Select Committee on Trade and Industry Written Evidence


APPENDIX 19

Memorandum by WWF

INTRODUCTION

  WWF has been engaged in dialogue with the ECGD both in terms of the department's policies and approach and discussing some of the projects they have provided finance for. WWF made a written submission to the ECGDs 2002[109] review and provided oral evidence to the Environmental Audit Committee during its review of the ECGD. Our 2002 report contained an extensive review of best practice not only in ECAs but International Finance Institutions such as the World Bank and also commercial banks. We feel the DTI committee would benefit from the review of these pieces of work along with those of other NGOs such as Cornerhouse and FoE.

  We would also encourage the committee to ensure that the ECGD takes these submissions seriously and responds to NGO input in a detailed manner. NGOs put a great deal of their resources into such work on behalf of their supporters and should be viewed as an important and constructive stakeholder in efforts to move the UK towards sustainability.

  WWF requests that the Trade and Industry Committee reviews the report we submitted in 2002 to the ECGD and its recommendations, and the extent to which the ECGD has responded to them. This submission to the DTI committee and its 10 main points should be taken as an update and supplement to that 2002 work. Annex I shows in more detail a summary of the main recommendations of the 2002 report, the headlines of which are listed below:

  ECGD must actively promote sustainable development:

    —  Align with Government commitments on sustainable development;

    —  Monitor and report on performance of the ECGD;

    —  Demonstrate and exert leadership; and

    —  Foster and enhance the competitiveness of UK environmental exports.

  ECGD must amend its impact screening and analysis procedures:

    —  Clarify and strengthen the screening and review process;

    —  Develop clear and consistent environmental sectoral standards;

    —  Improve the monitoring of projects;

    —  Support a presumption of transparency;

    —  Develop an appeal process; and

    —  Expand environmental capacity.

  1.  Coherence between UK SD commitments and the Department's role in the promotion of sustainable development

  2.  ECGD mission

  3.  Transparency

  4.  Strategic Environmental assessment

  5.  Review of ECGD supported projects

  6.  No-go areas

  7.  Climate change

  8.  OECD

  9.  BTC concerns

  10.  World Bank Extractive Industry Review

1.  COHERENCE BETWEEN UK SD COMMITMENTS AND THE DEPARTMENT'S ROLE IN THE PROMOTION OF SUSTAINABLE DEVELOPMENT

  WWF notes that the ECGD has as part of its mission a commitment to support projects that align with UK government positions. Whilst there has been improved liaison across Whitehall on some projects, WWF does not feel that ECGD's portfolio reflects the its commitment to place sustainable development at the heart of its activities (ECGD press release 28 April 2003). There is also limited evidence of incorporation of the UK's position on climate change or biodiversity, as expressed through being party to the UN Conventions on these issues. Increasingly guidance is also coming from the European Union. Many responsible private sector companies are applying global standards to their operations, with the driver often coming from national or supra-national requirements.

  WWF is concerned that the ECGD has a target of zero projects being rejected on social or environmental grounds. This implies that there is no practice that convenes sustainable development principles that could warrant rejection by ECGD. In WWF's view this sends the wrong signal to business. WWF does not understand how sustainable development can be at the heart of ECGD's activities if the department would never take a stand on social or environmental issues. WWF trusts that ECGD does not rely purely on IFC compliance as an indicator of agreement with UK government positions.

  When compared with the international best practice identified in our 2002 report, ECGD still lags far behind. In particular, its lack of clear environmental standards and of measures to enhance the environmental sustainability of its project portfolio, as well as very limited transparency and monitoring mean that it currently falls behind many of the examples cited. In addition, weak environmental standards put ECGD at increased financial risk—and threaten the reputation of both ECGD and the UK Government more generally.

  WWF suggests that a review of the existing portfolio is undertaken to assess congruency between existing finance arrangements and UK government/EU positions. This will inform a more coherent UK foreign investment strategy.

2.  ECGD MISSION

  WWF believes that the Export and Investment Guarantees Act 1991 limits the ability of ECGD to deliver on UK SD commitments and more specifically to adopt an exclusion list of unsustainable projects. This we believe to be of serious concern and we call for a review of the Act in the light of this. Such a review must include the potential for enabling legislation to alter the mission of ECGD.

