Equator Principles
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The Equator Principles is a set of voluntary environmental and social guidelines for ethical project finance. These principles commit banks and other signatories to not finance projects that fail to meet these guidelines. The principles were conceived in 2002 on an initiative of the International Finance Corporation and launched in 2003. Since then, dozens of major banks have adopted the Principles, and with these banks among them accounting for more than three quarters of all project loan market volume the Principles have become the de facto standard for all banks and investors on how to deal with potential social and environmental effects of projects to be financed. In July 2006, the principles were revised, increasing the scope and quality of the existing standards.
While regarding the Principles an important initiative, NGOs have criticised the Principles for not producing real changes in financing activities and for allowing projects to go through that should have been screened out by the Principles, such as the Sakhalin-II oil and gas project in Russia.
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[edit] The Principles
The Equator Principles state that endorsing banks will only provide loans directly to projects under the following circumstances:
- The risk of the project is categorized in accordance with internal guidelines based upon the environmental and social screening criteria of the International Finance Corporation (IFC).
- For all medium or high risk projects (Category A and B projects), sponsors complete an Environmental Assessment, the preparation of which must meet certain requirements and satisfactorily address key environmental and social issues.
- The Environmental Assessment report addresses baseline environmental and social conditions, requirements under host country laws and regulations, applicable international treaties and agreements, sustainable development and use of renewable natural resources, protection of human health, cultural properties, and biodiversity, including endangered species and sensitive ecosystems, use of dangerous substances, major hazards, occupational health and safety, fire prevention and life safety, socio-economic impacts, land acquisition and land use, involuntary resettlement, impacts on indigenous peoples and communities, cumulative impacts of existing projects, the proposed project, and anticipated future projects, participation of affected parties in the design, review and implementation of the project, consideration of feasible environmentally and socially preferable alternatives, efficient production, delivery and use of energy, pollution prevention and waste minimization, pollution controls (liquid effluents and air emissions) and solid and chemical waste management.
- Based on the Environmental Assessment, Equator banks then make agreements with their clients on how they mitigate, monitor and manage those risks through an 'Environmental Management Plan'. Compliance with the plan is required in the covenant. If the borrower doesn't comply with the agreed terms, the bank will take corrective action, which if unsuccessful, could ultimately result in the bank canceling the loan and demanding immediate repayment.
- For risky projects, the borrower consults with stakeholders (NGO's and project affected groups) and provides them with information on the risks of the project.
- If necessary, an expert is consulted.
The Principles apply to projects over 10 million US dollars.
In early 2006, the financial institutions behind the Principles launched stakeholder consultations and negotiations aimed at revising the principles. The draft revised principles [1] were met with criticism from NGO stakeholders, who in a joint position paper [2] argued that the draft fails by ignoring the most serious critiques of the principles: a lack of consistent and rigorous implementation.
Revised Equator Principles Launched in 2006
On the 6 July 2006, the Equator Principles Financial Institutions (EPFIs) announced the launch of the final revised Equator Principles. The revised principles reflect the recent revisions to the International Finance Corporation's (IFC) Performance Standards, upon which the Equator Principles are in part based. [3]
The Equator Principles apply globally and to all sectors and have been revised in the following ways:
• The Principles apply to all project financings with capital costs above USD 10 million. This threshold was lowered from USD 50 million.
• The Principles now also apply to project finance advisory activities.
• The revised Principles now specifically cover upgrades or expansions of existing projects where the additional environmental or social impacts are significant.
• The approach in applying the Principles to countries with existing high standards for environmental and social issues has been streamlined.
• Each EPFI is now required to report on the progress and performance of Equator Principles’ implementation on an annual basis.
• Stronger and better social and environmental standards, including more robust public consultation standards.
NGO's welcomed the revisions but remained cautious, arguing that the EP's still suffered from fundamental governance and accountability problems. They want the EP banks to adopt more robust governance and implementation systems, such as a procedure for dealing with "free riders" and a regular reporting requirement.[4]
[edit] Institutions which have adopted the Equator Principles
As of February, 2006, the following institutions have adopted the principles: ABN AMRO Bank, N.V., Banco Bradesco, Banco do Brasil, Banco Itaú, Banco Itaú BBA, Bank of America, BMO Financial Group, BTMU, Barclays plc, BBVA, BES Group, Calyon, CIBC, Citigroup Inc., Credit Suisse Group, Caja Navarra, Dexia Group, Dresdner Bank, EKF, FMO, Fortis, HSBC Group, HVB Group, ING Group, JPMorgan Chase, KBC, Manulife, MCC, Mizuho Corporate Bank, Millennium bcp, Nedbank Group, Rabobank Group, Royal Bank of Canada, Scotiabank, Standard Chartered Bank, SMBC, The Royal Bank of Scotland, Unibanco, Wells Fargo, WestLB AG, Westpac Banking Corporation,
[edit] Criticism of the Principles
NGO's have generally welcomed the principles, but have concerns over their integrity.
One of these is that the principles will not make a real difference. They argue the case of the Baku-Tbilisi-Ceyhan pipeline, which in 2004 was financed by several Equator Principle banks and the International Finance Corporation itself, despite an independent NGO assessment, which identified thirty breaches of the Principles.
Other issues include concerns that the International Finance Corporation will weaken the safeguard policies on which the Equator Principles are based, the lack of enforcement and accountability framework, free-riders, and that the scope of the principles is limited to project finance only [5].
[edit] See also
[edit] External links
- www.equator-principles.com Official website of the Equator Principles.
- www.BankTrack.org NGO website with fact sheet on the Equator Principles and critical comments.
- www.BankTrack.org BankTrack comments on revised Equator Principles, July 7, 2006.
