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DRAFT OF UPDATED EQUATOR PRINCIPLES (EP III)
RELEASED MONDAY 13 AUGUST 2012
This package includes an Introduction, a Summary of Proposed Key Changes and Areas of Development, the
draft of EP III (clean), the draft of EP III (marked up in track changes) and a Frequently Asked Questions
document.
INTRODUCTION
The Equator Principles (EP) Association released the draft of the updated Equator Principles (EP III) for
stakeholder consultation and public comment on 13 August 2012.
The formal stakeholder consultation and public comment period will continue for a minimum of 60 days giving
all interested parties and stakeholders (including EP Association members, other financial institutions, clients,
industry bodies and associations, non-governmental organisations, consultants, law firms and regulatory
bodies) an opportunity to review the EP III draft and provide comments.
The EP Association is committed to openness, transparency and responsiveness and will consider all
stakeholder feedback. You can submit your views and participate in the process in one or more of the
following ways:
• Complete the online submission form.
• Email comments to [email protected].
• Participate in a webinar and/or face-to-face meeting – details are published on the EP III web pages.
Note that places are limited and by invitation only – you can register your interest in attending by
emailing [email protected].
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SUMMARY OF PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT
KEY TOPIC RELEVANT SECTION DESCRIPTION
Structure and
Language
All • The document has been divided in to 3 distinct sections to
enable clear distinction between mandatory requirements
in Main Text and Annexes, and supporting information in
the Exhibits:
1. Main Text – Preamble, Scope and Statement of
Principles.
2. Annexes – This contains implementation requirements
for applying certain aspects of the EP framework. The
content of the Annexes are an integral part of the EP
and the requirements within them are mandatory.
3. Exhibits – This contains supporting information
including a new Glossary of Terms.
• Several footnotes have been incorporated in the main text
or added to the Glossary of Terms.
• Several Principles have been shortened and language has
been adjusted or clarified.
• The document language has been refined to align with
new/changed language in the 2012 IFC Performance
Standards.
Scope • Scope
• Principles 2, 4, 7,
and 9
• Exhibit I
• The inclusion of Project-Related Corporate Loans
(Corporate Loans related to one specific project) subject
to a US$100m threshold and a loan tenor of at least 2
years. It should be noted that general corporate purposes
loans are excluded from the scope of the EP (refer to the
Scope section of the EP III draft for the criteria).
• The inclusion of Bridge Loans that will be refinanced by
Project Finance or a Project-Related Corporate Loan.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Categorisation • Principle 1
• Exhibit I in EP II
• Exhibit I has been deleted and Categorisation has been
included in the main text. It should be noted that further
guidance material on Categorisation will be developed.
Climate
Change
• Principle 2 and
10
• Annex A
• There is a new requirement for an analysis of alternatives,
including less carbon intensive fuel sources and
technologies, for projects emitting over 100.000 tonnes
CO2 equivalent. It should be noted that the alternatives
analysis is based on the requirements stipulated in theupdated IFC Performance Standards.
• There is a new requirement for borrowers to publicly
report on emissions for projects emitting over 100.000
tonnes CO2 equivalent.
• It should be noted that further guidance material on
implementation of these requirements will be developed.
Applicable
Environmental
and Social
Standards
• Preamble
• Principle 3
• Various other
Principles
• An overarching statement regarding the application of the
EP framework in High-Income OECD Countries has been
included in the Preamble.
• Principle 3 now provides clarity to EPFIs and clients on the
meaning and intent of the application of standards in
different jurisdictions. Where possible, reference to
application in High-Income OECD Countries has been
deleted from individual Principles.
• Principle 3 now states that the EPFI, at its sole discretion,
may seek to benchmark projects in these countries against
these or other internationally recognised environmental
and social assessment standards.
Action Plan
and
Managementsystems
• Principle 4
• Exhibit I
• The definition and purpose of an Action Plan, and related
management plans has been clarified.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Stakeholder
Engagement
and Human
Rights
• Preamble
• Principles 5, 6
and 10
• Exhibit I
• Exhibit II
• New language in the Preamble and Exhibit II
acknowledges the UN "Protect, Respect and Remedy"
Framework for Business and Human Rights and Guiding
Principles on Business and Human Rights, and the
importance of human rights in the due diligence process.
• Principles 5 and 6 include new language related to
Stakeholder Engagement (replacing the current
Consultation and Disclosure) to reflect the updatedlanguage in the IFC Performance Standards on stakeholder
engagement hierarchy.
• The text referencing Free, Prior and Informed Consent for
projects in non-OECD countries and OECD countries not
designated as High-Income has been inserted so that it
reflects the important changes in the IFC Performance
Standards.
• Principle 6 has been shortened to reduce duplication of
the requirements in the IFC Performance Standards.
• Assessment disclosure requirements have been moved to
Principle 10.
Covenants • Principle 8, 2 and
4
• The requirement for covenants now explicitly refers to all
projects.
• Requirements for Bridge Loans and Project Finance
Advisory services have been included in Principle 2 and
Principle 4.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Reporting and
Transparency
• Principles 2, 5
and 10
• Annex B
• Principle 10 now includes all reporting and disclosure
requirements and is divided in to “Project Reporting” and
“EPFI Reporting”.
• Annex B includes detailed requirements for EPFI reporting.
• In addition to the client’s responsibility to disclose the
project Environmental Impact Assessment (EIA) locally,
the text now includes the requirement to disclose the EIAand Environmental and Social Management Plan (ESMP)
(which is normally a component of the EIA), online unless
the borrower does not have a company website.
• Annex B also includes a new requirement to provide,
subject to borrower consent, a list of projects for
publication on the EP website.
• It should be noted that a grace period for reporting onProject-Related Corporate Loans will be reflected in EP
Association Governance Rules.
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OFFICIAL FIRST DRAFT OF EP III
FOR PUBLIC CONSULTATION
13 AUGUST 2012
1
2
3
4
5
6
7
8
9
10
11
THE EQUATOR PRINCIPLES12
[DATE TBC]13
14
A financial industry benchmark for determining, assessing15
and managing environmental and social risk in projects16http://www.equator-principles.com 17
18
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CONTENTS19
20PREAMBLE ................................................................................................................................... 221
22SCOPE .......................................................................................................................................... 323
24STATEMENT OF PRINCIPLES .......................................................................................................... 325
26Principle 1: Review and Categorisation .............................................................................................. 427
28Principle 2: Environmental and Social Assessment ............................................................................ 429
30Principle 3: Applicable Environmental and Social Standards.............................................................. 531
32Principle 4: Environmental and Social Management System and Action Plan ................................... 533
34Principle 5: Stakeholder Engagement ................................................................................................. 635
36Principle 6: Grievance Mechanism...................................................................................................... 637
38Principle 7: Independent Review ........................................................................................................ 739
40Principle 8: Covenants ........................................................................................................................ 741
42Principle 9: Independent Monitoring and Reporting .......................................................................... 843
44 Principle 10: Reporting and Transparency .......................................................................................... 84546
DISCLAIMER ................................................................................................................................. 94748
ANNEXES: IMPLEMENTATION REQUIREMENTS ........................................................................... 104950
Note: The implementation requirements detailed in these annexes are an integral part of the Equator 51Principles and are mandatory requirements for Equator Principles Financial Institutions.52
53Annex A - Climate Change: Alternatives Analysis, Quantification and Reporting of Greenhouse54Gas Emissions .................................................................................................................................... 1055
56
Annex B - Minimum Reporting Requirements .................................................................................. 115758
EXHIBITS: SUPPORTING INFORMATION ...................................................................................... 135960
Exhibit I - Glossary of Terms .............................................................................................................. 136162
Exhibit II: Illustrative List of Potential Environmental and Social Issues to be Addressed in the63Environmental and Social Assessment Documentation ................................................................... 1764
65Exhibit III: IFC Performance Standards on Environmental and Social Sustainability and66Environmental, Health and Safety Guidelines .................................................................................. 1867
68
69
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PREAMBLE70
71 Large infrastructure and industrial Projects can have adverse impacts on people and on the72
environment. As financiers and advisors, we work in partnership with our clients to identify, assess73
and manage environmental and social risks and impacts in a structured way, and on an ongoing74
basis. Such collaboration promotes sound and sustainable environmental and social performance,75
and can lead to improved financial, environmental and social outcomes.76
77
We, the Equator Principles Financial Institutions (EPFIs), have adopted the Equator Principles in78
