Lending abroad: the role of voluntary international environmental management standards.

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 …