Equator Principles

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Jump to: navigation, search The Equator Principles (EPs) are a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing. Project financing, a method of funding in which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure, plays an important role in financing development throughout the world (See http://www.bis.org/publ/bcbs118.pdf). Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets. The Equator Principles in full can be found at http://www.equatorprinciples.com/documents/Equator_Principles.pdf Equator Principles Financial Institutions (EPFIs) commit to not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement the EPs. The Equator Principles were developed by private sector banks led by Citigroup, ABN AMRO, Barclays and WestLB and were launched in June 2003. The banks chose to model the Equator Principles on the environmental standards of the World Bank and the social policies of the International Finance Corporation (IFC). 67 financial institutions (October 2009) have adopted the Equator Principles, which have become the de facto standard for banks and investors on how to assess major development projects around the world. In July 2006, the Equator Principles were revised, increasing their scope and strengthening their processes. The Equator Principles represent a significant industry-wide initiative. They were drafted by the banks in consultation with the IFC, project sponsors, project engineers, and non-governmental organizations (NGOs). While they have generally been well received, some project sponsors have said they go too far, while some NGOs say they do not go far enough.

[edit] The Principles See the link http://www.equator-principles.com/documents/Equator_Principles.pdf for the complete Equator Principles. EPFIs will only provide loans to projects that conform to Principles 1-9 below:

[edit] Scope

The Principles apply to all new project financings globally with total project capital costs of US$10 million or more, and across all industry sectors. In addition, while the Principles are not intended to be applied retroactively, we will apply them to all project financings covering expansion or upgrade of an existing facility where changes in scale or scope may create significant environmental and/or social impacts, or significantly change the nature or degree of an existing impact. The Principles also extend to project finance advisory activities. In these cases, EPFIs commit to make the client aware of the content, application and benefits of applying the Principles to the anticipated project, and request that the client communicate to the EPFI its intention to adhere to the requirements of the Principles when subsequently seeking financing.

[edit] Principle 1: Review and Categorisation

The risk of the project is categorized in accordance with internal guidelines based upon the environmental and social screening criteria of the IFC. Projects are classified, relating to social or environmental impacts, in Category A (significant impacts), Category B (limited impacts) and Category C (minimal or no impacts).

[edit] Principle 2: Social and Environmental Assessment

For all medium or high risk projects (Category A and B projects), sponsors complete an Environmental Assessment, the preparation of which must meet certain requirements and satisfactorily address key environmental and social issues.

[edit] Principle 3: Applicable Social and Environmental Standards

The Environmental Assessment report addresses baseline environmental and social conditions, requirements under host country laws and regulations, applicable international treaties and agreements, sustainable development and use of renewable natural resources, protection of human health, cultural properties, and biodiversity, including endangered species and sensitive ecosystems, use of dangerous substances, major hazards, occupational health and safety, fire prevention and life safety, socio-economic impacts, land acquisition and land use, involuntary resettlement, impacts on indigenous peoples and communities, cumulative impacts of existing projects, the proposed project, and anticipated future projects, participation of affected parties in the design, review and implementation of the project, consideration of feasible environmentally and socially preferable alternatives, efficient production, delivery and use of energy, pollution prevention and waste minimization, pollution controls (liquid effluents and air emissions) and solid and chemical waste management.

[edit] Principle 4: Action Plan and Management System

Based on the Environmental Assessment, Equator banks then make agreements with their clients on how they mitigate, monitor and manage those risks through a 'Social Environmental Management Plan'.

[edit] Principle 5: Consultation and Disclosure

For risky projects, the borrower consults with stakeholders (NGOs and project affected groups) and provides them with information on the risks of the project. The borrower has to consult the project affected communities in a structured and culturally appropriate manner. The process will ensure free, prior and informed consultation for affected communities.

[edit] Principle 6: Grievance Mechanism

The borrower will establish a grievance mechanism as part of the management system.

[edit] Principle 7: Independent Review

For the Assessment, Assessment Plan and consultation process.