order to ensure that the Projects we finance are developed in a manner that is socially responsible79
and reflects sound environmental management practices. By doing so, negative impacts on Project-80
affected ecosystems, communities, and the climate should be avoided where possible. If these81
impacts are unavoidable, they should be minimised and compensated for, or offset appropriately.82
83
We believe that adoption of and adherence to the Equator Principles offers significant benefits to us,84
our borrowers, and local stakeholders through our borrowers’ engagement with locally affected85
communities. We therefore recognise that our role as financiers affords us opportunities to promote86
responsible environmental stewardship and socially responsible development, including fulfilling our87
responsibility to respect human rights by undertaking due diligence in accordance with the Equator88
Principles.89
90
The Equator Principles are intended to serve as a common baseline and framework for the91
implementation of each EPFI’s internal environmental and social policies, procedures and standards92
related to its financing of Projects. We will not provide Project related loans and Project Finance93
Advisory services, as described and per the requirements in the Scope, to Projects where the94
borrower will not, or is unable to comply with, the Equator Principles.95
96
The Equator Principles apply globally and to all sectors. In High-Income OECD Countries, relevant97
host country laws, regulations and permits generally meet or exceed the requirements of the98
Equator Principles. For Projects located in these countries, host country requirements may be used99as a substitute for the requirements in the Equator Principles.100
101
EPFIs review the Equator Principles from time-to-time based on implementation experience, and in102
order to reflect ongoing learning and emerging good practice.103
104
105
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SCOPE106
107The Equator Principles apply to the four financial products described below:108
109
1. Project Finance Advisory services where total Project capital costs are US$ 10 million or more.110
111
2. Project Finance with total Project capital costs of US$10 million or more.112
113
3. Project-Related Corporate Loans where all five of the following criteria are met:114
115
i. the loan is related to a single Project,116
ii. the total aggregate loan amount is at least US$100 million,117
iii. the EPFI’s individual Initial Exposure is at least US$50 million,118
iv. the loan tenor is at least two years, and119
v. the borrower has Effective Operational Control (either direct or indirect) over the120
Project.121
122
4. Bridge Loans with a tenor of less than two years that are intended to be refinanced by a Project123
Finance or Project-Related Corporate Loan. The requirements for Bridge Loans vary depending124
on the Project’s stage of development. 125
126
While the Equator Principles are not intended to be applied retroactively, EPFIs will apply them to127
the expansion or upgrade of an existing Project where changes in scale or scope may create128
significant environmental and/or social impacts, or significantly change the nature or degree of an129
existing impact.130
131
STATEMENT OF PRINCIPLES132
133
EPFIs will only provide Project related loans and Project Finance Advisory services, as described in134
the Scope, to Projects that conform to Principles 1-10 below:135
136
Recognising business confidentiality and applicable laws and regulations, mandated EPFIs will137
endeavour to share relevant environmental and social information with other mandated financial138
institutions with a view to seeking, where appropriate, consistent application of the Equator139
Principles to Projects financed. Any decision as to whether, or on what terms, to provide Project-140
Related loans and Project Finance Advisory services will be for each EPFI to make in accordance with141
their own risk management policies. Timing constraints may lead EPFIs considering a transaction to142
seek authorisation from their clients to start such information sharing before all relevant EPFIs are143
formally mandated. EPFIs expect clients to provide such authorisation on a best efforts basis.144
145
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Principle 1: Review and Categorisation146
147
When a Project is proposed for financing, the EPFI will, as part of its internal environmental and148
social review and due diligence, categorise such Project based on the magnitude of its potential risks149
and impacts. Such screening is based on the environmental and social categorisation scheme of the150
International Finance Corporation (IFC).151
152
Using categorisation, the EPFI’s environmental and social due diligence is commensurate with the153
nature, scale and stage of the Project, and with the level of environmental and social risks and154
impacts. The categorisation scheme is:155
156
Category A – Projects with potential significant adverse environmental and social risks and/or157
impacts that are diverse, irreversible or unprecedented;158
159
Category B – Projects with potential limited adverse environmental and social risks and/or impacts160
that are few in number, generally site-specific, largely reversible and readily addressed through161
mitigation measures; and162
163
Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.164
165
Principle 2: Environmental and Social Assessment166
167
Where EPFIs are providing Project Finance Advisory services or a Bridge Loan, EPFIs will make the168
client aware of the content, application and benefits of applying the Equator Principles to the169
anticipated Project. The EPFI will request that the client communicates to the EPFI its intention to170
adhere to the requirements of the Equator Principles when subsequently seeking financing. In their171
advisory capacity the EPFI will guide and support the client through the steps leading to Equator172
Principles application.173
174
For each Project assessed as being either Category A or Category B, the EPFI will require the175
borrower to conduct an Environmental and Social Assessment (“Assessment”) process to address, as176
appropriate and to the EPFI’s satisfaction, the relevant environmental and social risks and impacts of 177
the proposed Project (which may include, if relevant, the illustrative list of issues found in Exhibit II).178
The Assessment should also propose measures to prevent, mitigate and manage adverse impacts in179
a manner relevant and appropriate to the nature and scale of the proposed Project.180
181
The Assessment will be an adequate, accurate and objective evaluation and presentation of the182
risks, whether prepared by the borrower, consultants or external experts. The Assessment183
document may comprise a full-scale environmental and social impact assessment, a limited or184focused environmental or social assessment (e.g. audit), or straight-forward application of 185
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environmental siting, pollution standards, design criteria, or construction standards. One or more186
specialised studies may also need to be undertaken.187
188
Regardless of the location, for all Projects which are expected to emit more than 100,000 tonnes of 189
CO2 equivalent annually, an alternatives analysis will be conducted to evaluate less GHG intensive190
alternatives. Refer to Annex A for alternatives analysis requirements.191
192
Principle 3: Applicable Environmental and Social Standards193
194
The EPFI will require that the Assessment process evaluates compliance as follows:195
196
1. For Projects located in non-OECD countries and OECD countries not designated as High-Income,197
the Assessment process evaluates compliance with the then applicable IFC Performance198
Standards (Exhibit III), and IFC Environmental, Health and Safety (EHS) Guidelines (Exhibit IV).199
200
2. For Projects located in High-Income OECD Countries, the Assessment process evaluates201
compliance with relevant host country laws, regulations and permits that pertain to202
environmental and social matters as they are generally considered to meet or exceed the203
requirements of the Equator Principles. This substitution may extend to environmental and/or204
social assessments (Principle 2), management systems and plans (Principle 4), stakeholder205
engagement (Principle 5) and, disclosure and grievance mechanisms (Principle 6).206
207
The Assessment will establish to a participating EPFI’s satisfaction the Project's overall compliance208
with, or justified deviation from, the applicable standards. The applicable standards (as described209
above) represent the minimum standards adopted by EPFIs and individual EPFIs may, at their sole210
discretion, apply additional requirements.211
212
Principle 4: Environmental and Social Management System and Action Plan213
214
For all Category A and Category B Projects, the EPFI will require the borrower to develop or maintain215
an Environmental and Social Management System (ESMS).216
217
Further, an Environmental and Social Management Plan (ESMP) will be prepared by the borrower to218
address issues raised in the Assessment and incorporate actions required to comply with the219
applicable standards. Where the applicable standards are not met to the EPFIs satisfaction, the220
borrower and the EPFI will agree an Action Plan (AP). The AP is intended to outline gaps and221
commitments to meet EPFI requirements in line with the applicable standards.222
223
For Bridge Loans where impacts have been identified and Project development is expected to begin224during the tenor of the loan, the borrower will identify an Independent Environmental and Social225
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impede access to judicial or administrative remedies. The borrower will inform the Affected265
Communities about the mechanism in the course of the Stakeholder Engagement process.266
267
Principle 7: Independent Review268
269
Project Finance270
271
For all Category A and, as appropriate, for Category B Projects, an Independent Environmental and272
Social Consultant, not directly associated with the borrower, will carry out an Independent Review of 273
the Assessment, ESMP, ESMS and consultation process documentation in order to assist the EPFI's274
due diligence, and assess Equator Principles compliance.275
276
The Independent Environmental and Social Consultant will also propose or opine on a suitable AP277
capable of bringing the Project into compliance with the Equator Principles, or indicate when278
compliance is not possible.279
280
Project-Related Corporate Loans281
282
An Independent Review by an Independent Environmental and Social Consultant is required for283
Projects with high risk impacts including, but not limited to, any of the following:284
285
• Adverse impacts on indigenous people,286
• Critical habitat impacts,287
• Significant cultural heritage impacts,288
• Large-scale resettlement.289
290
In other Category A, and as appropriate Category B, Project-Related Corporate Loans, the EPFI may291
determine whether an Independent Review is appropriate or if internal review by the EPFI is292
sufficient. This may take into account the due diligence performed by an Official Agency, if relevant.293
