Equator Principles banks fail to comply in most risky projects, says study

BankTrack urges body to ramp up oversight of members, as report reveals high-levels of non-compliance

Dutch NGO BankTrack has called on the Equator Principles to ramp up oversight of its members – and kick out laggards – after finding that member banks fail to meet the requirements of the sustainability risk framework for most “high risk” projects they finance.

BankTrack found that the implementation of grievance mechanisms or stakeholder engagement processes, required by the Principles in high-risk projects, were not evidenced in 24 out of 37 projects it analysed (65%).

In 16 cases (43%), there was no evidence of either a grievance mechanism or stakeholder engagement process, according to the study. 

Projects analysed were in sectors such as oil, gas, hydropower and mining. 

The fallout from one such project – the controversial Dakota Access Pipeline  (DAPL) in the US – is understood to have been the prompt for the most recent review of the Equator Principles, which ended late last year. 

The publication of the fourth iteration of the Equator Principles followed a review process beset by delays, rumours of rifts between bank members, and even a hoax by pranksters the Yes Men. Both investors and civil society expressed disappointment at its lack of ambition. The final version is expected to be ready for implementation later this year.

In its new briefing paper Trust us, we’re Equator Banks, BankTrack warns that compliance with the Principles cannot be taken on good faith, and calls on the Equator Principles Association (EPA) to ensure members create “compliance reports” for projects, setting out how each of the ten principles has been implemented, including links “to grievance processes and other key documents”. 

The NGO also adds that any member bank that “repeatedly does not show evidence of EP compliance” should have its membership revoked.

The EPA is also urged by BankTrack to “create an initiative-level accountability mechanism”, which allows “project-affected communities, or their legitimate representatives, to raise instances of alleged non-compliance with the EPs by Equator banks”. 

There is increasing scrutiny on member-based organisations in the sustainable finance sphere, with calls mounting for stricter monitoring to avoid organisations signing up for publicity reasons. Last month, the Principles for Responsible Banking’s signed off on its own mechanism for dealing with signatories not living up to their commitments under the UN-backed initiative. In the coming weeks, the Principles for Responsible Investment is also expected to delist signatories that do not meet its minimum requirements, following two years of engagement.

Some members of engagement initiative Climate Action 100+ have called out asset managers for using the profile of the network as a substitute for making real commitments.   

108 banks across 38 countries have officially adopted the Equator Principles. Recent members include Deutsche Bank, China’s Mian Yang City Commercial Bank and Development Bank of Japan.

“The Equator Principles Association and signatory banks should not be asking its stakeholders to take Equator Principles compliance on trust, particularly given the record of disastrous projects like the Dakota Access Pipeline in the US and the Agua Zarca dam in Honduras being financed under the Principles”, said Hannah Greep, Equator Principles Campaigner at BankTrack. 

“As the banks prepare to begin implementing the new version of the Principles, EP4, in October, we will need to see evidence that they are being implemented in full. It is in the interests of those banks that do follow their own rules not to allow free riders.” 

The Equator Principles secretariat told RI that it does “not respond to such reports on behalf of the EPA per the EPA Governance Rules”.