  WWF believes that the ECGD and their capable staff are hindered in their moves to sustainability by the restricted mandate provided by the Act. We believe that ECGD staff would confirm this to be the case if questioned on this matter. We feel that it is the responsibility of Parliament to pressure the Government to live up to both the spirit and letter of their commitments in these areas by reviewing and adjusting the mandate given to ECGD in this regard.

  There have been some limited procedural changes in the ECGD since our 2002 submission to the ECDG Public Consultation on Case Impact Analysis and written and oral evidence to the Environmental Audit Committee. However we believe these have made little substantive change to the type of projects supported by the ECGD nor in the due diligence undertaken over such projects. Two particular cases - the BTC and Sakhalin projects—back up our views in this regard.

3.  TRANSPARENCY

  The ECGD mission statement includes a commitment to "be as open as possible, while respecting legitimate confidentiality, about what we do". Although commercially sensitive information should remain confidential, the presumption should always be for disclosure, except where the project sponsor can demonstrate a commercial need for confidentiality, as is the policy of the World Bank/IFC and EBRD. ECGD should clearly define what constitutes "commercially sensitive" information in advance, as the EDC (Canadian ECA) does. Disclosure should be a requirement of the guarantee agreement, and not be conditional on the permission of the sponsor.

  The ECGD has improved the levels of transparency regarding its own interests and potential activities. WWF would like to see further information provision regarding the assessment processes undertaken when considering an application for finance. Much of this information can now be requested. It would make sense to make information public as a matter of course, in order to demonstrate transparency. Information on potential impacts is not provided for public review until after a decision has been made on ECGD support and environmental questionnaires that are used are not made public. As is detailed in our 2002 report

  In terms of the transparency of investments, WWF would also like to see greater transparency of revenue payments. The ECGD is committed to tackling corruption, and this is an extension of that work. WWF's experience indicates that corruption contributes to the degradation of the environment, through the avoidance of regulation, and the diversion of funds from environmental budgets.

  Initiatives such as the Extractive Industries Transparency Initiative (EITI)—whose secretariat is based in DFID—are seeking to promote disclosure by all parties of revenues paid. ECGD should also take note of the increasing spotlight being placed on the host government agreements and production sharing agreements framing extractives projects. These frameworks often bypass human rights and environmental standards that would normally be upheld by national laws and international conventions. If the ECGD is to ensure that its investments comply with these regulations, then it must seek to eliminate loopholes provided by such agreements.

  WWF believes the ECGD should publicly support the EITI, and promote its uptake amongst clients. WWF also urges ECGD to seek transparency of the legal agreements governing the projects applying for finance.

4.  STRATEGIC ENVIRONMENTAL ASSESSMENT

  Another issue that emerged from the BTC pipeline was the detrimental effect on the project design of not carrying out a strategic environmental assessment of the project. DFID concluded from its analysis of the project that it would "strongly support the use of Strategic Environmental Assessment (SEA) for future infrastructure projects on this scale". The IFC agreed to include in its review an assessment of the potential for SEA in future large scale and cross border projects. WWF suggests that ECGD should also consider the value of applying such a tool to these projects. Given the UK government position outlined by DFID, this issue is of particular importance for the Sakhalin II project currently being considered by ECGD. On Sakhalin the transboundary issues, cumulative impacts and risks posed to other sectors such as fishing have not been brought together in an SEA.

  WWF believes ECGD should require Strategic Environmental Assessments of large infrastructure projects.

5.  REVIEW OF ECGD SUPPORTED PROJECT

  WWF believes more effort should be put into monitoring by ECGD. This activity is essential to ensure that standards committed to in the finance application are adhered to for the life of the project. It provides an incentive for the client to continue to meet the standards promised. WWF is also concerned that the benefits of many projects are exaggerated at the application stage in order to counter negative social and environmental aspects, which may also be understated.

  WWF believes a review of recent projects would be a valuable exercise to demonstrate the true extent of positive outcomes and adverse impacts compared to those indicated by clients.

6. NO-GO AREAS

  WWF wishes to see a clear NO GO policy from the ECGD for extractive industries. This would reflect the Amman Declaration adopted by IUCN (The World Conservation Union), which the UK government is a member of. The Amman Declaration states that extractive activities should be excluded from IUCN Category I-IV Protected Areas. The ECGD should also respect national designations which have not yet been aligned with the IUCN system. The ECGD has a clear opportunity to safeguard the future of designated protected areas. Commercial banks such as Citibank have now expressed their desire to respect these significant areas of biodiversity.