294
Principle 8: Covenants 295
296
An important strength of the Equator Principles is the incorporation of covenants linked to297
compliance. For all Projects, the borrower will covenant in the financing documentation:298
299
a) to comply with all relevant host country environmental and social laws, regulations and300
permits in all material respects;301
302
b) to comply with the ESMPs and AP (where applicable) during the construction and operation303of the Project in all material respects;304
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c) to provide periodic reports in a format agreed with the EPFIs (with the frequency of these305
reports proportionate to the severity of impacts, or as required by law, but not less than306
annually), prepared by in-house staff or third party experts, that i) document compliance307
with the ESMPs and AP (where applicable), and ii) provide representation of compliance308
with relevant local, state and host country environmental and social laws, regulations and309
permits; and310
311
d) to decommission the facilities, where applicable and appropriate, in accordance with an312
agreed decommissioning plan.313
314
Where a borrower is not in compliance with its environmental and social covenants, the EPFI will315
work with the borrower on remedial actions to bring the Project back into compliance to the extent316
feasible. If the borrower fails to re-establish compliance within an agreed grace period, the EPFI317
reserves the right to exercise remedies, as considered appropriate.318
319
Principle 9: Independent Monitoring and Reporting320
321
Project Finance322
323
To assess Project compliance with the Equator Principles and ensure ongoing monitoring and324
reporting over the life of the loan, the EPFI will, for all Category A and, as appropriate, Category B325
Projects, require the appointment of an Independent Environmental and Social Consultant, or326
require that the borrower retain qualified and experienced external experts to verify its monitoring327
information which would be shared with the EPFI.328
329
Project-Related Corporate Loans330
331
For Projects where an Independent Review is required under Principle 7, the EPFI will require the332
appointment of an Independent Environmental and Social Consultant, or require that the borrower333
retain qualified and experienced external experts to verify its monitoring information which would334be shared with the EPFI.335
336
Principle 10: Reporting and Transparency337
338
Project Reporting Requirements339
340
For all Category A and, as appropriate, Category B Projects located in non-OECD countries and OECD341
countries not designated as High-Income, the EPFI will require the borrower to disclose the342
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Assessment documentation and the ESMP online1. The borrower will take account of and document343
the process and results of the stakeholder consultation, including any actions agreed resulting from344
the consultation process. For Projects with adverse environmental or social impacts, disclosure345
should occur early in the Assessment process, and in any event before the Project construction346
commences, and on an ongoing basis.347
348
For all Category A and, as appropriate Category B Projects, in all countries, the EPFI will require the349
borrower to publicly report greenhouse gas emission levels during the operational phase for Projects350
emitting over 100,000 tonnes of CO2 equivalent annually. Refer to Annex A for detailed351
requirements on greenhouse gas emissions reporting.352
353
EPFI Reporting Requirements354
355
The EPFI will report publicly at least annually on transactions screened and closed, and about its356
Equator Principles implementation processes and experience, taking into account appropriate357
confidentiality considerations. The EPFI will report according to the minimum reporting358
requirements detailed in Annex B.359
360
DISCLAIMER361
362
The EPFIs view the Equator Principles as a financial industry benchmark for developing individual,363
internal environmental and social policies, procedures and practices. As with all internal policies, the364
Equator Principles do not create any rights in, or liability to, any person, public or private.365
Institutions adopt and implement the Equator Principles voluntarily and independently, without366
reliance on or recourse to the IFC, the World Bank or other EPFIs.367
368
1Except in cases where the borrower does not have a company website.
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ANNEXES: IMPLEMENTATION REQUIREMENTS369
370Annex A - Climate Change: Alternatives Analysis, Quantification and Reporting of 371
Greenhouse Gas Emissions372
373
Where an alternatives analysis is required by a regulating permitting process, the analysis will follow374
the methodology and time frame required by the relevant process. Following completion of an375
alternatives analysis, the borrower will provide evidence of technically and financially feasible and376
cost-effective options available to reduce Project-related GHG emissions during the design,377
construction and operation of the Project.378
379Quantification of GHG emissions will be conducted by the borrower in accordance with380
internationally recognised methodologies and good practice, for example, the GHG Protocol. For381
Scope 1 emissions, this analysis will include consideration of alternative fuel or energy sources.382
Additionally, for Projects in sectors with the highest carbon intensity, the alternatives analysis will383
include comparisons to other viable technologies used in the same industry in the country or region384
with the relative energy efficiency of the selected technology.385
386
High carbon intensity sectors include the following, as outlined in the IFC EHS Guidelines:387
388• thermal power,389
• cement and lime manufacturing,390
• integrated steel mills,391
• base metal smelting and refining,392
• foundries.393
394
The EPFI will require the borrower to publicly report on greenhouse gas emission levels during the395
operational phase for Projects emitting over 100,000 tonnes of CO 2-equivalent annually (combined396
Scope 1 and Scope 2), and they will be encouraged to report publicly on Projects emitting over397
25,000 tonnes. Public reporting requirements can be satisfied via regulatory requirements for398
reporting or environmental impact assessments, or voluntary reporting mechanisms such as the399
Carbon Disclosure Project where such reporting includes emissions at Project level.400
401
The borrower will quantify direct emissions from the facilities owned or controlled within the402
physical Project boundary (Scope 1 emissions), as well as indirect emissions associated with the off-403
site production of energy used by the Project (Scope 2 emissions).404
405
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Annex B - Minimum Reporting Requirements406
407
These reporting requirements apply to Project Finance Advisory services, Project Finance and408
Project-Related Corporate Loans, unless specified otherwise.409
410
Reporting data will be published in a single location. If data is displayed in different locations (e.g.411
website, reports) the EPFI will provide links to facilitate information gathering.412
413
The EPFI will report annually at a minimum and will specify the reporting period (e.g. start and end414
dates).415
416
Aggregated Data Reporting417
418
1. The EPFI will report the number of transactions screened for the first time during the reporting419
period. The EPFI will provide a definition of “transactions screened”.420
421
2. Data for Project Finance Advisory services and Project Finance will be displayed separately from422
Project-Related Corporate Loans.423
424
3. The EPFI will display a breakdown of the data as follows:425
426
• Category (A, B, or C);427
• Category (A, B, or C) and by Sector and Region i.e. (Mining, Infrastructure, Oil and Gas,428
Power, Others) and (Americas, Europe Middle East and Africa, Asia Pacific);429
• Category (A, B, or C) and by Host Country Classification (e.g. High-Income OECD);430
• Category (A or B) and whether an Independent Review has been carried out.431
432
4. The EPFI will report on the number of Project Finance and Project-Related Corporate Loans that433
have reached Financial Close during the reporting period and will display a breakdown of the434
data by Category (A, B, or C). Note this requirement does not apply to Project Finance Advisory435services.436
437
Implementation Reporting438
439
1. The EPFI will report on their implementation of the Equator Principles, including:440
441
• The mandate of the Equator Principles Reviewers (e.g. responsibilities and staffing);442
• The respective roles of the Equator Principles Reviewers and business lines involved in the443
transaction review process;444
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• The level of senior management involvement for Category A and, as appropriate, Category B445
transactions;446
• The incorporation of the Equator Principles in their credit and risk management policies and447
procedures.448
449
2. EPFIs, in their first year of Equator Principles adoption, will provide details of their internal450
preparation and staff training.451
452
Project-Specific Data Reporting453
454
Project-Specific Data reporting is:455
456
• applicable only to Project Finance transactions that have reached Financial Close,457
• subject to obtaining client consent,458
• subject to applicable local laws and regulations, and459
• subject to any reduction in the rights, or increase in the liability, of the EPFI.460
461
The EPFI will seek client consent at a time during the loan documentation process deemed462
appropriate by the EPFI or at Financial Close.463
464
The EPFI will submit data (or a link to the data on their website) to the Equator Principles Secretariat465
for publication on the Equator Principles website. The data will include:466
467
• Project name (as per the loan agreement);468
• Sector: Mining, Infrastructure, Oil and Gas, Power, Others;469
• Region: Americas, Europe Middle East and Africa, Asia Pacific;470
• The calendar year in which the loan reached Financial Close.471
472
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EXHIBITS: SUPPORTING INFORMATION473
474Exhibit I - Glossary of Terms475
476
Action Plan (AP) is prepared, as a result of EPFI due diligence, to describe and prioritise the actions477
needed to address any gaps in the Assessment or ESMPs to bring the Project in line with applicable478
standards as defined in the Equator Principles. The AP is typically tabular in form and lists distinct479
actions from mitigation measures to follow-up studies or plans that complement the Assessment.480
481
Affected Communities are local communities, within the Project's area of influence, directly affected482
by the Project.483484
Bridge Loan is an interim loan given to a business until the longer term stage of financing can be485
obtained. 486
487
Effective Operational Control includes both direct control of the Project by the borrower and488
indirect control, for example where a subsidiary of the borrower operates the Project. 489
490
