מימון בר קיימא? רגולציה סביבתית וולונטרית של מוסדות פיננסיים בינלאומיים – המקרה של מועדון ה- Equator Principles

Sustainable finance? Voluntary environmental regulation of international financial institutions – the case of the “Equator Principles”.

The research question is whether international financial institutions that are members of the Equator Principles (“EP”) club are expected to demonstrate better environmental performance than non-members. In the context of this research, the term “better/improved environmental performance” refers to involvement in fewer projects of adverse environmental impact.

The EP is a global network of leading financial institutions established over a decade ago by financial institutions that suffered reputational damages due to their involvement in hazardous projects, i.e. entailing adverse environmental impact. The purpose of the EP is to provide its members with a framework of credit risk management regarding environmental and social risks. Credit risk management is a managerial process through which various risks are reviewed in order to assess their possible implications on borrowers’ ability to repay the loan and pay the interest and other contractual fees to the lender. The EP framework consists of 10 principles which should be followed by the EP members through their credit risk management processes.

The EP is a voluntary regulation initiative: it is up to each financial institution to decide whether to join the program. However, once an institute becomes a member, it is committed to the risk management procedure dictated by the club and to the additional regulation of the club (annual membership fee and reporting duties).

In view of an ongoing debate between the EP and international environmental NGOs over the influence of the EP on the ground, it is a question whether we could expect the EP to lead to improved environmental performance of its members.

The theoretical framework of the research discusses the potential of the EP process to create improved environmental outcomes, based on previous literature on voluntary environmental programs, in particular about environmental management systems. The theoretical argument focuses on examining the institutional design of the EP. The term “institutional design” refers to the formal structure of the EP and formal requirements from candidates. Three institutional features of the EP are reviewed in order to assess their implication on environmental performance: (a) whether or not the EP is a certified program whereby admission is subject to third party auditing; (b) whether it is a “weak swords” or a “no swords” program - referring to the club’s ability to enforce its regulation on club members; and (c) whether it is a complete program, meaning it consists of four certain components which are likely to lead to improved performance. This research suggests that the institutional design of the EP lacks some important elements that were associated with better performance in the literature about environmental management systems. Therefore, there are limited grounds within the theoretical framework to expect EP to lead to improvements in the environmental performance of EP members.