Implementation of the Equator Principles in Mizuho

1. Implementation of the Equator Principlesin Mizuho December 2006 Workshops on Finance, Environment and Harmonious Society, in Beijing Sustainable Development Dept.

2. Agenda of Presentation • What is “the Equator Principles” ? • Who has adopted ? • What are the requirements ? • How is it implemented in Mizuho ? • What changes happened in Mizuho ? • Conclusion

3. What is “the Equator Principles” ? • A Framework for Financial Institutions • Background and history Sustainable Development Dept.

4. A Framework for Financial Institutions • A framework for managing Social and Environmental Risk in projects for Financial Institutions (mainly commercial banks)based on the following; • Host Country Environmental laws and regulations • A set of baseline requirements “IFC Performance Standards” • A set of quantitative environmental guidelines “ World Bank/IFC EHS guidelines ” • Individual bank will establish its own procedure manual based on this framework

5. Background and History • Background • Increasingly commercial banks have come undercloser public scrutiny on environmental/social issues • In 2002, ABN AMRO, Barclays, Citigroup, and WestLB started discussion with IFC • Banks consulted the draft principles with Environmental NGOs • Title: the Greenwich Principles => the Equator Principles • History • June 2003, 10 banks launched the Equator Principles at the IFC Participants Meeting • April 2006, IFC started using “Performance Standards” • July 2006, the Equator Principles 2 was launched

6. Who has adopted ? 43 EPFIs (Equator Principles Financial Institution), as of November 2006

7. What are the requirements ? Scope of the Equator Principles Applicable Laws and S&E standards (1)-(3) Categories and Project Impacts Requirements of EP (1)-(5) Implementation Flow What changes happened in Commercial Banks? Sustainable Development Dept.

8. Scope of the Equator Principles • Project Finance as defined by BaselⅡ, and related Finance Advisory (FA) Activities • Projects with Total Project Capital Costs of US$10 million or more • All new Projects in All countries and All industry sectors • Projects covering expansion or upgrade of existing facility, which may create significant Environmentaland/or Social impacts

9. Applicable laws and S&E standards (1) • Host country laws, regulations and permits that pertain to social and environmental matters (Note) • IFC Performance Standards • WB/IFC EHS Guidelines • Projects in High-Income OECD countries: Successful completion of an assessment process in compliance with national law in such countries is considered to be a substitute for IFC Performance Standards and WB/IFC EHS Guidelines < 24 Countries > Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy Japan, Korea Rep, Luxembourg, Netherlands, New Zealand, Norway Portugal, Spain, Sweden, Switzerland, United Kingdom, United States Note

10. Applicable laws and S&E standards (2) • IFC Performance Standards • PS1:Social and Environmental Assessment and Management System • PS2:Labor and Working Conditions • PS3:Pollution Prevention and Abatement • PS4: Community Health, Safety and Security • PS5: Land Acquisition and Involuntary Resettlement • PS6: Biodiversity Conservation and Sustainable Natural Resource Management • PS7: Indigenous Peoples • PS8: Cultural Heritage

11. Applicable laws and S&E standards (3) Exception: Mining and Milling - Underground Mining and Milling – Open Pit

12. Categories and Project Impacts

13. Requirements of EP (1)

14. Requirements of EP (2) (*) Category C: Generally, projects with such requirements are not categorized as “C”. Key Terms:

15. Requirements of EP (3) • Covenants To comply with all relevant host country social and environmental laws, regulations and permits in all material respects; b) To comply with the AP(where applicable) during the construction and operation of the project in all material respects; • To provide periodic reports that document • compliance with the AP(where applicable), and • compliance with relevant host country laws • The report should be prepared by in-house staff or third party experts, in a format agreed with EPFIs at least once annually; To decommission the facilities in accordance with an agreed decommissioning plan (where applicable).

