Equator Principles / REF / 616 / 2014

The Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. As at 4 June 2013, 79 adopting financial institutions in 35 countries have officially adopted the Equator Principles, covering over 70 percent of international Project Finance debt in emerging markets.

The Equator Principles have recently been revised and the third iteration of the Equator Principles was launched on 4 June 2013.

The Equator Principles apply globally, to all industry sectors and to four financial products 1) Project Finance Advisory Services 2) Project Finance 4) Project-Related Corporate Loans and 4) Bridge Loans. The relevant thresholds and criteria for application is described in detail in the Scope section of the Equator Principles.

Equator Principles Financial Institutions (EPFIs) commit to implementing the EP in their internal environmental and social policies, procedures and standards for financing projects and will not provide Project Finance or Project-Related Corporate Loans to projects where the client will not, or is unable to, comply with the Equator Principles. While the Equator Principles are not intended to be applied retroactively, EPFIs apply them to the expansion or upgrade of an existing project where changes in scale or scope may create significant environmental and social risks and impacts, or significantly change the nature or degree of an existing impact.

The Equator Principles have greatly increased the attention and focus on social/community standards and responsibility, including robust standards for indigenous peoples, labour standards, and consultation with locally affected communities within the Project Finance market. They have also promoted convergence around common environmental and social standards. Multilateral development banks, including the European Bank for Reconstruction & Development , and export credit agencies through the OECD Common Approaches are increasingly drawing on the same standards as the Equator Principles.

The Equator Principles have also helped spur the development of other responsible environmental and social management practices in the financial sector and banking industry (for example, Carbon Principles in the US, Climate Principles worldwide) and have provided a platform for engagement with a broad range of interested stakeholders, including non-governmental organisations (NGOs), clients and industry bodies.

Members & Reporting

As at 4 June 2013, 79 adopting financial institutions in 35 countries have officially adopted the Equator Principles, covering over 70 percent of international Project Finance debt in emerging markets. Their annual reporting related to Principle 10 is available here.

The Principles

Principle 1: Review and Categorisation

Principle 2: Environmental and Social Assessment

Principle 3: Applicable Environmental and Social Standards

Principle 4: Environmental and Social Management System and Equator Principles Action Plan

Principle 5: Stakeholder Engagement

Principle 6: Grievance Mechanism

Principle 7: Independent Review

Principle 8: Covenants

Principle 9: Independent Monitoring and Reporting

Principle 10: Reporting and Transparency

Criticism

NGOs have generally welcomed the Principles, but some have expressed concerns over their integrity.

One of these is that the Principles will not make a real difference. They argue the case of the Baku-Tbilisi-Ceyhan pipeline, which, in 2004, was financed by eight Equator Principles' banks and the IFC despite an NGO assessment that found 127 alleged breaches. The banks and IFC said they were confident that the Equator Principles were followed, and said an independent consultant had confirmed this assessment.

Another expressed concern was that the banks might lobby the IFC to weaken its standards on which the Principles are based. The banks point out that IFC revised and strengthened its policies in 2006 and that the banks correspondingly strengthened the Equator Principles in the same year. Other criticisms include alleged lack of enforcement and accountability, free-riders, and that the scope of the principles is limited to project finance only. Several banks have sought to address these concerns by publishing summaries of their Equator Principles screening, including the number of projects they turned down for noncompliance.

In 2005 some NGOs said that one of the adopting banks, ABN AMRO (before it was split up in 2010), was the most climate-unfriendly bank in the Netherlands, with estimated annual indirect CO₂ emissions of almost 250 million tonnes in 2005 from industries to which it provides financial services. NGOs said this was just over the annual CO2-emissions of the Netherlands and almost 1% of the total annual worldwide CO₂ emissions at the time. ABN AMRO defended its environmental record and announced steps to reduce its direct emissions, but some NGOs say it is the indirect emissions through their clients that make global banks such important targets in climate change.

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