Environmental and Social Assessment (Assessment) is a process that determines the environmental491
and social risks and impacts (including labour, health, and safety) of a proposed Project in its area of 492
influence. 493
494
Environmental and Social Management Plan (ESMP) is a summary of borrower commitments to495
mitigate risks and impacts identified in the Assessment. This may range from a brief description of 496
routine mitigation measures to a series of documents (e.g. resettlement action plan, indigenous497
peoples plan, emergency preparedness and response plan, decommissioning plan). The level of 498
detail and complexity of the ESMP and the priority of the identified measures and actions will be499
commensurate with the Project’s potential risks and impacts.500
501
Environmental and Social Management System (ESMS) is the overarching environmental, social,502
health and safety management system which may be applicable at a corporate or Project level. The503
system is designed to identify, assess and manage risk in respect to the Project on an ongoing basis.504
The system consists of manuals and related source documents, including policies, management505
programs and plans, procedures, requirements, performance indicators, responsibilities, training506
and periodic audits and inspections with respect to environmental or social matters. It is the507
overriding framework by which an ESMP and/or AP is implemented. The term may refer to the508
system for the construction phase or the operational phase of the Project, or to both as the context509
may require.510
511
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Equator Principles Reviewers are EPFI employees responsible for reviewing the environmental and512
social aspects of loans subject to the Equator Principles. They may be a distinct Equator Principles513
team or members of banking, credit risk, corporate sustainability (or similar) who are tasked with514
applying the Equator Principles internally.515
516
Financial Close is defined as the date on which all conditions precedent to initial drawing of the debt517
have been satisfied or waived. 518
519
High-Income OECD Countries are countries that are members of the Organisation for Economic Co-520
Operation and Development (OECD) and designated High-Income by the World Bank Development521
Indicators Database.522
523
Informed Consultation and Participation is an in-depth exchange of views and information and an524
organised and iterative consultation that leads the borrower to incorporate the views of Affected525
Communities, on matters that affect them directly (such as proposed mitigation measures, the526
sharing of development benefits and opportunities, and implementation issues), into their decision-527
making process.528
529
Independent Environmental and Social Consultant is a qualified independent firm or consultant530
(not directly tied to the borrower) acceptable to the EPFI. 531
532Independent Review is a review of the Assessment, ESMP and consultation process documentation533
carried out by an Independent Environmental and Social Consultant. 534
535
Initial Exposure is the initial amount (not the amount after sell down or syndication) committed to536
the loan.537
538
Known Use of Proceeds is the information provided by the borrower on how the borrowings will be539
used.540
541Non-High Income OECD Countries are countries that are members of the OECD that are not542
designated as High-Income by the World Bank Development Indicators Database. 543
544
Non-OECD Countries are countries that are not members of the OECD.545
546
Official Agency is a multilateral development bank, a multilateral or bilateral financial institution or547
an OECD Export Credit Agency548
549
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Other Stakeholders are those not directly affected by the Project but that have an interest in it. They550
could include national and local authorities, neighbouring Projects, and/or non-governmental551
organisations.552
553
A Project is a development (in any sector) at an identified location. It includes an expansion or554
upgrade of an existing operation that results in a material change in output or function. Examples of 555
Projects that trigger the Equator Principles include, but are not limited to; a power plant, mine, oil556
and gas Project (including drillships and Floating Production Storage and Offloading (FPSO) vessels),557
chemical plant, infrastructure development, manufacturing plant, large scale real estate558
development, or any other Project that creates significant environmental and/or social impacts. 559
560
Project Finance is a method of financing in which the lender looks primarily to the revenues561
generated by a single Project, both as the source of repayment and as security for the exposure. This562
type of financing is usually for large, complex and expensive installations that might include, for563
example, power plants, chemical processing plants, mines, transportation infrastructure,564
environment, and telecommunications infrastructure. Project Finance may take the form of 565
financing of the construction of a new capital installation, or refinancing of an existing installation,566
with or without improvements. In such transactions, the lender is usually paid solely or almost567
exclusively out of the money generated by the contracts for the Project’s output, such as the568
electricity sold by a power plant. The borrower is usually a Special Purpose Entity that is not569
permitted to perform any function other than developing, owning, and operating the installation.570The consequence is that repayment depends primarily on the Project’s cash flow and on the571
collateral value of the Project’s assets. For reference go to “Basel Committee on Banking Supervision,572
International Convergence of Capital Measurement and Capital Standards ("Basel II")” , November573
2005. http://www.bis.org/publ/bcbs118.htm. Reserve-Based Financing in extractive sectors that is574
non-recourse and where the proceeds are used to develop one particular reserve (e.g. an oil field or575
a mine) is considered to be a Project Finance transaction covered under the Equator Principles.576
577
Project Finance Advisory is the provision of advice on the potential financing of a development578
where one of the options may be Project Finance.579580
Project-Related Corporate Loans are corporate loans, made to business entities (either privately,581
publicly, or state-owned or controlled) related to a single Project, either a new development,582
expansion (e.g. where there is an expanded footprint) or upgrade, where the Known Use of Proceeds583
is related to a single Project in one of the following ways:584
585
a. The lender looks primarily to the revenues generated by the Project as the source of 586
repayment (as in Project Finance) and where security exists in the form of a corporate or587
parent company guarantee;588
589
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b. Documentation for the loan indicates that the majority of the proceeds of the total loan are590
directed to the Project. Such documentation may include the term sheet, information591
memorandum, credit agreement, or other representations provided by the borrower into its592
intended use of proceeds for the loan.593
594
In the case of Export Finance, the infrastructure or industrial project to which the export is intended595
will be considered the “Project”.596
597
Excluded transactions include Asset Finance (such as for cargo ships or airplanes), general working598
capital facilities, and general capital expenditure facilities used to maintain, enhance and upgrade a599
company's operations.600
601
Loans that are not directed towards a Project, for example general corporate purposes loans, are not602
in the scope the Equator Principles.603
604
Stakeholder Engagement refers to IFC Performance Standards provisions on external605
communication, environmental and social information disclosure, informed consultation, and606
grievance mechanisms. For the Equator Principles, Stakeholder Engagement also refers to the overall607
requirements described under Principle 5.608
609
610611
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Exhibit II: Illustrative List of Potential Environmental and Social Issues to be612
Addressed in the Environmental and Social Assessment Documentation613614
In the context of the business of the Project, the Assessment documentation will address, where615
applicable, the following issues:616
617
a) assessment of the baseline environmental and social conditions618
b) consideration of feasible environmentally and socially preferable alternatives619
c) requirements under host country laws and regulations, applicable international treaties and620
agreements621
d) protection of human rights by acting with due diligence to prevent, mitigate and manage622
adverse human rights impacts623
e) protection of community health, safety and security (including risks, impacts and management624
of Project’s use of security personnel)625
f) protection of cultural property and heritage626
g) protection and conservation of biodiversity, including endangered species and sensitive627
ecosystems in modified, natural and critical habitats, and identification of legally protected areas628
h) sustainable management and use of renewable natural resources (including sustainable629
resource management through appropriate independent certification systems)630
i) use and management of dangerous substances631
j) major hazards assessment and management632
k) labour issues (including the four core labour standards), and occupational health and safety633
l) fire prevention and life safety634
m) socio-economic impacts635
n) land acquisition and involuntary resettlement636
o) impacts on affected communities, and disadvantaged or vulnerable groups637
p) impacts on indigenous peoples, and their unique cultural systems and values638
q) cumulative impacts of existing Projects, the proposed Project, and anticipated future Projects639
r) consultation and participation of affected parties in the design, review and implementation of 640
the Project641
s) efficient production, delivery and use of energy642
t) pollution prevention and waste minimisation, pollution controls (liquid effluents and air643
emissions) and solid and chemical waste management644
u) viability of Project operations, of reasonable foreseeable changing weather patterns/climatic645
conditions, together with adaptation opportunities.646
647
Note: The above list is for illustrative purposes only. The Assessment process of each Project may or648
may not identify all issues noted above, or be relevant to every Project.649
650
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Exhibit III: IFC Performance Standards on Environmental and Social Sustainability651
and Environmental, Health and Safety Guidelines652653
The Equator Principles refer to two separate parts of the IFC Sustainability Framework as “the then654
applicable environmental and social standards” under Principle 3.655
656
1. The IFC Performance Standards on Environmental and Social Sustainability657
658
As of January 1, 2012, the following Performance Standards were applicable:659
660
1 - Assessment and Management of Social and Environmental Risks and Impacts661
