Zev Greenfield '05 has a sense of global responsibility and a keen interest in global sustainability. After completion of his summer internship in Citigroup's Global Risk Management Department, he embarked on a research study of this company's involvement in the definition and implementation of the Equator Principles, an Industry Framework for Environmental and Social Standards in Global Project Finance Lending. The significance of his research offered Zev exposure to people such as Citigroup's CEO Chuck Prince and finally earned him Columbia's prestigious Social Responsibility and Sustainability Paper Award. This award encourages students doing projects or internships with companies to examine how the organization addresses CSR, sustainability, corporate citizenship, or social impact management issues. The most important lesson to be learned, according to Zev, is the fact that corporate social responsibility and sustainability and the bottom line are not mutually exclusive; in fact, they are becoming increasingly interdependent.
Describe for us exactly what the 'Equator Principles' entail?
A number of banks (incl. Citigroup) have realized that they play a key role in the development of emerging markets and thus are in a unique position to promote responsible environmental stewardship and socially responsible development. In 2003, they drew up a set of guidelines ('Equator Principles', www.equator-principles.com), in coordination with the IFC (investment banking arm of the World Bank), that allows them to manage negative social and environmental consequences of the projects they finance in all industries, including mining, oil and gas, and forestry. It has been said that this has been one of the largest collective responses by any group in the private sector to the concerns raised within the globalization debate over the past decade. Today there are now  banks that are signatories to the Equator Principles, which together accounted for approximately 75 of project financings done in the bank loan market in 2003.
What impact did CSR and sustainability issues have on the Citigroup's Project Financing business, and on the company's profitability?
Quantifying the impact of Equator Principles on Citigroup's bottom line is incredibly difficult, especially since the principles have only been adopted in 2003. Chris Beale, Citigroup's Global Head of Project Finance argues that adopting the Equator Principles makes sound business sense for the banks involved. EP will lead to more secure investments on the part of customers and safer loans on the part of banks. If sponsors adopt and follow EP for sensitive projects, they might well enjoy a faster implementation period, with the end result being that the project starts generating revenue streams earlier, avoiding the specter of costly interruptions, delays, retrenchments and even government confiscation. In addition, implementation of EP can have benefits derived from enhancing business reputation.
From your report I understand that there is still a long way to go before the ideal of responsible an sustainable development becomes a reality. Can you highlight some of the concerns?
Despite the overwhelming praise for the principles from both commercial and watchdog organizations, there is still a long way to go to ensure responsible and sustainable project development in emerging markets. It is important to note that a major force in Project Finance, the export credit agencies have been hampered by a diverse set of political allegiances. Secondly, the Equator principles only apply to direct lending for project finance over USD 50 million. It is argued that many sensitive transactions, such as mining and forestry activities, are more likely to be funded through lines of credit or corporate loans, and thus are exempt from EP. Thirdly, the transparency is yet to improve, so that it can be tracked which projects have been declined based on the Equator principles.
Can you explain what the commotion regarding the USD 3.6 billion Baku-Tbilisi-Ceyhan (BTC) oil pipeline project was all about?
Of the fifteen banks that provided loans for the USD 3.6 billion Baku-Tbilisi-Ceyhan (BTC) oil pipeline project (from the Caspian Sea in Azerbaijan, through Georgia, to the Turkish Mediterranean port of Ceyhan), led by British Petroleum, 9 were signatory banks of the Equator Principles despite the fact that some NGOs viewed this project as having negative ethical, legal and human rights consequences. The banks involved in the financing have stated that they evaluated the criticisms and conducted extensive due diligence on environmental and social issues with BP as well as with the IFC and other agencies involved in the financing. As a result of their evaluations the banks concluded that the project had complied with the principles and IFC Safeguard Policies. Perhaps this is a classic example of pragmatism versus idealism. The idea of EP is not to just reject deals but to do them better. According to the IFC's senior advisor Suellen Lazarus, the project is really the poster child for EP; the banks were able to make themselves comfortable with the issues and deal with them, which resulted in a socially responsible and sustainable project.
In conclusion, Citibank's involvement in the Equator principles is a prime example of how social responsibility and sustainability can go hand in hand with a focus on the bottom line. It makes business sense to be responsible.