Initiatives for the Equator Principles (CSR Highlight)
The Equator Principles provide a framework for confirming whether sufficient attention has been given to the environmental and social impact of large–scale development and construction projects that are financed by private financial institutions. Specifically, the financing institutions are required to follow the IFC Performance Standards, environmental and social guidelines of International Finance Corporation (IFC), a member of the World Bank group, and the World Bank Group Environmental, Health, and Safety Guidelines. Under Equator Principles, Equator Principles affiliated financial institutions are required to assess the environmental and social impacts from large–scale projects, and incorporate compliance measures to meet the guidelines as a requirement of funding.
As of the end of June 2014, 80 financial institutions had adopted the Equator Principles, which has become the de facto international standard in this field.
MHBK continues to act on its initiative and engages with a diversity of stakeholders to attain sustainable development.
MHBK and Development of the Equator Principles
With the rising awareness of environmental issues, large–scale development and construction projects that cause environmental damage and harm local communities have come under strong criticism both in Japan and overseas. In the 1980s, a dam construction project being financed by the World Bank and the Official Development Assistance of the Japanese government was aborted due to NGO appeals.
As a result, in the 1990s, the World Bank, international development financial institutions, and government export credit agencies implemented their own environmental and social guidelines. Because of these movements, there was pressure for private financial institutions to develop their own environmental and social guidelines; European and U.S. financial institutions, working with IFC, took the lead and developed the Equator Principles. In June 2003, 10 private financial institutions adopted these principles.
MHBK believes that managing environmental and social risks of large–scale projects is indispensable for attaining sustainable development and that the Equator Principles will become the international standard of business activities. Therefore, in October 2003, MHBK became the first Asian bank to adopt these principles. Since its adoption, MHBK has acted as a key member of the group of financial institutions adopting the Equator Principles (currently, the Equator Principles Association (EPA)) and has been involved in operation and planning of the association.
Implementation of the Equator Principles II
In April 2006, the IFC developed the Performance Standards as a revision of the former Environmental and Social Safeguard Policies. With this movement, the Equator Principles were revised, and Equator Principles II was released in July 2006. The key points of the revision were that it reflected the IFC Performance Standards, lowered the threshold of projects cost to which the principles are applicable from USD 50 million to USD 10 million, expanded its scope to advisory services provided by financial institutions, and added Principle 10: Reporting and Transparency.
Not only was MHBK actively involved in these discussions with stakeholders as a member of the steering committee, but also from November 2006 to July 2008, acted as the secretariat bank, assuming the roles of facilitating communication and adjustments among member banks and managing the website. MHBK's performance of these roles was highly appreciated, and in June 2007, MHBK received the Chairman's Sustainable Banking Award 2007, sponsored by the U.K. Financial Times and IFC.
In July 2010, the EPA was established, and MHBK participated in various working groups of the association, including biodiversity, outreach, climate change, and social risks. Through these activities, MHBK continued to work with a diversity of stakeholders in Japan and overseas.
In March 2010, MHBK became the first private financial institution to join the Business and Biodiversity Offsets Program (BBOP), actively participating in its discussions by expressing opinions from the perspective of financial institutions. In February 2013, the EPA set up the Cross Sector Biodiversity Initiative (CSBI) in cooperation with the International Council on Mining and Metals (IMMC) and IPIECA. CSBI was established to provide a forum for discussion of biodiversity offsetting on a cross–industry basis, and as a member of the biodiversity working group, MHBK took an active role in establishing CSBI.
Implementation of Equator Principles III
With the commencement of the IFC Performance Standards revision in September 2009, the EPA, collaborating with external specialists, conducted a strategic review of the Equator Principles in October 2010, and began revising the principles in July 2011. After about two years of internal discussions at the association and talks with various stakeholders, the Equator Principles III became effective in June 2013. The third version was a major revision, reflecting the content of the IFC Performance Standards, which were revised in January 2012, expanding the scope to certain corporate loans, and increasing the requirement for transparency, including disclosing emissions of greenhouse gases, and environmental impact assessment report.