2 - Labor and Working Conditions662
3 - Resource Efficiency and Pollution Prevention663
4 - Community Health, Safety and Security664
5 - Land Acquisition and Involuntary Resettlement665
6 - Biodiversity Conservation and Sustainable Management of Living Natural Resources666
7 - Indigenous Peoples667
8 - Cultural Heritage668
669
Guidance Notes accompany each Performance Standard. EPFIs do not formally adopt the Guidance670
Notes however EPFIs and borrowers may find them useful points of reference when seeking further671
guidance on or interpreting the Performance Standards.672
673
The IFC Performance Standards, Guidance Notes and Industry Specific Guidelines can be found at674
http://www.ifc.org/ifcext/policyreview.nsf/Content/2012-Edition. 675
676
2. The IFC Environmental, Health and Safety (EHS) Guidelines677
678
The IFC EHS Guidelines are technical reference documents containing examples of Good679
International Industry Practice (GIIP), as defined in Performance Standard 3 on Resource Efficiency680
and Pollution Prevention. They contain the performance levels and measures that are normally681
considered acceptable for Projects in emerging markets, as well as being achievable in new facilities682
at reasonable costs by existing technology. Two Guidelines are used:683
684
The General EHS Guidelines685
686
These Guidelines contain information on cross-cutting environmental, health, and safety issues687
potentially applicable to all industry sectors. They are divided into sections entitled: Environmental;688
Occupational Health and Safety; Community Health and Safety; Construction; and Decommissioning.689They should be used together with the relevant Industry Sector Guideline(s).690
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The Industry Sector Guidelines691
692
These Guidelines contain information on industry-specific impacts and performance indicators, plus693
a general description of industry activities. They are grouped as follows:694
695
Agribusiness/Food Production696
• Annual Crop Production697
• Aquaculture698
• Breweries699
• Dairy Processing700
• Fish Processing701
• Food and Beverage Processing702
• Mammalian Livestock Production703
• Meat Processing704
• Plantation Crop Production705
• Poultry Processing706
• Poultry Production707
• Sugar Manufacturing708
• Vegetable Oil Processing709
710
Chemicals711
• Coal Processing712
• Large Volume Inorganic Compounds713
Manufacturing and Coal Tar Distillation714
• Large Volume Petroleum-based Organic715
Chemicals Manufacturing716
• Natural Gas Processing717
• Nitrogenous Fertilizer Manufacturing718
• Oleochemicals Manufacturing719
• Pesticides Formulation, Manufacturing and720
Packaging721
• Petroleum-based Polymers Manufacturing722
• Petroleum Refining723
• Pharmaceuticals and Biotechnology724
Manufacturing725
• Phosphate Fertilizer Manufacturing726
727
728
729
Forestry730
• Board and Particle-based Products731
• Forest Harvesting Operations732
• Pulp and Paper Mills733
• Sawmilling and Wood-based Products734
735
General Manufacturing736
• Base Metal Smelting and Refining737
• Cement and Lime Manufacturing738
• Ceramic Tile and Sanitary Ware739
Manufacturing740
• Construction Materials Extraction741
• Foundries742
• Glass Manufacturing743
• Integrated Steel Mills744
• Metal, Plastic, Rubber Products745
Manufacturing746
• Printing747
• Semiconductors and Electronics748
Manufacturing749
• Tanning and Leather Finishing750
• Textiles Manufacturing751
752
753
754
755
756
757
758
759
760
761
762
763
764
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Infrastructure765
• Airlines766
• Airports767
• Crude Oil and Petroleum Product768
Terminals769
• Gas Distribution Systems770
• Health Care Facilities771
• Ports, Harbors and Terminals772
• Railways773
• Retail Petroleum Networks774
• Shipping775
• Telecommunications776
• Toll Roads777
• Tourism and Hospitality Development778
• Waste Management Facilities779
• Water and Sanitation780
Mining781
• Mining782
783
Oil and Gas784
• Offshore Oil and Gas Development785
• Onshore Oil and Gas Development786
• Liquefied Natural Gas (LNG) Facilities787
788
Power789
• Electric Power Transmission and790
Distribution791
• Geothermal Power Generation792
• Thermal Power793
• Wind Energy794
795
796
797
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1
2
3
4
5
6
7
8
9
10
11
THE EQUATOR PRINCIPLES12
[DATE TBC]13
14
A financial industry benchmark for determining, assessing15
and managing environmental and social and environmental risk in projects financing 16http://www.equator-principles.com 17
18
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CONTENTS 19
20PREAMBLE ................................................................................................................................... 221
22SCOPE .......................................................................................................................................... 323
24STATEMENT OF PRINCIPLES .......................................................................................................... 425
26Principle 1: Review and Categorisation .............................................................................................. 427
28Principle 2: Environmental and Social Assessment ............................................................................ 529
30Principle 3: Applicable Environmental and Social Standards.............................................................. 631
32Principle 4: Environmental and Social Management System and Action Plan ................................... 733
34Principle 5: Stakeholder Engagement ................................................................................................. 835
36Principle 6: Grievance Mechanism...................................................................................................... 937
38Principle 7: Independent Review ........................................................................................................ 939
40Principle 8: Covenants ...................................................................................................................... 1041
42Principle 9: Independent Monitoring and Reporting ........................................................................ 1143
44 Principle 10: Reporting and Transparency ........................................................................................ 114546
DISCLAIMER ............................................................................................................................... 124748
ANNEXES: IMPLEMENTATION REQUIREMENTS ........................................................................... 134950
Note: The implementation requirements detailed in these annexes are an integral part of the Equator 51Principles and are mandatory requirements for Equator Principles Financial Institutions.52
53Annex A - Climate Change: Alternatives Analysis, Quantification and Reporting of Greenhouse54Gas Emissions .................................................................................................................................... 1355
56
Annex B - Minimum Reporting Requirements .................................................................................. 145758
EXHIBITS: SUPPORTING INFORMATION ...................................................................................... 165960
Exhibit I - Glossary of Terms .............................................................................................................. 166162
Exhibit II: Illustrative List of Potential Environmental and Social Issues to be Addressed in the63Environmental and Social Assessment Documentation ................................................................... 2064
65Exhibit III: IFC Performance Standards on Environmental and Social Sustainability and66Environmental, Health and Safety Guidelines .................................................................................. 2267
68
6970
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PREAMBLE71
72Large infrastructure and industrial Projects can have adverse impacts on people and on the73
environment. As financiers and advisors, we work in partnership with our clients to identify, assess74
and manage environmental and social risks and impacts in a structured way, and on an ongoing75
basis. Such collaboration promotes sound and sustainable environmental and social performance,76
and can lead to improved financial, environmental and social outcomes. 77
78
Project financing, a method of funding in which the lender looks primarily to the revenues generated79
by a single project both as the source of repayment and as security for the exposure, plays an80
important role in financing development throughout the world1. Project financiers may encounter81
social and environmental issues that are both complex and challenging, particularly with respect to82
projects in the emerging markets. 83
84
We, Tthe Equator Principles Financial Institutions (EPFIs), have consequently adopted these Equator85
Principles in order to ensure that the pProjects we finance are developed in a manner that is socially86
responsible and reflects sound environmental management practices. By doing so, negative impacts87
on pProject-affected ecosystems, and communities, and the climate should be avoided where88
possible., and iIf these impacts are unavoidable, they should be minimised and reduced, mitigated89
and/or compensated for, or offset appropriately.90
91
We believe that adoption of and adherence to these Equator Principles offers significant benefits to 92
us ourselves, our borrowers, and local stakeholders through our borrowers’ engagement with locally93
affected communities. We therefore recognise that our role as financiers affords us opportunities to94
promote responsible environmental stewardship and socially responsible development, including95
fulfilling our responsibility to respect human rights by undertaking due diligence in accordance with96
the Equator Principles. As such, EPFIs will consider reviewing these Principles from time-to-time97
based on implementation experience, and in order to reflect ongoing learning and emerging good98
practice. 99
100
1 Project finance is “a method of funding in which the lender looks primarily to the revenues generated by a single project,
both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and
expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation
infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the
construction of a new capital installation, or refinancing of an existing installation, with or without improvements. In such
transactions, the lender is usually paid solely or almost exclusively out of the money generated by the contracts for the
facility’s output, such as the electricity sold by a power plant. The borrower is usually an SPE (Special Purpose Entity) that is
not permitted to perform any function other than developing, owning, and operating the installation. The consequence is
that repayment depends primarily on the project’s cash flow and on the collateral value of the project’s assets.” Source:Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards ("Basel
II"), November 2005. http://www.bis.org/publ/bcbs118.htm.
