Equator Principles

The Equator Principles (EPs) is a voluntary risk management framework designed to help determine, assess, and manage environmental and social risk in projects. It aims to provide a minimum standard for due diligence and monitoring, and is applicable to all industry sectors globally, and to five financial products: 1) Project Finance Advisory Services, 2) Project Finance, 3) Project-Related Corporate Loans, 4) Bridge Loans, and 5) Project-Related Refinance, and Project-Related Acquisition Finance. Climate change is one of a multiple sustainability-related topics addressed by the principles.

The most recent Equator Principles 4 (EP4) were released on 18 November 2019 and came into effect on 1 October 2020. These have been adopted by 123 financial institutions in 37 countries in their internal environmental and social policies, procedures and standards for financing projects.

EP4 includes 10 principles:

• Principle 1 – Review and Categorization
• Principle 2 – Environmental and Social Assessment
• Principle 3 – Applicable Environmental and Social Standards
• Principle 4 – Environmental and Social Management System and Equator Principles Action Plan
• Principle 5 – Stakeholder Engagement
• Principle 6 – Grievance Mechanism
• Principle 7 – Independent Review
• Principle 8 – Covenants
• Principle 9 – Independent Monitoring and Reporting
• Principle 10 – Reporting and Transparency

In 2010, the Equator Principles Association (EPA) was formed to gather Equator Principles Financial Institutions (EPFIs) with the objective of ensuring the management, administration, and development of the EPs.

Why it matters 

The Equator Principles have become the financial industry standard for environmental and social risk management in project finance.

Adopting the Equator Principles helps ensure projects financed by financial institutions are developed in a socially responsible manner, with sound environmental management practices, therefore avoiding negative impacts on ecosystems and communities affected by projects where possible and mitigating unavoidable impacts as appropriate.

Adherence to the Equator Principles allows better assessing, mitigating, documenting, and monitoring the credit and reputation risk associated with financing development projects.

The collaboration between EP adopters and their stakeholders helps knowledge transfer, learning, and best practice development

The EPA allows knowledge transfer and best practice development across project stakeholders, including on the implementation of climate-related requirements such as the quantification and reporting of greenhouse gas emissions, and the assessment of climate change risks.

Main areas of work related to climate mainstreaming:

The Equator Principles Association Steering Committee has created Working Groups to discuss and provide guidance to Equator Principles Financial Institutions (EPFIs) and/or their stakeholders on issues associated with the management, administration or development of the EPs. These Working Groups include a Climate Change thematic group.

The Equator Principles have issued a guidance note on climate change risk assessment and alternative analysis of project GHG emissions. The guidance note covers physical risks, transition risks, time frames for assessing climate-related risks, and data reference and tools, as well as key considerations for such assessments.