New Equator Principles draft focuses on social and climate impact

New version of project finance guidelines for banks

A new draft of the influential Equator Principles (EP), which guide global banks on ethical and sustainability criteria for the financing of large scale infrastructure projects, has broadened out its recommendations on the environmental and social impact of investments. The draft changes aim to strengthen the voluntary principles by extending them to cover project-related corporate loans and bridge loans as well as introducing new requirements for managing climate impacts, delivering more stringent reporting and transparency requirements, and placing a greater emphasis on human rights.
The expanded Equator Principles acknowledge the influence of the UN’s 2011 “Protect, Respect and Remedy” Framework for Business and Human Rights and Guiding Principles on Business and Human Rights, put together by Professor John Ruggie.
On climate, there is a new requirement for banks to make an analysis of alternatives including less carbon intensive fuel sources and technologies for projects emitting over 100,000 tonnes CO2 equivalent.
The Principles also include a new requirement for borrowers to publicly report on emissions for projects emitting over 100,000 tonnes CO2 equivalent.

The Equator Principles are designed to help banks and institutional investors identify, assess, and manage environmental and social risks of deals.They were launched in June 2003 and have been endorsed by 77 financial institutions in 32 countries.
The new draft – Equator Principles III – is now open for consultation for two months and there are a series of webinars and meetings planned to discuss the changes.
The original 10 principles required financial institutions to undertake social and environmental assessments before approving project finance deals.
Leonie Schreve, head of environmental and social risk at ING who chairs the EP Association Steering Committee, called on members to provide feedback. She said the association wanted to make sure that the framework “remains the standard in the financial industry for assessing and managing environmental and social risk”.
The draft follows extensive consultation with members and aims to reflect the “diverse range of member policies, practices, cultural settings, client relationships, risk appetites, and legal boundaries”.
The consultation period runs until October 12.