MHBK, not only heavily contributed to the revision of the principles by actively participating in these discussions as a member of various task forces established on different themes, such as scope expansion, information disclosure, and climate change, but also took a leadership role in planning decision making.
Highly Praised for MHBK's Initiative of Outreaching Equator Principles in Asia
As one of its activities in Asia, MHBK focuses on outreaching to Asian banks to adopt the Equator Principles. In August 2010, MHBK assumed the position of the Asia Outreach working group lead and since then, has engaged in a number of activities, such as holding seminars. As a result, in China, the Industrial Bank Co., Ltd., of China, and, in India, IDFC became the first to adopt the principles in their respective countries. This was highly praised in China and MHBK was presented with the "Green Banking 2008 Contribution Award" at the "2009 International Forum on China Environmental Investment" held by Tsinghua University. MHBK continues to provide banks with support such as accepting trainees from the Industrial Bank Co., Ltd., of China.
MHBK became the first Asian bank to hold the position of Chair of the Equator Principles Association.
In February 2014, MHBK was encouraged to become a candidate for the next chair of the EPA by ING Bank, which had been chair since 2012. MHBK decided to accept this challenge because it would allow MHBK to even more actively fulfill its social responsibilities as a financial institution supporting both economic development and environmental and social sustainability.
During the election, MHBK was highly recognized for its contributions to the Equator Principles Association and received favorable votes from all voting members and became the first Asian chair in May 2014.
As the current chair, MHBK endeavors to increase familiarization of Equator Principle III to stakeholders, expand the number of banks adopting Equator Principles, to increase the transparency of Equator Principle implementation, by cooperating with many stakeholders.
The point that MHBK focuses most when syndicating project finance is to create an environment, in which financial institutions find it easier to lend by reducing business risk to the lowest level possible. Therefore, it is important to provide support not only for profitability and security of projects but also for environmental and social risk management to create "sustainable projects." The Equator Principles is a tool for proper management of environmental and social risk in such projects, and MHBK has provided assistance for preparation of action plans based on these principles that reduce the impact on the environment and society in various projects.
MHBK will continue to accumulate its knowledge of environmental and social risk management and provide to its clients not only financial advice but a comprehensive solution. MHBK, as the chair of the Equator Principles Association, will continue to promote environmentally and socially responsible initiatives through its financing activities.
- Evolution of the Equtor Principles and MHBK Activities
Voices of Interested Persons
On behalf of ING Bank, I would like to congratulate Mizuho Bank Ltd. for the appointment as new Chair of the Equator Principles Steering Committee, taking this role over from ING Bank in the Netherlands. Mizuho's contribution to Equator Principles (EP) during the past 10 years has been outstanding, and we are delighted to leave the EP Steering Committee in such good hands.
Over the past 10 years, the EP have emerged as the industry "golden standards" for financial institutions to determine, assess, and manage environmental and social risk associated with industrial and large infrastructure projects.
ING chaired the EP Steering Committee during an intense time for the association. Our chairing term has been consumed by drafting EPIII and its public commenting process, managing Working Groups to consider numerous challenging issues, the launch of the EPIII, and the celebration of the 10th anniversary of EP. We expect the challenges and opportunities that Mizuho will face during its chairing term to be different but not less interesting or free of commitment and dedication.
The success and widespread adoption of the Equator Principles has largely been due to the association's highly collaborative and pragmatic approach, and it is fundamentally important that the Principles continue to evolve in pace with the realities of the association's members and stakeholders. We have full trust that Mizuho will further strengthen its leading role in supporting and promoting the Equator Principles in this landscape.
Today, we can conclude that the EP does make a difference, and so we look forward to Mizuho taking the Chair position and leading the EP Association in its fascinating journey.