The Equator Principles (EPs) 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.
The EP 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.
Currently 79 Equator Principles Financial Institutions (EPFIs) in 34 countries have officially adopted the EPs, covering over 70 percent of international Project Finance debt in emerging markets.
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 EP.
While the EP 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 EPs 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 EPs.
The EPs 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
The 10 Equator Principles which 79 FIs subscribe to (including government backed entities eg KFW; Export Dev Bank Canada) cover the follow (more detail in annex 2)
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
Principle 7: Independent Review .
Principle 8: Covenants
Principle 9: Independent Monitoring and Reporting
Principle 10: Reporting and Transparency .