Legalese: The Equator Principles

Introduction

In June 2003 certain private sector banks led by Citigroup, ABN AMRO, Barclays and WestLB developed the Equator Principles. The Equator Principles are a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing. Financial institutions who adopt the Equator Principles are committed to lending to projects that are developed in a manner that is socially responsible and reflect sound environmental management practices which implement the Equator Principles. Accordingly, the Equator Principles have grown to become the de facto standard for banks and investors on how to assess major development projects around the world.

Strategic Review

The Equator Principles Association (the "ERA") announced on 19th October 2010 the launch of a strategic review process (the "Review") to ensure that the Equator Principles continue to be seen as "gold standard" in environmental and social risk management for project finance within the financial sector. The reason for the Review is the fact that the number of financial institutions that have adopted the Equator Principles has expanded from 10 in 2003 to over 65 in 2010 and, therefore, the social and environmental challenges that concern and impact communities and the environment have expanded as a result.

The stated aims of the Review are to:

  • take stock of the current state of the Equator Principles and develop a better understanding of the challenges and successes to-date.
  • identify perceived areas of strength and weakness in the current Equator Principles framework.
  • prioritise recommended action points that will lead to the successful implementation of the vision/plan, and prepare for a likely update of the Equator Principles in 2011 following the conclusion of the International Finance Corporation Performance Standards Review and Update process.

The Review is to be managed by the EPFI Steering Committee, the global environmental consultancy Environmental Resources Management and the sustainable banking consultant Suellen Lazarus.

Findings

The Review will continue through to the first quarter of 2011. The Review’s findings will be made available to the public following discussion and agreement by the EPFI Steering Committee.