A/HRC/4/99 page 8 26. Project finance is a particular method of funding in which the lender looks primarily to the revenues generated by a single project, both as a source of repayment and as security for the exposure. Project finance has been the focus of much discussion about human rights issues in the financial sector because of its allegedly high correlation with human rights abuses, despite the fact that it represents only a small percentage of total global lending and an even smaller percentage of the activities of the sector as a whole. 27. In June 2003, the Equator Principles (the Principles) were adopted by financial institutions as a banking industry framework for addressing environmental and social risks in project financing. Signatory institutions agree to incorporate social and environmental concerns into their internal credit risk procedures and to require borrowers to observe standards as a condition for lending. The Principles have now been adopted by over 40 institutions representing more than 80 per cent of global private project finance capacity. Following the adoption of a new version of the IFC Safeguard Policies on which the Principles are based, a revised set of Principles were released in July 2006. Panellist presentations 28. Motoko Aizawa (Head, Policy and Standards Unit, Environmental and Social Development Department, International Finance Corporation) outlined how the International Finance Corporation (IFC) supports human rights through project finance. The IFC commits to addressing human rights in its sustainability policy framework and has an exclusion list that screens out investments in sectors such as arms and tobacco. The IFC Performance Standards identify areas of risk in environmental and social development, with specific requirements on avoiding, mitigating, minimizing or compensating for adverse impacts in areas such as labour, use of security forces, indigenous peoples and cultural property. Ms. Aizawa explained that the Performance Standards do not make borrowers directly responsible for international human rights standards, in part because these refer to State obligations. Ms. Aizawa shared an example of how the IFC would investigate labour issues: the project team uses country and sector screens to flag potential risks; questions are posed to the client using a sector-specific questionnaire, beginning a process of engagement that may include a site visit/labour audit, and will eventually lead to a corrective action plan that is included in the loan agreement and monitored, in some cases with third party verification. Ms. Aizawa said that in project finance the most critical issue is the willingness of lenders to engage with clients, ask questions, demand that problems be corrected, and offer support to the borrower to improve the situation. 29. Robert Tacon (head of risk reporting, Group Risk Management and Reporting, Standard Chartered Bank) explained that financial institutions which adopt the Equator Principles are expected to embed these principles into their organizations through policies and procedures. The Equator Principles is not an organization itself; there is no collective monitoring of FIs who have adopted the Principles by a central management body. He noted that while in most cases project finance accounts for a very small percentage of the asset base of an FI which has signed up to the Principles, such projects can account for a disproportionate level of human rights concerns. Mr. Tacon said that while FIs which have signed up to the Principles account for a significant proportion of the financing of major projects, local and regional banks are increasingly entering the market. FIs do not have expertise in environmental and social issues and therefore have to rely on external advice, which is often contradictory. For example, at what point should an FI be comfortable that the human rights issues in a project have been adequately addressed: when,