Markets working to support sustainable development

The Equator Principles III

Financial Institutions that sign the Equator Principles (EPFIs) can ensure that the projects they fund are developed in a way that pays attention to social and environmental issues.

Scope

The Principles are global and they can be applied across all industry sectors through four financial products - these are: project finance advisory services; project finance; project related corporate loans; and bridge loans. Projects must have total project capital costs of USD 10 million or more. 

Equator Principles III

  • Review and Categorisation - Proposed projects are categorised by virtue of their potential impacts and risks.
  • Social and Environmental Assessment
  • Applicable Social and Environmental Standards - e.g IFC Performance Standards and EHS guidelines from IFC and the World Bank.
  • Action Plan and Management System
  • Stakeholder Engagement - affected communities must be consulted and the public must be allowed to see the assessment documentation
  • Grievance Mechanism – the borrower must establish a grievance mechanism that allows concerned parties to voice concerns and resolve issues.
  • Independent Review – an independent social or environmental expert will review the project assessment, action plan and consultation process document.
  • Covenants – there are a number of covenants that must be signed in the financing documentation. These are related to compliance with laws, the action plan that is agreed, provision of periodic reports and decommissioning of the facilities at the end of their life time.
  • Independent Monitoring and Reporting – of project activities. 
  • Reporting and Transparency – must report annually on implementation of EPs.

Adoption of these principles is designed to bring benefits to investors, borrowers and local stakeholders. These principles are a recognition of the role that financers can have in promoting ‘environmental stewardship and socially responsible development’.

Market coverage: 

There are currently 80 financial institutions in 34 countries that have adopted the Equator Principles. These reportedly cover 'over 70 percent of international project finance debt in emerging markets.' Some selected examples of adopters include: ABN-AMRO; Bank of America; Citigroup; Lloyds; Standard Chartered; Credit Agricole; Rabobank; Societie Generale. A full list can be seen through the links provided below.

Background information: 

The Equator Principles were first released in 2003 after initial meetings were held between nine international banks and the World Bank Group’s International Finance Institution (IFC) in London, 2002. The latest version - III - was published in June 2013. 

Funding source: 

There is an annual fee payable by the EPFIs to cover the costs of the management, administration and development of the principles. How much this is, is not publically available, however. The annual fee for 2013 is £3,290.

Notable information: 

The Principles are based on the standards used by the IFC in emerging markets. It has also been reported that the Principles have contributed to the development of other mechanisms in the financial sector and banking industry, for example the Carbon Principles (in the US and worldwide).

Sector: