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dam-l IPS: Chinese Dam Tests 'Green' Banking Club
Copyright 1999, Inter Press Service
FINANCE-ENVIRONMENT: Chinese Dam Tests 'Green' Banking Club
By Abid Aslam
CHICAGO, Sep 13 (IPS) - Leaders of the international movement for
environmentally-sound banking have been bombarded with questions about
their involvement in China's Three Gorges dam project.
Environmental, health and human rights activists , who have protested
against the dam for more than a decade, had further queries at a conference
here last week which struck at the heart of a UN agency's effort to bring
together global banking and environmentalism.
Linda Descano, who chaired the steering committee of the Financial
Institutions Initiative organised by the United Nations Environment
Programme (UNEP), found herself forced to answer charges that her company -
Salomon Smith Barney - was raising money for the Chinese dam, under
construction since 1994.
Salomon, a subsidiary of Citigroup, was one of only five US firms to sign
on to UNEP's 'Statement by Financial Institutions on the Environment and
Sustainable Development - the declaration of broad principles outlined
after the 1992 'Earth Summit'.
Descano, who held the post of Director of Social Awareness Investment at
the firm, declared: ''we are not involved in the Three Gorges dam.
''There is a perception that anyone who does business with 'China, Inc.'
is responsible for Three Gorges but the bonds we're handling are to raise
general-purpose capital for the China Development Bank. None of the money
has been earmarked for the dam.''
China Development Bank, formerly the China State Development Bank, was a
leading government fund-raiser for the project, she acknowledged, but
Salomon had received assurances from it that Three Gorges would receive no
capital from a 500-million-dollar, May 1999 bond issue for which Descano's
firm was a lead manager and bookrunner.
Activists remained sceptical, however. Doris Shen of the International
Rivers Network challenged the firm to make public the promises it had
received from the Chinese bank.
''Enough concern has been raised about the project to make it worth
Salomon Smith Barney's while to say they have received assurances'' but
those would be worthless so long as they remained secret, Shen said.
Apart from ensuring the Chinese bank's accountability, ''this is a litmus
test of whether (UNEP signatory) companies have any real environmental and
social guidelines or policies,'' she added.
Descano sought to deflect the challenge, arguing that activists were
playing politics with business deals.
''The NGOs are trying to engage in a war with China and involve anyone
else. That's not constructive,'' Descano said. ''They're frustrated with
governments' decisions and are looking for new weapons. We're not an
appropriate weapon.''
Executives nevertheless admitted to political considerations in their bid
to tap existing and potential markets in the world's most populous country.
''The (Three Gorges) project's got big problems but China's an even bigger
market. None of us can really afford to opt out of it,'' said one US
investment banker. ''But to stay in, we have to maintain a relationship
with the government (in Beijing). We can't be naive about how projects get
financed and the political pressures involved.''
The controversy highlighted a series of weaknesses in the Financial
Institutions Initiative - corporate and environmental.
Analysts noted that other UNEP signatories or affiliates also were
involved, including Barclays Capital, Credit Suisse First Boston, Deutsche
Bank of London, and HSBC Markets.
Once they signed on to the agency's statement of principles, banks and
investment houses essentially were left to monitor themselves with no
independent oversight. The initiative's steering committee was dominated by
the firms themselves and non- governmental organisations, or other
'stakeholders,' had no seats.
Operating largely as a club, the body also lacked an effective mechanism
to question - let alone discipline - members who ran afoul of the UNEP
declaration.
The UNEP initiative was ''a unique and important step forward,'' said
Julie Tanner of the non-governmental US National Wildlife Federation. ''But
to have full credibility, it has to monitor its members,'' she stressed.
Mike Kelly, coordinator of the UN agency's drive and a former banker,
acknowledged those complaints and said that, in cases such as Three Gorges,
UNEP tried to be a ''facilitator of dialogue'' between the warring sides.
For their part, bankers cautioned that if the initiative ''had teeth''
with which to enforce standards of behaviour, few firms would sign on.
Descano said her company decided to join the group because UNEP's
declaration was ''sufficiently aspirational'' as to pose no threat. By
contrast, most US banks had not signed on for fear of being taken to court
over charges of failing to live up to the UNEP principles.
There was no history of such lawsuits, she said, and the fear of
litigation was ''not necessarily rational or based on any precedent.''
Chinese premier Zhu Rongji had come to acknowledge that the Three Gorges
project was plagued with corruption, shoddy environmental assessments, and
poor construction.
Those problems, along with parliamentary fears of a crack-down against
project critics, had surfaced in the local and international press. But the
venture had long been a dream of Chinese leaders and won energetic backing
from (now former) premier Li Peng and the country's powerful water ministry.
Potential epidemics of disease stemming from the dam's 400-mile- long
reservoir moved the leading British medical journal, 'The Lancet', to dub
Three Gorges '' the Chernobyl of hydro- power.''
The World Bank walked away from the project years ago amid warnings from
Chinese and international experts that the dam, designed to help control
floods while generating electricity, carried serious environmental, social
and human-rights risks - and likely would prove to be economically not
viable.
''It was a textbook-case disaster in the making,'' said one World Bank
staffer.
Private financiers then stepped in and project backers included Bank of
America.
The bank , although not among the 161 firms signing on to the UNEP
declaration, was the first in the United States to subscribe to
environmental principles established by the Coalition for Environmentally
Responsible Economies and took prominent part in the UN agency's meeting
here. (END/IPS/aa/mk/99)