Introduction

In recent times, corporations operating in the extractive industry sectors of developing countries have increasingly resorted to project finance (PF) in place of more conventional methods of financing their operations, such as equity and conventional commercial corporate borrowing. The obvious advantage of PF is that the project itself and its assets are used as security for loans advanced to the project. This means that the risks that lenders assume as well as the liabilities of the project sponsors are all tied to the project and therefore lenders cannot, except in highly limited circumstances, have recourse to the assets of project sponsors or shareholders of the corporation floating and executing the project in the event of default.

In tandem with the increased recourse to PF by business enterprises engaged in natural resource extraction, there has also been an emerging trend whereby PF institutions require that borrowers incorporate the protection of fundamental human rights and principles of sustainable development into their implementation plans. For these financial institutions, project lending serves as a leveraging device that is used to obtain commitment by extractive industry firms to comply with norms and principles of fundamental human rights and sustainable development as contained in the laws of the host country and international legal instruments. The International Finance Corporation (IFC), the private sector arm of the World Bank, and banks that subscribe to the Equator Principles (EP) have adopted this practice of requiring borrowing companies to incorporate human rights and sustainable development principles and practices into their operations.