As environmental problems have become increasingly important, financial institutions have also shown an ever higher awareness of environmental considerations. This section reports leading efforts made by JBIC for environmental considerations in the project process.

Financing Linked with the Environment

Finance and the environment are beginning to be closely linked with each other. The behaviors of banks, security houses and investment firms are affecting capital flows and have a significant impact on the industry. These financial institutions now have an increased awareness of the relevance between financing and environmental considerations.

As the financial community has focused on climate change mitigation and adaptation measures, substantial capital is flowing into environmental projects. Investments in renewable energy projects, which do not use fossil fuels, are predicted to reach US$100 billion in 2007. This is a 40% increase over the US$70.9 billion seen in 2006 and a three-fold increase over the US27.5 billion seen in 2004 (*1)

Amid increasing attention being paid to corporate social responsibility (CSR), firms involved in the projects that have adverse impacts on the environment are being subjected to social scrutiny. Financial institutions are no exception in making environmental assessments and in taking adequate measures to mitigate adverse environmental impacts in their financed projects and transactions. As the responsible parties, they are held accountable for the appropriateness of their judgments, including environmental assessments, which they have made in the projects, and of the transactions in which they have invested or for which they have provided loans.

Such practices have already been well-established among the World Bank group as well as JBIC and other export credit agencies. In recent years, growing interest in CSR has induced private financial institutions to prepare their own environmental and social guidelines. In 2003, major private banks drafted the Equator Principles in consultation with the International Finance Corporation (IFC) of the World Bank Group. The Principles set out that when financing is being considered for large-scale dams, power and natural resource development projects, assessment has to be made on environmental and social issues, and monitoring has to be made after financing to ensure compliance of their actions with the environmental guidelines.

In 2006, the United Nations Environment Programme Finance Initiative (UNEP FI), a global partnership between the UNEP and private financial institutions, and 21 institutional investors launched the Principles for Responsible Investment (PREVI). Under PREVI, the investors incorporate environmental, social and corporate governance (ESG) issues into investment analysis and decision-making as well as financial returns. JBIC has been a key member of UNEP-FI, serving as chair for common activities in the Asia and the Pacific region. Furthermore, in 2007, JBIC signed an agreement on environmental assessment with 19 financial institutions, thereby providing knowhow on environmental considerations in investing and lending activities.

1. *1 According to New Energy Finance, a US research service.

Early Adoption of the Guidelines for Environmental Considerations

JBIC has adopted the Guidelines for Confirmation of Environmental Considerations in 1999 based on its years of experience in supporting project undertakings in developing countries and in response to developments in multilateral finance institutions. In 2002, they were revised as the JBIC Guidelines for Confirmation of Environmental and Social Considerations, which have evolved further to include detailed provisions which were highly evaluated by domestic and overseas financial institutions. The Guidelines will be revised when appropriate in the future, while taking inputs from the broad constituency of JBIC and taking account of global developments and trends on environmental matters. Furthermore, 2007, the new Guidelines began to be developed by incorporating inputs from domestic firms, experts, NGOs, the Japanese Government and developing country government. Based upon global trends on environmental matters and broad opinions from stakeholders, JBIC continues its stance in favor of the renewal of the Guidelines.

The Guidelines state that the project proponents are responsible for appropriate environmental and social considerations, and JBIC confirms such considerations in light of the Guidelines. It is important to confirm that adequate measures have been taken to mitigate adverse environmental impacts proactively and that understanding has been obtained from all the stakeholders regarding environmental effects, especially when significant environmental impact is foreseen from the proposed project. These are crucial points for proceeding with the proposed project or approving a loan for the project. It is essential to disclose information on the project proactively in order to obtain the understanding of all the stakeholders. A framework has been created in which JBIC takes on objections regarding any non-compliance with the Guidelines. By using this framework, outside parties are able to propound any concerns regarding such non-compliance and require JBIC to hold thorough consultations on such matters.

Environmental and Social Considerations in Sakhalin II

Sakhalin Forum

In Russia's Sakhalin Island, a large-scale oil and natural gas development project popularly called Sakhalin II is currently underway. Since it is a major development project, it has attracted significant attention the world over regarding considerations for the natural environment. In the Sakhalin II Project, JBIC held a total of 13 environmental forums in Tokyo and Sapporo, from 2004 to 2007 and exchanged views and information with about 800 participants on the project's environmental aspects. The participants in these forums included fishers in Hokkaido, environmental experts, NGO representatives and others representing a broad spectrum of the society. JBIC recognizes that it has to place importance on such dialogue process in formulating a project in harmony with the natural environment and local communities. Naturally, JBIC has fielded its staff to the project site, where they assessed on-the-ground conditions with their own eyes.

This is just one example of the environmental sensitivity of JBIC. JBIC is taking steady steps to contribute to the lives and sound development of people in the countries where JBIC-funded projects are implemented by integrating their environmental and social considerations.