The next stage in the Equator Principles Association’s review of its sustainability risk framework for banks has been delayed due to “differences in views” between member financial institutions, said the association’s chair, Nigel Beck.
The association, the target last month of a Yes Men hoax, announced its review of the Equator Principles in November 2017, following pressure from investors, member banks and NGOs, who expressed concerns that the framework was no longer fit for purpose.
Now, in an update of the review, the association has revealed that a draft text of the fourth iteration of the principles has now been completed by law firm Norton Rose Fulbright.
But it added that the “external stakeholder consultation phase has been delayed”.
It was expected to start in February, but has been pushed back until the “draft text has been approved for public release by the Association members” – predicted to now be in July.
Beck, who is also Group Head of Environmental & Social Risk and Finance at Standard Bank Group, told RI that the delay was due to “additional deliberation on the proposed changes to Principle 5”.
Principle Five relates to ‘stakeholder engagement’, principally the responsibility of member financial institutions to “demonstrate effective stakeholder engagement as an ongoing process in a structured and culturally appropriate manner with Affected Communities and, where relevant, Other Stakeholders”.
Beck added that “differences in views” can be “expected in an organisation with 96 diverse members working in across many jurisdictions”.Established in 2003, and last updated in 2013, the EPs were created to be a “minimum standard” to ensure projects financed are “developed in a manner that is socially responsible and reflects sound environmental management practices”.
Financial institutions in 37 countries have adopted the Principles, covering over 70% of international project finance debt in emerging markets.
But in May 2017, 10 member banks wrote to the association saying that some banks – and the principles themselves – were suffering reputational damage because of a lack of leverage the principles had in relation to a recent “project located in a Designated Country”– believed to be the controversial Dakota Access Pipeline (DAPL) project in the US.
Projects in ‘designated’ countries – such as the US – are currently not held to the same standards as ones in ‘non-designated’ countries, on the assumption that laws there match or exceed the International Finance Corporation (IFC) Performance Standards.
The eventual external consultation on the proposed changes will be conducted by sustainability non-profit group BSR and will involve webinars and face-to-face sessions for a “sub-set of invited participants”.
On the scope of the likely changes, Beck said it “was always foreseen as a targeted update, and the level of changes in the draft is in line with that”.
The final text is due to be released in late 2019, followed by a “transition period” to allow members to implement any changes.