  WWF recommends that the ECGD adopts a NO GO policy of not funding any extractives project located in a internationally or nationally designated protected area.

7.  CLIMATE CHANGE

  WWF welcomes the initiative that emerged from Johannesberg, earmarking GBP 50 million per annum for financing renewables. Funding of oil and gas projects in 2002-03 was GBP 455 million. If the GBP 50 million was spent, then this would represent less than 10% of the total spend on energy sources. WWF supports the CURES Initiative, which calls for a reversal of this bias towards fossil fuels by the international finance community. WWF considers that Vivian Brown's comments in the 2002-03 annual report stating that there were increasing oil and gas opportunities does not sit easily with the UK's desire to be a leader on climate change.

  ECGD support for the recent significant investment by UK oil majors in Russian oil companies will merely fuel exports to the west. By effectively subsidising this carbon intensive activity, the ECGD will distort the market against renewable alternatives. More specifically CURES calls for ECAs to phase out support for fossil, nuclear and hydro that does not comply with recommendations of the WCD and replace it by new renewables and energy efficiency by 2008. Further information is available on:

http://www.cures-network.org/texte/cures—declaration engl.pdf )

  WWF recommends that the ECGD attends the Bonn renewables conference in June 2004 to enhance its understanding of how it may make this transition.

8.  OECD

  WWF appreciates that common action from all countries will be needed to collectively move the ECA sector towards sustainability. WWF commends the ECGD on the work it has done to develop the OECD common approach for Export Credit Agencies. This framework is important to prevent lower environmental and social standards being a competitive advantage for ECAs. The ECGD must continue to push the agenda forward in the context of developments in the rest of the international finance community.

  WWF would like a firmer stand by the ECGD on the application of the OECD guidelines for Multi-National Enterprises. ECGD's provision of finance to the Baku-Tblisi-Ceyhan pipeline came whilst a complaint to the UK contact point for the OECD guidelines is still active. WWF understands the problems posed by the slow processing of these complaints, and believes this must be addressed if the guidelines are to be effective. However WWF also notes the conflict of interest posed by the UK ECGD funding a project, which the UK government contact point is still investigating.

  WWF calls on the ECGD to push for an improved process from OECD. WWF believes that the ECGD should not agree funding on any project where a complaint has been accepted by the UK contact point.

9.  BTC CONCERNS

  The ECGD announced in February 2004 it would be providing finance to the BTC pipeline, led by BP Plc. WWF continues to have a number of issues on this project regarding the route selection, consultation process and the legal regime. WWF will be pursuing these matters with BP management and the IFC Ombudsman. A recent article in the Sunday Times exposed the cover up regime that prevails on this project. An independent contractor blew the whistle on BP, for failing to select the correct coating for the pipe. It has been alleged that this decision was based on the interests of the procurement manager, rather than the product specification. BP investigated the potential corruption issue, but did not inform any of its potential lenders. The results of this decision being covered up and not rectified are that pipe has been coated in an anti-corrosion paint that has already split, thereby exposing the pipe, which will result in corrosion and leaks. WWF is concerned that ECGD should learn lessons from the mistake made in supporting the BTC project and ensure that further projects in the financing pipeline do not repeat such mistakes. The Sakhalin project is a case in point on which numerous international NGOs are campaigning.

  WWF insists that the ECGD thoroughly investigates the matter raised on BTC and publishes a report on the findings, in order to demonstrate how it deals with reports of questionable management practices by its clients.

10.  WORLD BANK EXTRACTIVE INDUSTRY REVIEW

  WWF notes that the ECGD will support a project where it is compliant with the World Bank guidelines or similar, and it has a target of 100% of projects meeting this requirement. The World Bank has recently conducted its Extractive Industries Review (EIR) — a two year global stakeholder consultation, designed to assess whether the World Bank should have a role in extractive industries, and if so what role that should be. A number of the recommendations that have emerged from the EIR are detailed in this submission, however the wider issues are of relevance to the ECGD. The Final Report of the WB EIR is available on www.eireview.org

  Given the close relationship between ECGD decisions and World Bank decisions, WWF believes the ECGD should review the recommendations of the EIR, with a view to applying them to its future work in extractives.



109   2002 submission to the ECDG Public Consultation on Case Impact Analysis.Over and above these recommendations which still stand, WWF would like the committee to take account of 10 further subsequent points (many of which relate to the above list). Back


 
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