“This is where the entrepreneurs come in … Just look at the opportunities, dream up a couple of ideas and work on them.” — Sir Richard Branson
While images of Branson or Elon Musk may come to mind upon hearing the term “social entrepreneur,” one does not require a huge public presence, a revolutionary new idea, or even billions of dollars to make a positive impact in meeting societal needs. Throughout the world, sustainability professionals are working on effecting lasting change within the banking and project finance sector every day, by having their organizations participate in “The Equator Principles.”
The Equator Principles
Established on June 4, 2003 by several banks, including ABN Amro, Barclays, Citibank, Westpac, and others, the Equator Principles have now been adopted by 78 financial institutions across 34 countries. A voluntary risk management framework designed to take into account environmental and social responsibilities, the Equator Principles are intended to set minimum due diligence standards for member financial institutions participating across all industry sector project finance transactions, including advisory, corporate and bridge loans. Having undergone several revisions since its inception almost 11 years ago, the most recent framework, the EP III, was established in 2013 for project finance transactions over $10 million beginning in 2014. The provisions now also include a focus on protecting human rights (original transaction threshold was $50 million, and focus was more on environmental rights). Although most of the reporting is qualitative, there are ten principles which the signatories have agreed to track, incorporating categorization and monitoring of risks, greenhouse gas (GHG) reporting, grievances, loan covenants and independent auditing of the principles.
Sometimes, Opportunity Walks Up and Knocks—on Your Boss’s Door
Back in 2000, then Citgroup Chairman and CEO, Sandy Weill, had likely never thought much about the Rainforest Action Network. But the situation changed when the NGO began showing up — at his home, office and elsewhere — attempting to pressure Citi, then the world’s largest bank, into thinking about the social and environmental implications associated with some of its project financing transactions.
“They realized they needed some standards, a framework,” said Shawn Miller, who was working in 2003 as a Social Development Specialist at the IFC when banks approached the private sector investment division of the World Bank seeking answers. Soon after the initial standards were drafted, Miller joined Citi in 2004, where his first goal was to broaden the bank’s environmental and social risk management policy, and then, set up the transaction review process that included implementation of the Equator Principles (which he co-authored in 2006, and are based on IFC guidelines). Eventually, Miller and his team went on to set a 10% GHG reduction target, and Citibank launched a $50 billion, 10-year climate investment initiative that was recently achieved this year, three years earlier than expected. Now, Managing Director and Head of Environmental and Social Risk Management at Citibank, Miller served as Chair of the Equator Principle Steering Committee (2010-12), and also helped to draft the recent third iteration of the 2013 Equator Principles.
Stakeholders Follow the Money — Take Them Seriously If You Want to Keep More of Yours
“If any of our clients’ projects do not apply strict standards, they will inevitably suffer from opposition and delays … The cost of these avoidable setbacks can easily run into the billions of dollars,” Miller stated in the journal CFI.co.
Throughout his career, Miller has increasingly observed stakeholders “following the money,” essentially focusing on those who financially back projects that may have adverse social or environmental impacts. In addition to the rising trend in shareholder resolutions regarding ESG issues, pressure is now coming from a variety of different stakeholder sources, all of whom should be taken seriously.
Miller notes that most clients recognize the value of the Equator Principles and its review processes, understanding that having stakeholder approval and a “social license to operate” are integral to any project’s success. Working with companies to develop action plans and road maps to achieving more sustainable projects, Miller’s group reviews hundreds of project each year. Globally, 90% of project financings are being handled by financial institutions who are signatories to the Equator Principles.
Managing Director at Citibank — Sustainable Entrepreneur?
Miller’s ESRM title may not immediately shout “Rachel Carson” at you, but Shawn Miller has been a pioneer in sustainable finance for more than 17 years. While there is more work to be done here, and authoring/implementing the Equator Principles may not be as “sustainably sexy” as Silent Spring or a Model S, sustainable entrepreneurs, like Miller, have seized an opportunity and are working to effect sustainable change both at their own institutions, as well as client organizations, one project at a time.
Cindy Motz is an Independent Research Analyst & Global Advisory Council Member, Cornerstone Capital. She is a former II & WSJ All Star Analyst.