Environmental and Social Responsibility in Lending:
Citi’s Journey with the Equator Principles
May 13, Mumbai, India
Rajesh Jogi
Global Portfolio Risk Management
Citi India
The New Global Business Environment
Increasing resource
scarcity
Photo courtesy of Planet Ark
Growing stakeholder
awareness
Strengthening legislative,
regulatory and
enforcement frameworks
worldwide
Photo courtesy of Amazon Watch
Photo courtesy of USDA NRCS
Increased
transmission of global
reputational risk to
the financier
Photo courtesy of Dirty Money.org
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Environmental and Social Responsibility in Lending: Citi's Journey
There have been – and continue to be – criticisms of
financial institutions focused on the financing of projects
with sensitive social and environmental impacts… …
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Environmental and Social Responsibility in Lending: Citi's Journey
Equator Principles II
•
The Equator Principles (EPs) are a benchmark for the financial industry
to assess and manage environmental and social risk in project finance
•
Developed and launched in 2003 by ten global financial institutions (including
Citi), there are currently 68 signatories globally.
•
Equator Principles apply to all project financings (regardless of sector or
geography) with total capital costs above USD 10 Million
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Environmental and Social Responsibility in Lending: Citi's Journey
Equator Principles II
•
Projects in emerging markets must comply with IFC Performance Standards
and Environmental Health and Safety (EHS) Guidelines Review and
categorization criteria are based on IFC’s process
•
Other EP requirements include, but are not limited to, preparation of an
Environmental Impact Assessment and associated management plans,
consultation with local communities (including indigenous people),
mitigation of impacts to sensitive habitats, and compliance with IFC
labor standards
•
However, each institution that adopts the Equator Principles commits to
integrate the Principles into its own institution’s internal credit policies and
procedures, and without recourse to the IFC or any other institution
•
Website: www.equator-principles.com
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Environmental and Social Responsibility in Lending: Citi's Journey
How have the Equator Principles helped Citi?
• The Equator Principles have helped us go from purely risk and brand
management...to brand enhancement and positive reputation
• The Equator Principles have informed and are the backbone of our
broader Environmental and Social Risk Management (ESRM) Policy
• We partner better with:
– Clients
– Other Equator Principles Financial Institutions (EPFIs)
– Multilaterals (like the IFC), bilaterals and ECAs
– Civil society and NGOs
• Sustainability and environmental issues are now considered center-ofthe plate issues for the Firm
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Environmental and Social Responsibility in Lending: Citi's Journey
How have the Equator Principles helped Citi?
The business benefits are clear:
– We are viewed as a leader in banking & sustainability
• Citi ESRM Policy is viewed as a market leader
• Recent Position Statement on Climate, including a USD 50 billion
commitment over ten years focused on climate-related issues
• Successive commendations from Financial Times Sustainable Banking
Awards
• 2007 Corporate Award from International Association of Impact
Assessment
– Citi is a leader in micro-finance
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Environmental and Social Responsibility in Lending: Citi's Journey
What are the potential benefits to Indian Banks in adopting the
Equator Principles?
• There are currently no Indian banks who have joined the Equator network (firstmover advantage goes to first bank that adopts )
• You would use common terminology in assessing environmental and social
issues, and a common framework for implementation and documentation
• Potentially increase productivity through reduced transaction review and
processing time (i.e., “get it right the first time”)
• Have more certainty in closing project financings – easier to syndicate deals
internationally to other Equator Principles signatories
• Gain access to network of professionals and international best practice
• Citi can assist and provide advice, if necessary.
Further Equator Principles adoption process information and website, found here:
http://www.equator-principles.com/join.shtml
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Environmental and Social Responsibility in Lending: Citi's Journey
Lessons Learned from Implementation Experience
• The Equator Principles review process needs to be independent, but also needs
to have credit approval authority within the business: this can’t be a public
relations or public affairs exercise
• An environmental risk policy (which would include the Equator Principles)
should be integrated fully into your credit risk policies and procedures – back it
up with senior support and staff training
• Using the Equator Principles framework allows a financial institution to proceed
with environmentally or socially challenging projects – but, in the right way and
with a defined and comprehensive process that provides clarity and greater
certainty.
• Clients appreciate banks’ review and advice on social and environmental issues
– the Equator Principles and IFC standards provide a useful “benchmark” on
which to have a discussion and provide that advice
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Environmental and Social Responsibility in Lending: Citi's Journey
Case Study – Applying EP to a toll road project in India
What were the environmental and social risk issues?
•Involuntary resettlement of 1,600 households (covered under IFC Performance
Standard 5)
•Impacts to scheduled tribes / castes, and indigenous peoples
•Relocation of temples & mosques, and sacred groves
•Impacts to biodiversity
What is the potential Equator Principles Risk Category?
•Due to potential sensitive issues, such as resettlement, this was
classified as a Category A (high risk) transaction, and Citi Indiabased Transactors immediately contacted ESRM Unit for advice
and clearance
•Sponsor understood Equator Principles would apply, and
requested Citi’s advice on how to structure the Independent
Review
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Environmental and Social Responsibility in Lending: Citi's Journey
Case Study – Applying EP to a toll road project in India
Detailed Due Diligence Process:
•IFC Performance Standards applied
•Timing was extremely tight from Diligence phase to Credit Approval
and Commitment (~ 1 month)
•Challenge: Government responsible for implementing and
managing resettlement (not Citi’s client)
•ESRM Unit required hiring of Independent Consultant to conduct
an Equator Principles Compliance Review
•ESRM Unit accompanied the Independent Consultant on
due diligence visit
•Independent Consultant helped facilitate discussions
between client and government agencies responsible for
resettlement implementation
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• Independent Consultant wrote E&S Due Diligence
Report for Citi, and identified certain gaps that needed to
Environmental and Social Responsibility in Lending: Citi's Journey
be filled
Case Study – Applying EP to a toll road project in India
Closing and Disbursement:
• Loan documentation signed
• Covenant to comply with Equator Principles, and Action Plan
•Action Plan outlines actions to be taken to eliminate or offset adverse
impacts or reduce them to acceptable levels; and, therefore
addresses mitigation, actions, monitoring, management of risk, as well
as schedules and costs needed to implement these measures over
the life of the project.
•Independent monitoring carried out over life of loan to ensure project
stays in compliance
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Environmental and Social Responsibility in Lending: Citi's Journey
Quick sample of other Indian projects subject to the IFC
Performance Standards
• Reliance Jamnagar oil refinery
• Tata Mundra Ultra Mega Power Project – coal-fired power in
Gujarat
• Vicat Sagar Cement Project in Karnataka
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Environmental and Social Responsibility in Lending: Citi's Journey
Thank you – Questions?