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These Equator Principles are intended to serve as a common baseline and framework for the101
implementation by of each EPFI’s of its own internal environmental and social and environmental 102
policies, procedures and standards related to its financing of Pprojects financing activities. We will103
not provide Project related loans and Project Finance Advisory services, as described and per the104
requirements in the Scope, to pProjects where the borrower will not, or is unable to comply with, 105
our respective social and environmental policies and procedures that implement the Equator106
Principles.107
108
The Equator Principles apply globally and to all sectors. In High-Income OECD Countries, relevant109
host country laws, regulations and permits generally meet or exceed the requirements of the110
Equator Principles. For Projects located in these countries, host country requirements may be used111
as a substitute for the requirements in the Equator Principles.112
113
EPFIs review the Equator Principles from time-to-time based on implementation experience, and in114
order to reflect ongoing learning and emerging good practice.115
116
SCOPE117
118
The Equator Principles apply to the four financial products described below:119
120
1. Project Finance Advisory services where total Project capital costs are US$ 10 million or more.121
122
2. Project Finance with total Project capital costs of US$10 million or more.123
124
3. Project-Related Corporate Loans where all five of the following criteria are met:125
126
i. the loan is related to a single Project,127
ii. the total aggregate loan amount is at least US$100 million,128
iii. the EPFI’s individual Initial Exposure is at least US$50 million,129
iv. the loan tenor is at least two years, and130
v. the borrower has Effective Operational Control (either direct or indirect) over the131
Project.132
133
4. Bridge Loans with a tenor of less than two years that are intended to be refinanced by a Project134
Finance or Project-Related Corporate Loan. The requirements for Bridge Loans vary depending135
on the Project’s stage of development. 136
137
all new project financings globally with total project capital costs of US$10 million or more, and138
across all industry sectors. In addition, wWhile the Equator Principles are not intended to be applied139retroactively, we EPFIs will apply them to all project financings covering the expansion or upgrade of 140
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an existing Projectfacility where changes in scale or scope may create significant environmental141
and/or social impacts, or significantly change the nature or degree of an existing impact. The142
Principles also extend to project finance advisory activities. In these cases, EPFIs commit to make the143
client aware of the content, application and benefits of applying the Principles to the anticipated144
project, and request that the client communicate to the EPFI its intention to adhere to the145
requirements of the Principles when subsequently seeking financing. 146
147
STATEMENT OF PRINCIPLES148
149
EPFIs will only provide Project related loans and Project Finance Advisory services, as described in150
the Scope, to pProjects that conform to Principles 1-109 below:151
152
Recognising business confidentiality and applicable laws and regulations, mandated EPFIs will153
endeavour to share relevant environmental and social information with other mandated financial154
institutions with a view to seeking, where appropriate, consistent application of the Equator155
Principles to Projects financed. Any decision as to whether, or on what terms, to provide Project-156
Related loans and Project Finance Advisory services will be for each EPFI to make in accordance with157
their own risk management policies. Timing constraints may lead EPFIs considering a transaction to158
seek authorisation from their clients to start such information sharing before all relevant EPFIs are159
formally mandated. EPFIs expect clients to provide such authorisation on a best efforts basis.160
161
Principle 1: Review and Categorisation 162
163
When a pProject is proposed for financing, the EPFI will, as part of its internal environmental and164
social and environmental review and due diligence, categorise such pProject based on the165
magnitude of its potential risks and impacts. and risks in accordance with Such screening is based on166
the environmental and social screening criteriacategorisation scheme of the International Finance167
Corporation (IFC) (Exhibit I).168
169
Using categorisation, the EPFI’s environmental and social due diligence is commensurate with the170
nature, scale and stage of the Project, and with the level of environmental and social risks and171
impacts. The categorisation scheme is:172
173
Category A – Projects with potential significant adverse environmental and social risks and/or174
impacts that are diverse, irreversible or unprecedented;175
176
Category B – Projects with potential limited adverse environmental and social risks and/or impacts177
that are few in number, generally site-specific, largely reversible and readily addressed through178
mitigation measures; and179180
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Category C – Projects with minimal or no adverse environmental and social risks and/or impacts. 181
182
Principle 2: Environmental and Social and Environmental Assessment 183
184
Where EPFIs are providing Project Finance Advisory services or a Bridge Loan, EPFIs will make the185
client aware of the content, application and benefits of applying the Equator Principles to the186
anticipated Project. The EPFI will request that the client communicates to the EPFI its intention to187
adhere to the requirements of the Equator Principles when subsequently seeking financing. In their188
advisory capacity the EPFI will guide and support the client through the steps leading to Equator189
Principles application.190
191
For each pProject assessed as being either Category A or Category B, the EPFI will require the192
borrower has to conducted an Environmental and Social and Environmental Assessment193
(“Assessment”) process2 to address, as appropriate and to the EPFI’s satisfaction, the relevant194
environmental and social and environmental risks and impacts and risks of the proposed pProject195
(which may include, if relevant, the illustrative list of issues as found in Exhibit II). The Assessment196
should also propose mitigation and management measures to prevent, mitigate and manage197
adverse impacts in a manner relevant and appropriate to the nature and scale of the proposed198
pProject.199
200
The Assessment will be an adequate, accurate and objective evaluation and presentation of the201
risks, whether prepared by the borrower, consultants or external experts. The Assessment202
document may comprise a full-scale environmental and social impact assessment, a limited or203
focused environmental or social assessment (e.g. audit), or straight-forward application of 204
environmental siting, pollution standards, design criteria, or construction standards. One or more205
specialised studies may also need to be undertaken.206
207
Regardless of the location, for all Projects which are expected to emit more than 100,000 tonnes of 208
CO2 equivalent annually, an alternatives analysis will be conducted to evaluate less GHG intensive209
alternatives. Refer to Annex A for alternatives analysis requirements.210
211
212
213
2 Social and Environmental Assessment is a process that determines the social and environmental impacts and risks
(including labour, health, and safety) of a proposed project in its area of influence. For the purposes of Equator Principles
compliance, this will be an adequate, accurate and objective evaluation and presentation of the issues, whether prepared
by the borrower, consultants or external experts. Depending on the nature and scale of the project, the assessment
document may comprise a full-scale social and environmental impact assessment, a limited or focused environmental or
social assessment (e.g. audit), or straight-forward application of environmental siting, pollution standards, design criteria,
or construction standards. One or more specialised studies may also need to be undertaken.
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Principle 3: Applicable Environmental and Social and Environmental Standards 214
215
The EPFI will require that the Assessment process evaluates compliance as follows:216
217
1. For pProjects located in non-OECD countries, and those located in OECD countries not218
designated as High-Income, as defined by the World Bank Development Indicators Database, the219
Assessment process evaluates compliance with will refer to the then applicable IFC Performance220
Standards (Exhibit III), and the then applicable Industry Specific IFC Environmental, Health and221
Safety (EHS) Guidelines (“EHS Guidelines”) (Exhibit IV). 222
223
2. For Projects located in High-Income OECD Countries, the Assessment process evaluates224
compliance with relevant host country laws, regulations and permits that pertain to225
environmental and social matters as they are generally considered to meet or exceed the226
requirements of the Equator Principles. This substitution may extend to environmental and/or227
social assessments (Principle 2), management systems and plans (Principle 4), stakeholder228
engagement (Principle 5) and, disclosure and grievance mechanisms (Principle 6).229
230
The Assessment will establish to a participating EPFI’s satisfaction the pProject's overall compliance231
with, or justified deviation from, the applicable standardsrespective Performance Standards and EHS232
Guidelines. The applicable standards (as described above) represent the minimum standards233
adopted by EPFIs and individual EPFIs may, at their sole discretion, apply additional requirements.234235
The regulatory, permitting and public comment process requirements in High-Income OECD236
Countries, as defined by the World Bank Development Indicators Database, generally meet or237
exceed the requirements of the IFC Performance Standards (Exhibit III) and EHS Guidelines (Exhibit238
IV). Consequently, to avoid duplication and streamline EPFI's review of these projects, successful239
completion of an Assessment (or its equivalent) process under and in compliance with local or240
national law in High-Income OECD Countries is considered to be an acceptable substitute for the IFC241
Performance Standards, EHS Guidelines and further requirements as detailed in Principles 4, 5 and 6242
below. For these projects, however, the EPFI still categorises and reviews the project in accordance243with Principles 1 and 2 above.244
245
The Assessment process in both cases should address compliance with relevant host country laws,246
regulations and permits that pertain to social and environmental matters. 247
248
249
250
251
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Principle 4: Environmental and Social Management System and Action Plan and252
Management System 253254
For all Category A and Category B pProjects, the EPFI will require the borrower to develop or255
maintain an Environmental and Social Management System (ESMS).256
257
Further, an Environmental and Social Management Plan (ESMP) will be prepared by the borrower to258
address issues raised in the Assessment and incorporate actions required to comply with the259
applicable standards. Where the applicable standards are not met to the EPFIs satisfaction, the260
borrower and the EPFI will agree an Action Plan (AP). The AP is intended to outline gaps and261
commitments to meet EPFI requirements in line with the applicable standards.262
263
For Bridge Loans where impacts have been identified and Project development is expected to begin264
during the tenor of the loan, the borrower will identify an Independent Environmental and Social265
Consultant and develop a scope of work to conduct an Independent Review. Where the Project is in266
the feasibility phase and no impacts are expected during the tenor of the loan, the EPFI will include a267
loan covenant, or a condition precedent to disbursement, requiring confirmation that an Assessment268
process or other assessment study (if applicable to the stage of development of the Project) has269
been assigned. 270
271
located in non-OECD countries, and those located in OECD countries not designated as High-Income,272
as defined by the World Bank Development Indicators Database, the borrower has prepared an273
Action Plan (AP)3 which addresses the relevant findings, and draws on the conclusions of the274
Assessment. The AP will describe and prioritise the actions needed to implement mitigation275
measures, corrective actions and monitoring measures necessary to manage the impacts and risks276
identified in the Assessment. Borrowers will build on, maintain or establish a Social and277
Environmental Management System that addresses the management of these impacts, risks, and278
corrective actions required to comply with applicable host country social and environmental laws279
and regulations, and requirements of the applicable Performance Standards and EHS Guidelines, as280
defined in the AP.281
282
For projects located in High-Income OECD countries, EPFIs may require development of an Action283
Plan based on relevant permitting and regulatory requirements, and as defined by host-country law.284
3The Action Plan may range from a brief description of routine mitigation measures to a series of documents (e.g.
resettlement action plan, indigenous peoples plan, emergency preparedness and response plan, decommissioning plan,
etc). The level of detail and complexity of the Action Plan and the priority of the identified measures and actions will be
commensurate with the project’s potential impacts and risks. Consistent with Performance Standard 1, the internal Social
and Environmental Management System will incorporate the following elements: (i) Social and Environmental
Assessment; (ii) management program; (iii) organisational capacity; (iv) training; (v) community engagement; (vi)
monitoring; and (vii) reporting.
