The Equator Principles

The Equator Principles are a risk management framework, created and adopted by financial institutions, for determining, assessing and managing environmental and social risks in financing projects. Currently, 118 Equator Principles Financial Institutions (EPFIs) in 37 countries worldwide have officially adopted the EPs, covering over 70 percent of international Project Finance debt in emerging markets. Since their introduction in 2003, the Principles have become the de facto standard for all banks and investors on how to deal with potential and environmental effects of large scale projects to be financed.

The EPs apply globally, to all industry sectors and to five financial products:

1. Project Finance Advisory Services (where total project capital costs are US$10m or more)
2. Project Finance (where total project capital costs are US$10m or more)
3. Project-Related Corporate Loans (under certain circumstances, e.g. where the EPFI’s total commitment is at least US$50m)
4. Bridge Loans (under certain circumstances)
5. Project-Related Refinance and Project-Related Acquisition Finance (from EP4, under certain circumstances)

For full details of the circumstances under which the EPs apply, see the ‘scope’ section of the Principles.

EPFIs commit themselves to implement the EPs in their internal environmental and social policies, procedures and standards for financing projects. According to the Principles, an EPFI will not provide finance services where the client will not, or is unable to, comply with the EPs.

The EPs consist of 10 different Principles, summarised in the figure below.

The most recent version of the EPs is EP4, which was agreed upon in November 2019 and came into effect on 1^st October 2020.

BankTrack and the Equator Principles

Since the adoption of the EPs in 2003, BankTrack has acted as a watchdog on the EPs and their implementation. We have conducted analyses of projects financed ‘under Equator’ to examine their compliance with the EPs, and analysed aspects of EP implementation including reporting, transparency and project-level grievance mechanisms. BankTrack also led the “Equator Banks, Act!” campaign (see below), and continues to facilitate civil society engagement with the Equator Principles Association (EPA).

Compliance reporting

BankTrack has published reports analysing three Equator projects, highlighting how these projects are non-compliant with the minimum social and environmental standards established by the Equator Principles:

• In June 2015 BankTrack produced an analysis of the Rampal Coal-fired power plant project in Bangladesh, which found serious deficiencies in the project design, planning, implementation and due diligence obligations of the project.
• In February 2017, BankTrack and CounterBalance produced an analysis of the Trans-Adriatic Pipeline project which runs through Albania, Greece and Italy. The report found that the project was in non-compliance with five out of the ten Equator Principles.
• In March 2017 BankTrack and Greenpeace analysed the Cirebon 2 Coal Power Plant in Indonesia. It found that the project carries significant risks for local communities and the environment which were not properly assessed or mitigated, and that affected communities were not properly informed and consulted on the project.

In addition to these three projects, the BankTrack website includes profiles of numerous projects financed ‘under Equator’.

“Equator Banks, Act!” Campaign

In 2017, following the financing by Equator banks of the Dakota Access Pipeline Project, BankTrack together with a coalition of civil society groups and Indigenous organisations launched the Equator Banks, Act! campaign, aimed at achieving a major overhaul of the Equator Principles which would stop Equator finance for new fossil fuel projects and protect Indigenous Peoples’ rights. While the campaign was instrumental in bringing about to a revision of the Equator Principles beginning in 2018, the resulting EP4 did not achieve the campaign’s aims.

Reporting and Transparency

EPFIs are required to publicly disclose the names of projects they have provided with project finance loans under the Principles each year. This reporting is subject to obtaining client consent, applicable local laws and regulations, and to no additional liability for the EPFI as a result of reporting in certain identified jurisdictions. Details of projects reported by each EPFI can be found on the website of the EPA. Due to problems with the way this information is reported, BankTrack has compiled this reporting into an easily searchable database, updated on a quarterly basis, which includes reporting data since deleted from the EPA website.

Access BankTrack’s Equator Reporting Database here.

In February 2020, BankTrack analysed EP reporting and engaged with the EPA to seek improvements in a number of areas. Problems with EPFI reporting include: the requirement for client consent (which could simply be written into loan agreements as standard); the fact that only two years’ worth of reporting is stored on the EPA website; and that project name information is only reported on a bank-by-bank basis. It is currently not possible to search the EPA website to find out which banks financed which project. Similarly it is not possible to search projects financed by sector, country, or categorisation. This would all be feasible if the same data were presented in a more accessible database format.

In September 2020, we created a new table tool to track the reporting status of EPFIs in their most recent reporting period. Despite the requirement for EPFIs to publicly disclose the total number and names of projects they have provided project finance loans to under the Principles each year, project name reporting remains patchy. Project name reporting is subject to obtaining client consent, which often results in many project names not being publicly reported by EPFIs. This problem could easily be solved by EPFIs requiring the project name to be reported as a requirement of the loan agreement. This table is updated on a quarterly basis.

Access BankTrack’s EPFI Reporting Status Table here.

We continue to engage with the EPA on reporting and transparency to advocate for further improvements.

Grievance Mechanisms and Stakeholder Engagement

BankTrack has called for greater accountability under the EPs since the start of the initiative. In 2019 we joined a call from 79 civil society organisations and partners for the Equator Principles to develop a central accountability mechanism. We were disappointed that the EPA did not take the opportunity to announce the development of such a mechanism as part of EP4. We welcome the announcement that the Operations Working Group will further consider access to remedy and may address grievance handling through Governance Rules updates, and continue to engage with the EPA to push for an EP level grievance mechanism.

Although the EPs require the establishment by project sponsors of project-level grievance mechanisms for all Category A projects and for Category B projects “as appropriate”, there are still no formal means by which project-affected people or their representatives can raise instances of alleged non-compliance with the Equator Principles, with banks or with the EPA.

In August 2020, we conducted the first instalment of research into a group of 37 projects financed ‘under Equator’ in high-risk sectors such as oil, gas, mining and hydropower. We found that the existence of a stakeholder engagement process or project-level grievance mechanisms could not be evidenced in 24 out of 37 projects analysed (65%). In 16 cases (43%), neither could be found. This research represents the first systematic evaluation of whether aspects of the Equator Principles are being followed and the results call into question the extent to which the EPs are actually being adhered to on the ground.

The second instalment of research into this topic, published in November 2020, analysed the effectiveness and adequacy of stakeholder engagement and project-level grievance mechanisms under the Equator Principles for a set of nine projects financed 'under Equator' since 2016. This found that communities affected by projects financed under the Principles report that consultation is unsatisfactory and they are unable to seek redress through effective accountability mechanisms. This is despite the Principles requiring that effective stakeholder engagement and project-level grievance mechanisms are put in place.