Public and Private Banks - Banks and the Resource Sector

Oil and Gas

Banks play an important role in providing money for the exploration and production of oil and gas. Project financing or corporate loans are examples of ways in which banks get involved in the sector, otherwise they can be relevant shareholders of exploration companies, or underwrite important parts of new shares or bonds.

A report from December 2007 looked into the involvement of German banks in the oil and gas sector in Africa and the former Soviet Union and found that these banks were not only involved in financing western companies like BP, Shell, Total but as well in companies like Gazprom, Lukoil, Rosneft and Transneft from Russia; the China National Petroleum Corporation (CNPC) and Sinopec from China; KazMunaiGas from Kazakhstan and Sonangol from Angola. The report estimates that German banks as a group may be only surpassed by American banks with regard to their importance for the financing of oil and gas companies active in Africa and the former Soviet Union.

Banks, active in the oil and gas sector bear responsibility for causing and solving environmental and social problems. They might try to avoid and/or mitigate problems by developing policies. The report “Mind the Gap” (pdf) looked into contents policies should contain in order to achieve this goal:

A bank’s policy for the oil and gas sector needs to emphasize that the main challenge and ultimate goal for the oil and gas industry is to use its knowledge of energy technologies and markets and to transform themselves into renewable energy suppliers. However, as oil and gas operations will continue to be developed for the next foreseeable future, the bank’s policy needs to incorporate social and environmental standards:

• Emergency response and prevention (of oil spills e.g. through requiring double-hull oil tankers);
  
  
• Waste management (through dealing with gas flaring, or acknowledging international Conventions for the protection of the marine environment);
  
  
• Closure of production facilities (dealing with the removal of offshore oil platforms);
  
  
• Transparency and tax avoidance (acknowledge the requirements of EITI and demands of Publish What You Pay, e.g. on revenue transparency and disclosure of key contract provisions between governments and extractive companies as well as disclosure of  all resource-backed loans);
  
  
• Protected areas (exclusion of protected areas covered by IUCN I-IV categories and by UNESCO World Heritage Convention and the Ramsar Convention);
  
  
• Unconventional oil reserves (these oil reserves, such as tar sands, oil shale or coal to liquids are ecologically unsound and pose a further threat to the World’s climate; therefore they should be excluded from financing);
  
  
• Nature of contracts and sovereignty over resources (avoidance of abuse of the jurisdiction of weak nations by more powerful actors);
  
  
• Good governance (assure that oil and gas extraction is correctly sequenced with minimum good governance standards);
  
  
• Indigenous peoples and human rights (respect and guarantee the rights of indigenous peoples to protect their land, societies, cultures and livelihoods by acknowledging their sovereignty and self-determination.

The policy will have to be consistent with other policies relevant for the oil and gas industry, such as human rights, indigenous peoples, biodiversity, tax and climate change.

The report “Mind the gap” found among the 45 international banks examined no bank to meet all requirements for a sound oil and gas policy and only two banks to have “as precondition for its financial services the best international standards for at least three of the elements listed.”

A research (pdf) for the Berne Declaration looked into the involvement of Credit Suisse and UBS in the mining and oil and gas sector. Following the research, Berne Declaration and Banktrack published a report on Credit Suisse's and UBS' involvement in the global oil, mining and gas industry (pdf).


Mining

Banks, active in the mining sector bear responsibility for causing and solving environmental and social problems. They might try to avoid and/or mitigate problems by developing policies. The report “Mind the Gap” (pdf) looked into contents policies should contain in order to achieve this goal:

The banking sector will have to adopt clear policies incorporating the following standards, stimulating its mining clients to adhere to the best practices in the following fields:

• Emergency response and prevention (a UNEP convened multi-stakeholder initiative for the mining industry came up with a programme “Awareness and Prepardness for Emergencies at a Local Level” which helps companies, response bodies and communities to be fully prepared to deal with incidents);
  
  
• Waste management (a whole range of standards and guidelines deals with mining waste management, concerning sub-marine or riverine tailings disposal and the minimising of the use of cyanide);
  
  
• Closure of production facilities (address the effect of mine closure on host community’s development aspirations, e.g. through a Community Development Plan);
  
  
• Transparency and tax avoidance (acknowledge the requirements of EITI and demands of Publish What You Pay, e.g. on revenue transparency and disclosure of key contract provisions between governments and extractive companies as well as disclosure of all resource-backed loans);
  
  
• Artisanal and small-scale mining (the “Association for Responsible Mining” is an independent multi-stakeholder initiative seeking to enhance equity and well being in artisanal and small scale mining communities through improved social, environmental and labour practices, governance and the implementation of ecosystem restoration practices);
  
  
• Protected areas (exclusion of protected areas covered by IUCN I-IV categories and by UNESCO World Heritage Convention and the Ramsar Convention);
  
  
• Nature of contracts and sovereignty over resources (avoidance of abuse of the jurisdiction of weak nations by more powerful actors);
  
  
• Good governance (assure that mining activities are correctly sequenced with minimum good governance standards);
  
  
• Indigenous peoples and human rights (respect and guarantee the rights of indigenous peoples to protect their land, societies, cultures and livelihoods by acknowledging their sovereignty and self-determination.

Mining has a huge variety of sub-sectors. WISE (World Information Service on Energy) published a study in March 2008 on financing for uranium mines, “Mined U” (pdf). WISE’s reasoning behind the report is the fact that uranium mining is a crucial stage in the nuclear energy production chain. During the past years, global demand for uranium increased more strongly than the output of uranium mines. As a result, prices have risen considerably. In turn, this is spurring new investments by mining companies in developing new uranium mines. To finance these investments, mining companies use the funds supplied by their financial stakeholders: shareholders, banks, bondholders. Financial institutions involved in the financing of uranium mining companies, such as banks and asset managers, therefore play a crucial role in the further growth of the global nuclear energy sector.” WISE looked into financial institutions involved since 2003 in the financing of 14 selected uranium-mining companies, describing and analysing the financial stakeholders for each company. More than 80 international banking groups and institutional investors were found to be involved in financing uranium-mining companies. The financial institutions seemingly most strongly involved in the uranium-mining sector are Royal Bank of Canada and Citigroup, followed by BMO Financial, HSBC, JPMorgan Chase and UBS.

