The following is the abstract of an article "How to Reflect Sustainable Development, exemplified by the Equator Principles, in Overseas Investment", which is contained in the Korea International Commerce & Law Review Vol.31, August 2006.

Today's financial institutions usually take environmental issues seriously into consideration as they could not evade lender liability in an increasing number of cases. On the international scene, a brand-new concept of the "Equator Principles" in the New Millenium has driven more and more international banks to adopt these Principles in project financing.

Sustainable development has been a key word in understanding new trends of the governments, financial institutions, corporations and civic groups in the 21st century. The Equator Principles are a set of voluntary environmental and social guidelines for sustainable finance. These Principles commit bank officers to avoid financial support to projects that fail to meet these guidelines. The Principles were conceived in 2002 on an initiative of the International Finance Corporation (IFC), and launched in June 2003.

Since then, dozens of major banks, accounting for up to 80 percent of project loan market, have adopted the Principles. Accordingly, the Principles have become the de facto standard for all banks and investors on how to deal with potential social and environmental issues of projects to be financed. Compliance with the Equator Principles facilitates for endorsing banks to participate in the syndicated loan and help them to manage the risks associated with large-scale projects.

The Equator Principles call for financial institutions to provide loans to projects under the following circumstances:
- The risk of the project is categorized in accordance with internal guidelines based upon the environmental and social screening criteria of the IFC.
- For Category A and B projects, borrowers or sponsors are required to conduct a Social and Environmental Assessment, the preparation of which must meet certain requirements and satisfactorily address key social and environmental issues.
- The Social and Environmental Assessment report should address baseline social and environmental conditions, requirements under host country laws and regulations, sustainable development, and, as appropriate, IFC's Environmental, Health and Safety Guidelines, etc.
- Based on the Social and Environmental Assessment, Equator banks then make agreements with borrowers on how they mitigate, monitor and manage the risks through a Social and Environmental Management System. Compliance with the plan is included in the covenant clause of loan agreements. If the borrower doesn't comply with the agreed terms, the bank will take corrective actions.

The Equator Principles are not a mere declaration of cautious banks but a full commitment of lenders. A violation of the Principles in the process of project financing, which led to an unexpected damage to the affected community, would not give rise to any specific legal remedies other than ordinary lawsuits. So it is more effective for banks to ensure consistent implementation of the Principles and to have them take responsible measures to solve social and environmental issues.

Public interests have recently mounted up with respect to environmental issues on the occasion of the Supreme Court's decision (2006Du330) on the fiercely debated reclamation project at Saemangeum. The majority Justices said that the expected environmental damages like probable pollution of water and soil were not believed so serious and that the Administration should continue to implement the project seeking ways to make it more environment friendly.

In this case, though the Category A Saemangeum Project was carried out by a government agency, the Supreme Court behaved itself as a signal giver to approve or stop the environment-related project like an Equator bank in project financing.
At present, there is no Equator bank in Korea in contrast to three big banks in Japan. Also Korean contractors, which are aggressively bidding for Category A-type projects in South East Asia and Mideast, might find themselves in a disadvantageous position because they are generally ignorant of the environmental assessment associated with project financing.

In this regard, Korean banks and overseas project contractors should care for the revised Equator Principles and the latest developments in project financing more seriously. It's because its scope has expanded to the capital cost of US$10 million or more across all industry sectors regardless of developing countries or not. It should be noted that, for a Korean bank, being an Equator bank is more or less burdensome in a short-term period, but it must be conducive to minimizing risks and building up good reputation in the long run.

Questions whether the Ramsar Convention affected the court decisions

As a matter of fact, the Seoul High Court considered the Convention on Wetlands of International Importance especially as Waterfowl Habitat (the Ramsar Convention).
The Court admitted that South Korea is a contracting State of the said Convention and, accordingly, the Wetland Conservation Act was established in Korea on February 8, 1999. But the Court pointed out the transitional measures of Addenda Section 3 of the Wetland Conservation Act allowed an exception to the area subject to the reclamation license already given as of the entry into force of the Act.
Therefore, the mandatory designation of wetland would not apply to the Saemangeum tideland. The concessionaire, Government-sponsored Rural Development Corporation, which obtained the Government approval on November 13, 1991, embarked on the reclamation project.
In addition, it does not amount to the change of circumstances in terms of economic feasibility test that the conservation value of the said tideland sharply increased right after Korea's accession of the Ramsar Convention. Therefore, the Plaintiffs' arguments were denied by the Court.
In the Supreme Court decision 2006Du330, the Minority Opinion commented the importance of the Ramsar Convention.
Two liberal Justices argued that if South Korea goes against the tideland conservation movement across the globe and reclaims the Saemangeum tideland, it will be subject to global criticism as well as posting to a under-developed status in environmental protectionism.

The Contents and Legal Issues of the Seoul High Court Decision 2005Nu4412

Plaintiff & Appellee: Residents of Saemangeum area
Defendant & Appellant: Minister of Agriculture and Forestry
Co-Appellant: Governor of Chonbuk Province

Ruling: All claims of the appeal by Plaintiffs shall be dismissed and all costs of the appeal shall be borne by the party defeated.
Reasoning:

  1. The scope of deliberations conducted by this Court
  2. Facts
    A. The outline of the Saemangeum Project 
    B. The implementation of the Saemangeum Project 
    C. The special inspection of the Board of Audit and Inspection
    D. The plan and action program of the Government
    E. Plaintiffs' application for the revocation of the public waters reclamation license and 
       Defendant's rejection thereof
    F. Recent developments of the Saemangeum Project 
    G. Legal standing of parties
  3. Decision with respect to Defendant's pre-trial defense to dismiss the suit
  4. Decision with respect to the nullification of the contended administrative action
    A. The material and clear nature of defects which make the action null and void
    B. Detailed factors in decision making
      a. Economic feasibility of the Project
      b. Necessity of the Project
      c. Absence of the environmental impact assessment required by the law
      d. Unsatisfactory standard of fresh water quality
      e. Reclamation license for the excessively disproportionate area in view of the Project
      f. Absence of consent of persons entitled to the reclaimed areas and compensation thereto
    C. Implementation probability of the contended administrative action
  5. Decision with respect to the application for the withdrawal of administrative rejection
    A. Plaintiffs' claims and relevant laws and regulations
    B through E. Relevant provisions of the Public Waters Reclamation Act (the "Act")
      The Appellate Court analyzed Subparagraphs (in particular, Subparagraph 3) of Article 32 
      of the Act concerning whether any "change of circumstances" as regards reclaimed land use
      plan, necessary agrarian fields, economic feasibility, fresh water quality management, 
      marine environment, etc. took place or not. 
  6. Conclusion

For further information regarding the Equator Principles, visit its official website.