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Principle 5: Consultation and DisclosureStakeholder Engagement285
286
For all Category A and, as appropriate, Category B pProjects, the EPFI will require the borrower to287
demonstrate effective Stakeholder Engagement as an ongoing process located in non-OECD288
countries, and those located in OECD countries not designated as High-Income, as defined by the289
World Bank Development Indicators Database, the government, borrower or third party expert has290
consulted with project affected communities in a structured and culturally appropriate manner with291
Affected Communities and, where appropriate, Other Stakeholders.4 For pProjects with potentially292
significant adverse impacts on aAffected cCommunities, the borrowers will conduct an Informed293
Consultation and Participation process. will ensure their free, prior and informed consultation and294
facilitate their informed participation as a means to establish, to the satisfaction of the EPFI,295
whether a project has adequately incorporated affected communities’ concerns.5The borrower will296
tailor its consultation process to the language preferences of the Affected Communities, their297
decision-making processes, and the needs of disadvantaged and vulnerable groups. This process298
should be free from external manipulation, interference, coercion and intimidation.299
300
EPFIs recognise that indigenous people are often a vulnerable segment of Project-Affected301
Communities. Projects affecting indigenous peoples will be subject to a process of Informed302
Consultation and Participation, and will comply with applicable national law, including those laws303
implementing host-country obligations under international law. In non-OECD countries and OECD304
countries not designated as High-Income, consistent with special circumstances described in IFC305
Performance Standard 7, Projects with adverse impacts on indigenous people will require their free,306
prior and informed consent.307
308
To facilitate Stakeholder Engagement, the borrower will make the Assessment documentation and309
the ESMP readily available to the public in the relevant local language and in a culturally appropriate310
manner. Refer to Principle 10 for Project Reporting requirements. 311
312
In order to accomplish this, the Assessment documentation and AP, or non-technical summaries313
thereof, will be made available to the public by the borrower for a reasonable minimum period in314the relevant local language and in a culturally appropriate manner. The borrower will take account315
4 Affected communities are communities of the local population within the project’s area of influence who are likely to be
adversely affected by the project. Where such consultation needs to be undertaken in a structured manner, EPFIs may
require the preparation of a Public Consultation and Disclosure Plan (PCDP).5 Consultation should be “free” (free of external manipulation, interference or coercion, and intimidation), “prior” (timely
disclosure of information) and “informed” (relevant, understandable and accessible information), and apply to the entire
project process and not to the early stages of the project alone. The borrower will tailor its consultation process to the
language preferences of the affected communities, their decision-making processes, and the needs of disadvantaged or
vulnerable groups. Consultation with Indigenous Peoples must conform to specific and detailed requirements as found in
Performance Standard 7. Furthermore, the special rights of Indigenous Peoples as recognised by host-country legislation
will need to be addressed.
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of and document the process and results of the consultation, including any actions agreed resulting316
from the consultation. For projects with adverse social or environmental impacts, disclosure should317
occur early in the Assessment process and in any event before the project construction commences,318
and on an ongoing basis. 319
320
Principle 6: Grievance Mechanism 321
322
For all Category A and, as appropriate, Category B pProjects, the borrower will, as part of the ESMS, 323
located in non-OECD countries, and those located in OECD countries not designated as High-Income,324
as defined by the World Bank Development Indicators Database, to ensure that consultation,325
disclosure and community engagement continues throughout construction and operation of the326
project, the borrower will, scaled to the risks and adverse impacts of the project, establish a327
grievance mechanism designed to receive and facilitate resolution of concerns and grievances about328
the Project’s environmental and social performance. as part of the management system. This will329
allow the borrower to receive and facilitate resolution of concerns and grievances about the330
project’s social and environmental performance raised by individuals or groups from among project-331
affected communities. The borrower will inform the affected communities about the mechanism in332
the course of its community engagement process and ensure that the mechanism addresses333
concerns promptly and transparently, in a culturally appropriate manner, and is readily accessible to334
all segments of the affected communities. 335
336The grievance mechanism should be scaled to the risks and impacts of the Project and have Affected337
Communities as its primary user. It will seek to resolve concerns promptly, using an understandable338
and transparent consultative process that is culturally appropriate, readily accessible, at no cost, and339
without retribution to the party that originated the issue or concern. The mechanism should not340
impede access to judicial or administrative remedies. The borrower will inform the Affected341
Communities about the mechanism in the course of the Stakeholder Engagement process. 342
343
Principle 7: Independent Review 344
345Project Finance346
347
For all Category A projects and, as appropriate, for Category B pProjects, an iIndependent348
Environmental and sSocial Consultant, or environmental expert not directly associated with the349
borrower, will carry outreview an Independent Review of the Assessment, AP ESMP, ESMS and350
consultation process documentation in order to assist the EPFI's due diligence, and assess Equator351
Principles compliance.352
353
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The Independent Environmental and Social Consultant will also propose or opine on a suitable AP354
capable of bringing the Project into compliance with the Equator Principles, or indicate when355
compliance is not possible.356
357
Project-Related Corporate Loans358
359
An Independent Review by an Independent Environmental and Social Consultant is required for360
Projects with high risk impacts including, but not limited to, any of the following:361
362
• Adverse impacts on indigenous people,363
• Critical habitat impacts,364
• Significant cultural heritage impacts,365
• Large-scale resettlement.366
367
In other Category A, and as appropriate Category B, Project-Related Corporate Loans, the EPFI may368
determine whether an Independent Review is appropriate or if internal review by the EPFI is369
sufficient. This may take into account the due diligence performed by an Official Agency, if relevant.370
371
Principle 8: Covenants 372
373
An important strength of the Equator Principles is the incorporation of covenants linked to374
compliance. For Category A and Ball pProjects, the borrower will covenant in the financing375
documentation:376
377
a) to comply with all relevant host country environmental and social and environmental laws,378
regulations and permits in all material respects;379
380
b) to comply with the ESMPs and AP (where applicable) during the construction and operation381
of the pProject in all material respects;382
383c) to provide periodic reports in a format agreed with the EPFIs (with the frequency of these384
reports proportionate to the severity of impacts, or as required by law, but not less than385
annually), prepared by in-house staff or third party experts, that i) document compliance386
with the ESMPs and AP (where applicable), and ii) provide representation of compliance387
with relevant local, state and host country environmental and social and environmental 388
laws, regulations and permits; and389
390
d) to decommission the facilities, where applicable and appropriate, in accordance with an391
agreed decommissioning plan.392393
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Where a borrower is not in compliance with its environmental and social and environmental 394
covenants, the EPFIs will work with the borrower on remedial actions to bring it the Project back into395
compliance to the extent feasible, . and iIf the borrower fails to re-establish compliance within an396
agreed grace period, the EPFIs reserves the right to exercise remedies, as they considered 397
appropriate.398
399
Principle 9: Independent Monitoring and Reporting400
401
Project Finance402
403
To assess Project compliance with the Equator Principles and To ensure ongoing monitoring and404
reporting over the life of the loan, the EPFIs will, for all Category A projects, and, as appropriate, for405
Category B pProjects, require the appointment of an iIndependent eEnvironmental and/or sSocial406
Consultantexpert, or require that the borrower retain qualified and experienced external experts to407
verify its monitoring information which would be shared with the EPFIs.408
409
Project-Related Corporate Loans410
411
For Projects where an Independent Review is required under Principle 7, the EPFI will require the412
appointment of an Independent Environmental and Social Consultant, or require that the borrower413
retain qualified and experienced external experts to verify its monitoring information which would414
be shared with the EPFI.415
416
Principle 10: EPFI Reporting and Transparency 417
418
Project Reporting Requirements419
420
For all Category A and, as appropriate, Category B Projects located in non-OECD countries and OECD421
countries not designated as High-Income, the EPFI will require the borrower to disclose the422
Assessment documentation and the ESMP online6. The borrower will take account of and document423
the process and results of the stakeholder consultation, including any actions agreed resulting from424
the consultation process. For Projects with adverse environmental or social impacts, disclosure425
should occur early in the Assessment process, and in any event before the Project construction426
commences, and on an ongoing basis.427
428
For all Category A and, as appropriate Category B Projects, in all countries, the EPFI will require the429
borrower to publicly report greenhouse gas emission levels during the operational phase for Projects430
6Except in cases where the borrower does not have a company website.
