Basic issues in international environmental law - Introduction to International Environmental Law - page 19

The reality is not quite as gloomy. Although environmental treaties are
concluded between states, they do also oblige businesses to observe stricter
environmental regulations. A state enforces an international treaty's environ-
mental protection measures at national level and, in turn, national legislation
obligates companies to implement these measures in a number of ways.
Increased cooperation between states can help to respond to the problem of
the 'race to the bottom': they have the power to control and determine the
ways in which companies operate in order to solve these global problems. This
will require improved commitment from businesses. There is increasing
discussion regarding ways in which companies could participate more fully in
the operation of international environmental regimes and contribute to the
development of international environmental rules.
Many enterprises and industry sectors already factor environmental protec-
tion into their strategies of their own accord as part of their corporate social
responsibility policy, refl ecting increasing public concern for our environ-
ment. 21 An environmental disaster can be catastrophic for a multinational
company, its management and its shareholders in many ways, - and can result
in a decline in its market value, with the associated negative public perception.
The fi nancing and insurance sectors have - for obvious reasons - long been
keen to become more involved with international environmental protection.
Reliability and reputation are of paramount importance for banks and other fi nan-
cial institutions in terms of competitive strength. Insurance companies are espe-
cially worried about the effects of climate change, as their liabilities are increased.
Equator principles
Some very innovative initiatives have been created to try to increase the willing-
ness of businesses to protect the environment. The so-called Equator Principles
constitute a set of standards aimed at environmental protection. Private com-
mercial banks that give loans can elect to pledge to follow these principles. The
Equator Principles have now been adopted by 72 banks in 27 countries, and their
joint share of loans in the emerging markets is 70 per cent.
If a bank commits to these principles, it pledges itself to ensure, inter alia , that
the industrial or infrastructural projects it fi nances are fi rst subjected to a close
environmental assessment. The banks that have signed up to the principles have
created their own system of supervision to ensure that the principles are upheld.
An affected party can submit a complaint about the environmental impact of a
fi nanced project, many of which must also undergo through independent expert
monitoring. A community of non-governmental organizations called Banktrack
monitors banks' compliance with the principles.
What motivates banks to create their own rules for environmental protection?
The answer is simple: reliability and reputation are key to the competitive
strength of a bank; banks therefore adopt the Equator Principles for their own
interests to increase their competitive power.