Miners, Polluters Face Pocket Book PressurePublished by MAC on 2006-06-12
Miners, Polluters Face Pocket Book Pressure
by Anna Stablum
12th June 2006
London - A Norwegian pension fund has thrown down the gauntlet to the mining industry, and any other business that causes havoc to communities and the environment: Clean up your act, or you don't get our money.
Miners who pollute rivers, threaten the future welfare of communities and workers and do not engage in what has become known as "sustainable development" -- in other words, leaving the planet in good shape for future generations -- are going to have a harder time raising funds, and not just from Norway.
"The mining industry has been under pressure for many years in the way they conduct their projects, but pressure groups have started to understand it is not enough just targeting the mining sector, one has to target the sector behind it," Geoff Lane, adviser on environment, corporate social responsibility and supply-chain risk at PriceWaterhouse Coopers (PWC) London, said.
That means taking the battle further up the money chain, to the banks, pension funds and other financial institutions that provide the wherewithal for miners to forge further into the jungle and deeper under the earth.
The Norwegian Pension fund, one of the largest in the world with $240 billion, has taken the problem to heart by selling its shares, worth about 116 million crowns ($20.99 million), in Freeport McMoRan Copper and Gold due to "serious environmental damage" in Indonesia.
"The (fund's) Council on Ethics finds that the environmental damage caused by the mining operations is extensive, long-term and irreversible," Norway's Finance Ministry said in a statement last week.
However, Freeport said its exclusion from the fund is a misunderstanding and that it has a strong commitment to environmental protection in its mining process.
On a broader level, financial institutions are showing commitment by signing up to the Equator Principles, initiated in 2002 to address environmental and social risks in projects.
The Principles now have 41 signatories, such as HSBC and Citigroup, and are supported by the World Bank's International Finance Corporation (IFC).
The banks underwrite around 80 percent of all global project finance transactions and Andre Abadie, head of Sustainable Business Consulting for ABN AMRO in Amsterdam, estimated project debt underwritten amount to some $100 billion in 2005.
The Equator Principles are being extended as from July 6, to cover all projects in developing countries with a capital cost above $10 million, from previously $50 million, Abadie said.
ABN was one of the first 10 banks adopting the principles and it will no longer finance a project that cannot comply with the stricter rules due to their social and environmental consequences, Ali Syed, Director of the Commodity Client Advisory service at ABN AMRO in London, said.
"Most of the institutional funds have or are developing very strict sustainability criteria as there is a growing sense of social responsibility," Syed said.
To a large extent this is not a surprise to the sector and many miners welcomed the Equator Principles initiative as the banks were seen to finally take into account the reality and risks miners face on a daily basis, Abadie said.
INTEREST GROWING RAPIDLY
The main reason why so many banks have adopted the principles is to clarify where things stand from an early stage so clients are sure they meet the requirements of sustainable development and, in turn, reduce their risk, Abadie added.
"We identify these risks and advise the companies how to minimise them; especially this year a growing number of clients want advice how to meet the ethical requirements," Martin Gavelius, environmental consultant at PWC in Stockholm, said.
"The interest is growing rapidly, a few years ago we were five people working with sustainable development, today we are 40," Lane said about his operations at PWC in London.
The higher requirements could imply short-term costs, but in the longer term both miners and banks could benefit as projects will be less risky.
"The more responsible mining companies would say if we get this right, it is a real competitive advantage, it helps to protect our brand or the minimum, it preserves our licence to operate," Lane said.
The trend is going mainstream and will be part of the way banks do business in the future, changing from a niche to an everyday topic you raise with clients -- to be better informed about your clients and their projects, Abadie said.
"By doing this you will improve the underlying asset class of your portfolio," he added.
Story by Anna Stablum
REUTERS NEWS SERVICE