[edit] Principle 8: Covenants

Incorporation of covenants linked to compliance. Compliance with the plan is required in the covenant. If the borrower doesn't comply with the agreed terms, the bank will take corrective action, which if unsuccessful, could ultimately result in the bank cancelling the loan and demanding immediate repayment.

[edit] Principle 9: Independent Monitoring and Reporting

Over the life of the loan, in Category A and, if necessary in Category B, an independent expert is consulted.

[edit] Principle 10: EPFI Reporting

Each EPFI commits to report publicly at least annually about its Equator Principles implementation processes and experience.

[edit] Revised Equator Principles Launched in 2006

On 6 July 2006, the Equator Principles Financial Institutions (EPFIs) announced the launch of the final revised Equator Principles. The revised principles reflect revisions to the IFC's Performance Standards, upon which the Equator Principles are in part based.[1] The Equator Principles apply globally and to all sectors and have been revised in the following ways:

The Principles apply to all project financings with capital costs above USD 10 The Principles now also apply to project finance advisory activities. The revised Principles now specifically cover upgrades or expansions of

million. This threshold was lowered from USD 50 million.

existing projects where the additional environmental or social impacts are significant. The approach in applying the Principles to countries with existing high Each EPFI is now required to report on the progress and performance of Stronger and better social and environmental standards, including more standards for environmental and social issues has been streamlined. Equator Principles' implementation on an annual basis. robust public consultation standards. NGOs welcomed the revisions but remained cautious, arguing that the EPs still suffered from fundamental governance and accountability problems. They want the EP banks to adopt more robust governance and implementation systems, such as a procedure for dealing with "free riders" and a regular reporting requirement.[2]

[edit] Annual Disclosure Reports

requirement of Principle 10.[3]

The Equator Principles website has a disclosure section which provides information on how the EP signatories are progressing with their annual disclosure reports, a The progress made by the 67 EP signatories on the October 2009 was as follows: 52 - Reported 12 - In the 1st year grace period 3 - No information made available

[edit] Institutions which have adopted the Equator Principles

See the Equator Principles website for the up to date list of adopting institutions http://www.equator-principles.com/

[edit] Criticism of the Principles

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 which alleged 127 breaches of the Principles. The banks and IFC said they were confident that the

Equator Principles were followed, and said an independent consultant had confirmed this assessment.[4][5][6] Another expressed concern was that the banks might lobby 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.[7] 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. Some NGOs say that one of the adopting banks, ABN AMRO, is the most climateunfriendly 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 say this is just over the annual CO2-emissions of the Netherlands and almost 1% of the total annual worldwide CO2-emissions. ABN AMRO defends its environmental record and has 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.[8]

[edit] See also

Ethical investing Ethical banking Global warming Income redistribution

Corporate social responsibility

Socially responsible investing Social security Special purpose entity Universal health care

[edit] References
1. 2. 3. 4. 5. 6.
^ New Equator Principles Released Today! Risky Business ^ B a n k T r a c k - private finance : a public interest ^ Equator Principles Signatories: Progress with Disclosure Risky Business ^ BTC Project is the First Major Test of the Equator Principles ^ www.abnamro.com/com/about/data/abnamro_btcpipeline.pdf ^ www.ifc.org/ifcext/btc.nsf/Content/MultistakeholderForumMeetingsReport

7. 8.

^ [1][dead link] ^ http://www.milieudefensie.nl/klimaat/publicaties/rapporten/bankenklimaatrapport

[edit] External links

http://www.equator-principles.com/ Official website of the Equator Principles. http://www.banktrack.org/?show=23&visitor=1 NGO website with fact sheet http://www.banktrack.org/?show=news&id=83 BankTrack comments on [2] Equator Principles website discussion of the BTC project criticism. [3] ABN AMRO report on its application of the Equator Principles to the BTC [4] IFC rebuttal of NGO criticism of its environmental and social assessment of [5] The Equator Principles and IFC Performance Standards in Mining. on the Equator Principles and critical comments. revised Equator Principles, July 7, 2006.

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