Phulbari: The Phulbari coal project is a proposed open pit coalmine in northwest Bangladesh that includes the construction of at least one 500-MW power plant. The project will acquire almost 6000 hectares of land and, according to project documents and independent reports will physically and economically displace between 50.000 and 220.000 people. This displacement will take place in one of the most densely populated countries in the world and will destroy a critical agricultural region in the country, threatening Bangladesh’s food supply. Natural resources and water supply will be heavily affected. The lives and livelihoods of hundreds of thousands of people will be irrevocably disrupted by the mining operation.

A vibrant grassroots movement has formed around the project, which has been met with gross violations of human rights. Concerns from the Phulbari community and opposition to the mine, coupled with a changing political situation in Bangladesh have created a volatile environment in the project area with people opposing the mine suffering various civil rights abuses.

The project proponent is Asia Energy Corporation, a subsidiary of the UK Global Coal Management Resources. It had hoped to get financing through the Asian Development Bank, but ADB dropped the project from its pipeline in April 2008 after repeated concerns from the Phulbari community and civil society organisations and questions from within the bank. The British Bank Barclays owned shares of Global Coal Management Resources, which they sold in June 2008 after protests at their Annual General Meeting in April. In August over 100 civil society organisations from 31 countries have called upon major international private banks and financial institutions including UBS, Credit Suisse, Morgan Stanley and Fidelity Investments to withdraw their support from the Phulbari coal mining project in Bangladesh on account of serious human rights abuses and environmental concerns. Each of these financial institutions holds or manages shares in Global Coal Management Resources (GCM). Read the letter and further information on the website of the Bank Information Center.

• More on Phulbari here: NGO Forum on ADB
  
  
• Reflections on Phulbari Coal Project, 14.9.2008
  
  
• "Phulbari: A Parlous Project" (pdf), By Roger Moody, Nostromo Research, November 12, 2008
  This report, commissioned by Bank Information Center, highlights the numerous dangers and potential environmental damages posed by the Phulbari Coal Project in Bangladesh.

Forests

Banks, active in the forestry sector, e.g. through financing pulp and paper companies, bear responsibility for causing and solving environmental and social problems. They might try to avoid and/or mitigate problems by developing policies. The report “Mind the Gap” (pdf) looked into contents policies should contain in order to achieve this goal:

By financing companies in the forestry sector, financial institutions can have a significant impact on forest conversion, degradation and destruction. A financial institution providing services to this sector must therefore develop a policy that sets conditions which should be met before providing financial services.

This policy needs to cover at least the forestry sector as such, comprising forestry, timber, pulp and paper, furniture and other wood-processing and trading companies. The following issues should be set as preconditions for financing this sector:

• No forest conversion,
  
  
• No outstanding land use conflicts,
  
  
• Forest Stewardship Council-(FSC)-certification for existing operations involved in managing forests and tree plantations,
  
  
• FSC Chain of Custody certification for their full supply chain for existing operations involved in trading and processing wood-products (including pulp, paper and plywood mills as well as furniture manufacturers).
  
  
• A clear and enforceable approach to achieve FSC-certification integrated in the project plan for all start-up operations in the forestry sector. This is especially important for plantations and pulp mills. The plans should be verified as follows:
  * for tree plantations an independent assessment of their environmental and social impacts is necessary, including the cumulative and macro impacts when new plantations are located in regions in which already many plantations are located
  * for pulp mills an independent assessment has to verify the guaranteed availability of a sustainably produced supply of timber for the pulp mill.

If banks’ policy would be wider than the forestry sector as such and would also cover other operations which can impact forests, the following preconditions for financing should be at least added to the policy:

• Commitment to identify and protect High Conservation Value Forests in the forests managed by the client while ensuring local access and non-industrial use by local communities,
  
  
• Identification of specified forest ‘no-go zones’ where industrial activities by clients will not be financed,
  
  
• Specific acknowledgements of the rights to the fair and equitable use of forest resources by indigenous peoples and local communities,

Specific attention is needed for small-scale and communitiy-based forestry operations, which are far more likely to operate in a sustainable way.

Banks Pulp and People: urgewald published a report in June 2007 “Banks, Pulp and People – A Primer on Upcoming International Pulp Projects”. The idea behind the report is to alert potential funders about the environmental and social problems around pulp projects and especially upcoming projects they might try to attract funding while causing severe problems: Pulp mills and the industrial tree plantations that feed them have become increasingly controversial. In country after country, local people and environmental organisations are protesting against the impacts of plantations. The vast areas of monocultures required to feed modern pulp mills have severe impacts on biodiversity, water, land rights and livelihoods. And the mills themselves are among the most polluting of industrial facilities. Communities around the world have seen their rivers, fisheries and drinking water ruined. Apart from explaining the impacts of the pulp and paper industry and its structural deficits, the study gives country profiles of Australia, Brazil, China, Indonesia, Laos, South Africa and Uruguay, as these are countries where new pulp and paper projects may come up. The report has been followed by the website pulpmillwatch, providing further information on the topic.

A recent paper by Stephanie Fried looks into "Alternative Investments and Secrecy Jurisdictions" (pdf) and looks into requrements of banks to"know their customers" and how this can be used in campaigns.