital, from
the positive aspects (especially public perceptions) of their participation
in the Equator Principles have far more at stake than nonsignatories in
their lending. These banks have too much invested, from a corporate
standpoint, to easily loan money for a project that clearly violates the
Equator Principles. In other words, the fear of what it could mean to a
corporation's reputation if word were leaked that it had supported a
questionable project is the most powerful form of enforcement for the
Next Step: 'Enforcement'
For the BankTrack members who put all of these reforms in motion, "victory"
is both won and forever elusive. Activists have succeeded in their goal of
changing the way that oil, mining, dam building and other industrial
projects are financed -- in theory. The next phase, however, is
consolidating and expanding the power the NGOs have gained. In a small way,
this will be done through ensuring the implementation of the Equator
Principles -- defining vague terms in the code and finding ways to make sure
banks are following through on their agreements. (By way of example, debate
likely will rage for years as to the precise guidelines banks should follow
when undertaking an environmental impact assessment in a developing
The bigger question, however, is what the NGOs will do with the power they
already have attained. In the past 15 years, their role in project finance
has shifted from that of interloper to that of partner -- and now they must
decide how to proceed.
To banking executives, the notion that NGOs belonged at the decision-making
table on lending policy was laughable in 1990 -- but it is now a reality.
This is not insignificant. NGOs argued for years that they deserved a voice
in lending policy because they represented those who otherwise had no voice
-- the community to be relocated due to dam construction, the villagers who
live downstream from a polluting industrial operation. By winning a seat at
the table, the NGOs who make up BankTrack have revolutionized concepts of
"civil society" and its role in international decision-making.
The effect of this change will be most meaningful where it touches upon the
IFC's lending guidelines. The IFC is a pivotal player when it comes to
lending practices. Its work in this area has been closely watched by
numerous NGOs and governmental organizations, and it is emerging as the
center of gravity for the larger corporate social responsibility movement.
In addition to having helped shape the Equator Principles, the IFC's work is
viewed as the most advanced, sophisticated approach to the difficult
questions that surround globalization, developing countries and
corporations. The chief U.N. adviser on multinational corporations, John
Ruggie, has implied that the IFC guidelines are the most viable base on
which to build a larger code of conduct for multinational corporations. The
International Organization for Standardization, meanwhile, is paying close
attention to the IFC guidelines as it builds its standards for corporate
For the NGOs that pushed so hard to win acceptance for the Equator
Principles, having influence with the IFC will be a top priority. The
question is whether they can attain this influence from their current
position -- and if not, whether they should work to attain it from within
the system or from outside.
The groups' reaction to the recent release of the revised Equator Principles
-- that the code needs better implementation and monitoring -- suggests that
they want to become the monitors and that they are willing to take a patient
If so, this points to a very fine line the activists will have to walk.
On the one hand, it is quite possible to work constructively with the
Equator Banks on lending issues and yet also criticize, sometimes noisily,
the progress the banks are making. This appears to be the current approach
the NGOs are taking. They have begun to demand that Equator Banks publicly
identify specific projects that would not qualify for loans under the
Equator Principles -- a step that no one yet has made. Through press
releases, NGOs have hinted that the Sakhalin-II oil project in Russia is
such a candidate (due to potential effects on sea life and the environment).
On the other hand, however, there is always the temptation for NGOs to
return to a "good cop-bad cop" strategy. And the "bad cop" role can be
particularly alluring. The group cast in that role has merely to point to
Equator Bank funding for Sakhalin-II (or some other project), declare the
Equator Principles a sham as long as such projects gain funding, and then
protest the process in its entirety. The upsides here are many -- increased
fundraising, grassroots recruitment, publicity and even the remote chance
that the NGOs can change the Equator Principles from the outside. The
potential downside would be losing a constructive voice on implementation of
the Equator Principles and, ultimately, losing the possibility of impacting
The path the NGOs take will be telling -- not only as to the current and
future strength of the BankTrack groups, but also about the extent to which
"civil society" will have a place at the table in making global policy.
Send questions or comments on this article to