Lending Abroad: The Role of Voluntary International Environmental Management Standards
Henderson, Douglas A., Journal of Commercial Lending
To date, lenders have relied on the World Bank Environmental Guidelines to gauge the environmental risk associated with international projects. The most recent trend in international environmental law, however, is not the growth of emission standards or pollution control technologies but the growth of voluntary international environmental management standards. This article reviews the rise of these environmental management standards and explains their relevance for the lending community.
As investment increases abroad, the lending community has relied on the World Bank Environmental Guidelines to gauge the environmental risks associated with international projects. Before serious discussions begin on international project financing, lenders typically ask, "Does the project meet World Bank environmental `standards'?" If a project meets World Bank guidelines, then lenders are at least willing to consider other aspects of the deal, namely, its financial attractiveness. On the other hand, if a project does not meet World Bank guidelines--or if the party seeking the loan does not know about the World Bank guidelines--the deal often ends there. The search for a universally recognized international environmental standard makes considerable sense because few lenders want to fund projects abroad that contaminate the environment. Even more fundamental, few lenders want to hold contaminated international collateral.
Recently, new voluntary measures have been introduced that lenders also can use to evaluate the environmental responsibility of international projects. Loan officers need to know about these voluntary standards because they might provide a more accurate indicator of the well-run, environmentally responsible corporation than just compliance with World Bank guidelines. In short, as international environmental standards proliferate in number and complexity, loan officers need to know even more about international environmental law.
World Bank Environmental Guidelines
The current World Bank Environmental Guidelines were published in 1988, and the majority of emission standards were developed in the 1970s and early 1980s. The guidelines are just that--guidelines--as opposed to directly enforceable emission limitations. They include some industry-specific standards and some pollutant-specific standards, but they do not cover all industries or all pollutants. Unlike the emission standards developed by the U.S. Environmental Protection Agency, which provide specific emission standards for virtually every type of industrial facility currently in operation, the World Bank typically provides emission guidelines for only a few industries common in the developing world, such as fish and shellfish processing, fertilizer manufacturing, meat processing, cement production, iron and steel production, palm oil production, and petroleum refining.
The World Bank has not published environmental guidelines for many specific types of industries, such as power plants or electronics assembly facilities. It has, however, developed various minimum generic standards for certain pollutants typically emitted by these types of facilities: nitrogen oxides, dust (particulate matter), sulfur dioxide, and noise. For most of these substances, the guidelines provide recommended sampling and analytical procedures. For example, the guidelines include a generic standard for dust emissions, and that standard applies to all sources "where background levels of dust are high."
At the same time, the standard for nitrogen oxides emissions includes very specific emission guidelines for fossil-fuel-fired power plants. Regarding other pollutants, such as sulfur dioxide, the guidelines establish a generic standard but then provide instructions for calculating a "source-specific" standard. For still other air pollutants, including volatile organic compounds and carbon dioxide, the current guidelines do not provide any standards at all. …