Forest 500

The Equator Principles (EPs) Association is a risk management framework for determining, assessing and managing environmental and social risk in projects. Adoption of the EPs is open to any financial institution that active in project finance, project finance advisory, and/or project-related corporate loans”. So far, 80 financial institutions in 34 countries have officially adopted the EPs, accounting for over 70 percent of international project finance debt in emerging markets.

The intention of the EPs is to set a minimum standard for due diligence to support responsible risk decision-making. The EP Association claims that the EPs have become the financial industry standard for environmental and social risk management in projects. Adoption of the principles is voluntary but once adopted members must implement and comply with them. EP members are required to report annually on their implementation processes and experience.

EP financial institutions commit to apply the EPs in their own internal environment and social policies; and also agree not to provide project finance or project-related corporate loans to projects where the client doesn’t comply with the EPs. The principles outline assessments of environmental and social risk, the preparation and implementation of social and environmental management plans, processes for stakeholder engagement, grievance mechanisms, and monitoring. Amongst other issues, the protection and conservation of biodiversity, and the sustainable use of natural resources are listed as potential issues to be addressed in the project risk assessment.

The effectiveness of the EPs has been questioned because it leads to a best-in-class approach to decision-making (e.g. investing in the cleanest coal power plants), rather than a straight yes or no policy (for example refusing investment in all coal power plants as a matter of policy). There is some concern that the EPs approach is not strong enough to deliver significant change in investment practices, however the it provides an opportunity to drive transformational change in investment practices.