16. Requirements of EP (4) • Sponsor’s capacity is important in developing S&E Management System in the project

17. Requirements of EP (5) • Conceptual Matrix for Action Plan (AP) Requirements

18. Implementation Flow • Lead Arranger’s role from Early Stage to Monitoring

19. What changes happened in Commercial Banks? • Environment risk management is recognized as an established risk management in commercial banks • Risk assessment ⇒ Action Plans ⇒ Covenants ⇒ Monitoring • Incentive built up for keeping Reputation among EPFIs • “Independent consultant EP Report” and “Information Memorandum” will be assessed by other EPFIs • Discussions increased in the process of Documentation • “Action Plans” and “Environmental Covenants” becameissues for discussions among EPFIs

20. How is it implemented in Mizuho? Asset Scale & EPFIs Japanese Banks in Global Project Finance Japanese EPFIs Mizuho Professionals for Global Project Finance Organizational Structure Sustainable Development Department (SDD) SDD Team Members Global Experiences (1) - (2) Sustainable Development Dept.

21. Asset Scale & EPFIs 8EPFIs in Top 10 Top 10 Banks by Assets, 2005 Source: The Banker

22. Japanese Banks in Global Project Finance • Mizuho is one of the world’s leading Project Finance Banks since 1995 in terms of Debt amount as illustrated in the table below. Lenders to Project Finance Transactions (Global) 1995-2005 BANK DEBT (US$M) DEALS EPFI RANK Mizuho Financial Group 25,434.91 657 ○ 1 Calyon 24,544.24 673 ○ 2 HVB Group 18,621.82 604 ○ 3 BNP Paribas 21,982.62 603 ○ 4 ABN AMRO 21,803.83 555 ○ 5 Sumitomo Mitsui Banking Corp 501 ○ 6 15,749.80 Mitsubishi Tokyo Financial Group 479 ○ 7 15,053.13 SG Corporate & Investment Banking 17,480.00 465 － 8 Royal Bank of Scotland 17,810.40 436 ○ 9 Dresdner Kleinwort Wasserstein 15,008.50 428 ○ 10 Source: Dealogic Loanware

23. Japanese EPFIs • Three Japanese Banks have adopted EPs in Mizuho Corporate Bank : Oct 2003 Bank of Tokyo Mitsubishi UFJ : Dec 2005 SUMITOMO MITSUI BANKING CORPORATION : Jan 2006

24. Mizuho Professionals for Global Project Finance • With a Total of 150 Professionals LONDON PFD LDN NY PFD NY TOKYO PFD HEAD OFFICE HONG KONG PFD Asia SINGAPORE PFD Asia SYDNEY PFD SYD

25. Sustainable Development Department (SDD) • All EP related issues are centralized to SDD • London • New York Sustainable Development Department • Hong Kong • Singapore • Sydney

26. Organizational Structure • Mizuho Financial Group is structured as a holding company, and is comprised of the following subsidiaries. The Sustainable Development Department is part of the Project Finance Division 1 in Mizuho Corporate Bank. Mizuho Trust & Banking Co., Ltd. Other Financial Subsidiaries Mizuho Bank., Ltd. Mizuho Corporate Bank, Ltd. (Consumer Bank) (Corporate bank) Industry Groups Mizuho Investors Securities Co., Ltd. Mizuho Securities Co., Ltd. Energy & Natural Resources Power & Infrastructure (Investment Bank) Global Products Unit Financial Advisory Agency Project Finance Division 1 Environment Group Sustainable Development (Tokyo – Projectsoutside of Japan) Regional Offices Asia Department Asia Department (Hong Kong) Industry Groups PFI Project Finance Division 2 Infrastructure and Environment (Tokyo – Projectsin Japan)

27. SDD Team Members • Team Members ; • Head Provisional ISO14001 Auditor • Qualified Water Pollution Controller • Assistant Vice President • Associate • Assistant • Senior Advisor, located in Washington, DC • Environmental Technical Consultant ; • Japanese Environmental Consultant is retained

28. Global Experiences (1) • Screening Results (Oct.2004-Nov.2006)

29. Global Experiences (2) • Projects screened by Region (Oct.2004-Nov.2006) Asia and Oceania: 13 projects Europe, Africa Middle East: 22 projects Americas: 5 projects

30. What changes happened in Mizuho? History of implementation Challenges Trial to incorporate Sustainability into Loans (1) - (5) Consistency with JBIC (1) - (2) Engagement with NGO (1) - (3) Sustainable Development Dept.

