The Equator Principles isa risk management framework, adopted by financial institutions, for determining, assessing and managing environmental andsocial risk in project finance. It is primarily intended to provide aminimum standard for due diligence to support responsible risk decision-making.As at April 2018, 92 adoptingfinancial institutions in 37 countries have officially adoptedthe Equator Principles, covering the majority of international Project Financedebt in emerging and developed markets. The Equator Principles, formallylaunched in Washington DC on 4 June 2003, were based on existing environmentaland social policy frameworks established by the International Finance Corporation.

Thestandards have subsequently been periodically updated into what is commonlyknown as the International Finance Corporation Performance Standards on socialand environmental sustainability and on the World BankGroup Environmental, Health, and Safety Guidelines. The EquatorPrinciples have recently been revised and the third iteration of the EquatorPrinciples was launched on 4 June 2013. The Equator Principles are currently under review,with the intent of developing their fourth iteration during 2018-2019.

TheEquator Principles apply globally, to all industrysectors and (within in EPIII) to four financial products 1) ProjectFinance Advisory Services 2) Project Finance 3) Project-Related Corporate Loansand 4) Bridge Loans. The relevant thresholds and criteria for application isdescribed in detail in the Scope section of the Equator Principles.

EquatorPrinciples Financial Institutions (EPFIs) commit to implementing the EP intheir internal environmental and social policies, procedures and standards forfinancing projects and will not provide Project Finance or Project-RelatedCorporate Loans to projects where the client will not, or is unable to, complywith the Equator Principles. While the Equator Principles are not intended tobe applied retroactively, EPFIs apply them to the expansion or upgrade of anexisting project where changes in scale or scope may create significantenvironmental and social risks and impacts, or significantly change the natureor degree of an existing impact.

TheEquator Principles have greatly increased the attention and focus onsocial/community standards and responsibility, including robust standards forindigenous peoples, labour standards, and consultation with locally affected communitieswithin the Project Finance market. They have also promoted convergence aroundcommon environmental and social standards. Multilateral development banks,including the European Bank for Reconstruction & Development, and exportcredit agencies through the OECD Common Approaches are increasingly drawing onthe same standards as the Equator Principles.

TheEquator Principles have also helped spur the development of other responsibleenvironmental and social management practices in the financial sector andbanking industry (for example, Carbon Principles in the US, Climate Principlesworldwide) and have provided a platform for engagement with a broad range ofinterested stakeholders, including non-governmental organizations (NGOs),clients and industry bodies.

Members &Reporting

Asof April 2017, 89 financial institutions in 37 countries have officiallyadopted the Equator Principles. Their annual reporting related to Principle 10is available here.

The Principles

Principle1: Review and Categorisation

Principle2: Environmental and Social Assessment

Principle3: Applicable Environmental and Social Standards

Principle4: Environmental and Social Management System and Equator Principles ActionPlan

Principle5: Stakeholder Engagement

Principle6: Grievance Mechanism

Principle7: Independent Review

Principle8: Covenants

Principle9: Independent Monitoring and Reporting

Principle10: Reporting and Transparency

Criticism

NGOshave generally welcomed the Principles, but some have expressed concerns overtheir integrity.

Oneof these is that the Principles will not make a real difference. They argue thecase of the Baku-Tbilisi-Ceyhan pipeline, which, in2004, was financed by eight Equator Principles' banks and the IFC despite anNGO assessment that found 127 alleged breaches. The banks and IFC said theywere confident that the Equator Principles were followed, and said anindependent consultant had confirmed this assessment.

Anotherexpressed concern was that the banks might lobby theIFC to weaken its standards on which the Principles are based. The banks pointout that IFC revised and strengthened its policies in 2006 and that the bankscorrespondingly strengthened the Equator Principles in the same year. Othercriticisms include alleged lack of enforcement and accountability, free-riders, and that the scope of theprinciples is limited to project finance only.[citationneeded] Several banks have sought to address these concerns bypublishing summaries of their Equator Principles screening, including thenumber of projects they turned down for noncompliance.

In2005 some NGOs said that one of the adopting banks, ABN AMRO (before it wassplit up in 2010), was the most climate-unfriendly bank in the Netherlands,with estimated annual indirect CO2 emissions of almost 250 million tonnesin 2005 from industries to which it provides financial services. NGOs said thiswas just over the annual CO2-emissions of the Netherlands and almost 1% of thetotal annual worldwide CO2 emissions at the time. ABN AMRO defended itsenvironmental record and announced steps to reduce its direct emissions, butsome NGOs say it is the indirect emissions through their clients that makeglobal banks such important targets in climate change.

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