Washington, United States
Sixty of the world's leading financial institutions today mark the fifth anniversary of the Equator Principles (EPs), voluntary standards for financial institutions to manage environmental and social risk in their project finance transactions.
The EPs have become the global standard for project finance and have transformed the funding of major projects globally. In 2007, of the US$74.6 billion total debt tracked in emerging markets, US$52.9 billion was subject to the EPs, representing about 71 per cent of total project finance debt in emerging market economies, according to Infrastructure Journal.
The EPs are now considered the financial industry 'gold standard' for sustainable project finance. The Principles were revised in June 2006 to reflect current implementation experience including introduction of a public reporting requirement, as well as changes made by the International Finance Corporation (IFC) to its environmental and social standards. They continue to evolve as more sophisticated funding is undertaken.
An Outreach Committee has been formed and is actively engaged with banks in China, Russia, India and other key emerging markets. Stakeholder engagement remains an important element of the EP's implementation and the group regularly meets to share experiences with various stakeholders.
Governance procedures previously handled on an informal basis are now being formally instituted to ensure long-term viability and ease of management of the Equator Principles Financial Institutions (EPFIs). These include formalizing the EPFI's operating structure, voting procedures and annual meeting arrangements, and monitoring of fulfillment of the public reporting requirement. The EP website continues to be developed to provide greater transparency. The EPFI's management structure is now posted on the website along with direct links to the annual reports of 53 financial institutions describing their implementation experience.
The EPs' success lies in the cooperation and trust among the participating financial institutions working to achieve a common good. Institutions implement the EPs independently, always maintaining client confidentiality, while sharing best practice, to ensure an evolving and improving standard.
Although limited to project finance, the EPs have helped spur the development of other responsible environmental and social management practices in the financial sector and banking industry. Other business areas have benefited from the spillover effect improving environmental outcomes throughout the banking industry. For example, in the US several banks recently announced their adoption of the Carbon Principles to manage carbon risk in thermal power investments.
The EPs have promoted convergence around common environmental and social standards. Multilateral development banks, including the European Bank for Reconstruction & Development (EBRD), and export credit agencies through the OECD Common Approaches are increasingly drawing on the same standards as the EPs. Such convergence will result in improved environmental and social outcomes as project sponsors begin implementing these standards from the earliest stages of project planning and design.
When first launched in June 2003 in Washington DC, 10 initial adoptees agreed to lend only to those projects where the borrower provided evidence of compliance with these standards, and committed to developing them in a socially responsible manner and according to sound environmental management practices.
The financial institutions agree that they will "not provide loans directly to projects where the borrower will not or is unable to comply with our environmental and social policies and procedures." The 60 institutions that today apply the EPs recognize their role and responsibility for promoting sustainable investment. The EP framework, based on environmental and social standards of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, now apply to projects with capital costs above USD10 million.
These 60 financial institutions constitute a broad cross-section of the financial industry including most of the world's major banks as well as insurance companies, bilateral development agencies, and export credit agencies. They also represent a wide geographic distribution coming from all continents and include banks from Argentina, Brazil, Chile, Uruguay, Togo, South Africa and Oman.
Note to editors:
Full text of the EPs is available at www.equator-principles.com including translations in Chinese,
French, Japanese and Russian. Translations in Portuguese and Spanish will follow.
The full list of Equator Principle Financial Institutions are: http://www.equator-principles.com/
For Frequently Asked Questions about the Equator Principles, go to:
http://www.equator-principles.com/faq.shtml
Source: Business Wire (Business Wire India)