31. History of implementation • October 2003; • Adopted to be the 18th Signatory • October 2004; • Completed Manual and Started operation • March 2006; • Established “Sustainable Development Dept. ” • July 2006; • Adopted the Equator Principles 2 • October 2006; • Updated Manual and Started operation

32. Challenges • 4 challenges experienced in the process of implementation Not have much knowledge of IFC policies/guidelines • First mission was to find out what we have committed 1 • First trial to incorporate Sustainability into Loans • Mizuho had Code of Conduct covering Environmental Awareness,but, had no experience to implement it in Loan business 2 Keep consistency with JBIC Guidelines • We had been following the results of JBIC’s Environmental Due Diligence ※JBIC = Japan Bank For International Cooperation 3 Had no experience to engage with NGOs • No specific section to have contact with NGOs 4

33. Trial to incorporate Sustainability into Loans (1) • Challenge • How to incorporate the Equator process into business flow of Deal Team and Credit Division? • Solutions • Training for Deal Teams in Tokyo, NY, LDN, HK, SPR, and Sydney • Coordinate the roles of SDD and Credit Division • Delivering Newsletters by E-Mails to all

34. Trial to incorporate Sustainability into Loans (2) • EP Screening Form and EP Review Report are sent to Credit Division

35. Trial to incorporate Sustainability into Loans (3) • EP Screening Form • Objective: Find Project Category and Sponsor Capacity Risk

36. Trial to incorporate Sustainability into Loans (4) • EP Review Report • Objective: Find significant project impact and establish appropriate AP to be covenanted

37. Trial to incorporate Sustainability into Loans (5) • Disclosure of EPs implementation • Disclosure Requirements in EPs “Each EPFI adopting the Equator Principles commits to report publicly at least annually about its Equator Principles implementation processes and experience, taking into account appropriate confidentiality considerations.” (EP10) • Disclosure on Mizuho Website • http://www.mizuho-fg.co.jp/english/activity/environment/equator/equator_eng.html

38. Consistency with JBIC (1) • Challenge • Japanese banks had been relying on JBIC’s Environmental Due Diligence • Japanese clients complained that Equator would double their burden • Solutions • Mizuho made special efforts to make its Equator Checklists consistent with JBIC’s ones • JBIC allowed Mizuho to join the environmental site visit

39. Consistency with JBIC (2) • Mizuho Checklists covering 38 industry sectors • Based on WB/IFC guidelines, reflecting JBIC environmental aspects

40. Engagement with NGO (1) • “Sustainable Development Department ”wasestablished • The term “Sustainable Development” was first time officially used by a Japanese bank. • Opened engagement with NGO • SDD is responsible for engagement with NGO globally

41. Engagement with NGO (2) • Argument with Environmental NGO • PS6： Biodiversity Conservation and Sustainable Natural • Resource Management • Natural Habitat • 7. In areas of natural habitat, the client will not significantly convert or • degrade such habitat, unless the following conditions are met: • There are no technically and financially feasible alternatives • The overall benefits of the project outweigh the costs, including those to the environment and biodiversity • Any conversion or degradation is appropriately mitigated

42. Engagement with NGO (3) • Benefits from Environmental NGOs • Information of Local Community on early stage and after financing • Information of Local Community or Government using Local Languages • Information which the project proponent may not recognize • Information which will be rational basis to negotiate with the project proponent

43. Conclusions • What changes happened by the Equator Principles • Equator Principles promote cooperation and competition within Commercial Banks that contribute to “Sustainable Development” • Equator Principles is the framework for discussions between Commercial Banks and Environmental NGOs. Sustainable Development Dept.

44. Thank you Osamu Odawara Head of Sustainable development Department Project Finance Division 1 Mizuho Corporate Bank osamu.odawara@mizuho-cb.co.jp Sustainable Development Dept.