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emitting over 100,000 tonnes of CO2 equivalent annually. Refer to Annex A for detailed431
requirements on greenhouse gas emissions reporting.432
433
EPFI Reporting Requirements434
435
The EPFI will report publicly at least annually on transactions screened and closed, and about its436
Equator Principles implementation processes and experience, taking into account appropriate437
confidentiality considerations. The EPFI will report according to the minimum reporting438
requirements detailed in Annex B.Each EPFI adopting the Equator Principles commits to report439
publicly at least annually about its Equator Principles implementation processes and experience,440
taking into account appropriate confidentiality considerations.7 441
442
DISCLAIMER443
444
The adopting EPFIs view these Equator Principles as a financial industry benchmark for developing445
individual, internal environmental and social and environmental policies, procedures and practices.446
As with all internal policies, these Equator Principles do not create any rights in, or liability to, any447
person, public or private. Institutions are adopting and implementing these Equator Principles448
voluntarily and independently, without reliance on or recourse to the IFC, or the World Bank or449
other EPFIs.450
451
7
Such reporting should at a minimum include the number of transactions screened by each EPFI, including thecategorisation accorded to transactions (and may include a breakdown by sector or region), and information regarding
implementation.
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ANNEXES: IMPLEMENTATION REQUIREMENTS452
453Annex A - Climate Change: Alternatives Analysis, Quantification and Reporting of 454
Greenhouse Gas Emissions455
456
Where an alternatives analysis is required by a regulating permitting process, the analysis will follow457
the methodology and time frame required by the relevant process. Following completion of an458
alternatives analysis, the borrower will provide evidence of technically and financially feasible and459
cost-effective options available to reduce Project-related GHG emissions during the design,460
construction and operation of the Project.461
462Quantification of GHG emissions will be conducted by the borrower in accordance with463
internationally recognised methodologies and good practice, for example, the GHG Protocol. For464
Scope 1 emissions, this analysis will include consideration of alternative fuel or energy sources.465
Additionally, for Projects in sectors with the highest carbon intensity, the alternatives analysis will466
include comparisons to other viable technologies used in the same industry in the country or region467
with the relative energy efficiency of the selected technology.468
469
High carbon intensity sectors include the following, as outlined in the IFC EHS Guidelines:470
471• thermal power,472
• cement and lime manufacturing,473
• integrated steel mills,474
• base metal smelting and refining,475
• foundries.476
477
The EPFI will require the borrower to publicly report on greenhouse gas emission levels during the478
operational phase for Projects emitting over 100,000 tonnes of CO 2-equivalent annually (combined479
Scope 1 and Scope 2), and they will be encouraged to report publicly on Projects emitting over480
25,000 tonnes. Public reporting requirements can be satisfied via regulatory requirements for481
reporting or environmental impact assessments, or voluntary reporting mechanisms such as the482
Carbon Disclosure Project where such reporting includes emissions at Project level.483
484
The borrower will quantify direct emissions from the facilities owned or controlled within the485
physical Project boundary (Scope 1 emissions), as well as indirect emissions associated with the off-486
site production of energy used by the Project (Scope 2 emissions).487
488
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Annex B - Minimum Reporting Requirements489
490
These reporting requirements apply to Project Finance Advisory services, Project Finance and491
Project-Related Corporate Loans, unless specified otherwise.492
493
Reporting data will be published in a single location. If data is displayed in different locations (e.g.494
website, reports) the EPFI will provide links to facilitate information gathering.495
496
The EPFI will report annually at a minimum and will specify the reporting period (e.g. start and end497
dates).498
499
Aggregated Data Reporting500
501
1. The EPFI will report the number of transactions screened for the first time during the reporting502
period. The EPFI will provide a definition of “transactions screened”.503
504
2. Data for Project Finance Advisory services and Project Finance will be displayed separately from505
Project-Related Corporate Loans.506
507
3. The EPFI will display a breakdown of the data as follows:508
509
• Category (A, B, or C);510
• Category (A, B, or C) and by Sector and Region i.e. (Mining, Infrastructure, Oil and Gas,511
Power, Others) and (Americas, Europe Middle East and Africa, Asia Pacific);512
• Category (A, B, or C) and by Host Country Classification (e.g. High-Income OECD);513
• Category (A or B) and whether an Independent Review has been carried out.514
515
4. The EPFI will report on the number of Project Finance and Project-Related Corporate Loans that516
have reached Financial Close during the reporting period and will display a breakdown of the517
data by Category (A, B, or C). Note this requirement does not apply to Project Finance Advisory518services.519
520
Implementation Reporting521
522
1. The EPFI will report on their implementation of the Equator Principles, including:523
524
• The mandate of the Equator Principles Reviewers (e.g. responsibilities and staffing);525
• The respective roles of the Equator Principles Reviewers and business lines involved in the526
transaction review process;527
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• The level of senior management involvement for Category A and, as appropriate, Category B528
transactions;529
• The incorporation of the Equator Principles in their credit and risk management policies and530
procedures.531
532
2. EPFIs, in their first year of Equator Principles adoption, will provide details of their internal533
preparation and staff training.534
535
Project-Specific Data Reporting536
537
Project-Specific Data reporting is:538
539
• applicable only to Project Finance transactions that have reached Financial Close,540
• subject to obtaining client consent,541
• subject to applicable local laws and regulations, and542
• subject to any reduction in the rights, or increase in the liability, of the EPFI.543
544
The EPFI will seek client consent at a time during the loan documentation process deemed545
appropriate by the EPFI or at Financial Close.546
547
The EPFI will submit data (or a link to the data on their website) to the Equator Principles Secretariat548
for publication on the Equator Principles website. The data will include: 549
550
• Project name (as per the loan agreement);551
• Sector: Mining, Infrastructure, Oil and Gas, Power, Others;552
• Region: Americas, Europe Middle East and Africa, Asia Pacific;553
• The calendar year in which the loan reached Financial Close.554
555
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EXHIBITS: SUPPORTING INFORMATION556
557Exhibit I - Glossary of Terms558
559
Action Plan (AP) is prepared, as a result of EPFI due diligence, to describe and prioritise the actions560
needed to address any gaps in the Assessment or ESMPs to bring the Project in line with applicable561
standards as defined in the Equator Principles. The AP is typically tabular in form and lists distinct562
actions from mitigation measures to follow-up studies or plans that complement the Assessment.563
564
Affected Communities are local communities, within the Project's area of influence, directly affected565
by the Project.566567
Bridge Loan is an interim loan given to a business until the longer term stage of financing can be568
obtained. 569
570
Effective Operational Control includes both direct control of the Project by the borrower and571
indirect control, for example where a subsidiary of the borrower operates the Project. 572
573
Environmental and Social Assessment (Assessment) is a process that determines the environmental574
and social risks and impacts (including labour, health, and safety) of a proposed Project in its area of 575
influence. 576
577
Environmental and Social Management Plan (ESMP) is a summary of borrower commitments to578
mitigate risks and impacts identified in the Assessment. This may range from a brief description of 579
routine mitigation measures to a series of documents (e.g. resettlement action plan, indigenous580
peoples plan, emergency preparedness and response plan, decommissioning plan). The level of 581
detail and complexity of the ESMP and the priority of the identified measures and actions will be582
commensurate with the Project’s potential risks and impacts.583
584
Environmental and Social Management System (ESMS) is the overarching environmental, social,585
health and safety management system which may be applicable at a corporate or Project level. The586
system is designed to identify, assess and manage risk in respect to the Project on an ongoing basis.587
The system consists of manuals and related source documents, including policies, management588
programs and plans, procedures, requirements, performance indicators, responsibilities, training589
and periodic audits and inspections with respect to environmental or social matters. It is the590
overriding framework by which an ESMP and/or AP is implemented. The term may refer to the591
system for the construction phase or the operational phase of the Project, or to both as the context592
may require.593
594
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Equator Principles Reviewers are EPFI employees responsible for reviewing the environmental and595
social aspects of loans subject to the Equator Principles. They may be a distinct Equator Principles596
team or members of banking, credit risk, corporate sustainability (or similar) who are tasked with597
applying the Equator Principles internally.598
599
Financial Close is defined as the date on which all conditions precedent to initial drawing of the debt600
have been satisfied or waived. 601
602
High-Income OECD Countries are countries that are members of the Organisation for Economic Co-603
Operation and Development (OECD) and designated High-Income by the World Bank Development604
Indicators Database.605
606
Informed Consultation and Participation is an in-depth exchange of views and information and an607
organised and iterative consultation that leads the borrower to incorporate the views of Affected608
Communities, on matters that affect them directly (such as proposed mitigation measures, the609
sharing of development benefits and opportunities, and implementation issues), into their decision-610
making process.611
612
Independent Environmental and Social Consultant is a qualified independent firm or consultant613
(not directly tied to the borrower) acceptable to the EPFI. 614
615Independent Review is a review of the Assessment, ESMP and consultation process documentation616
carried out by an Independent Environmental and Social Consultant. 617
618
Initial Exposure is the initial amount (not the amount after sell down or syndication) committed to619
the loan. 620
621
Known Use of Proceeds is the information provided by the borrower on how the borrowings will be622
used.623
624Non-High Income OECD Countries are countries that are members of the OECD that are not625
designated as High-Income by the World Bank Development Indicators Database. 626
627
Non-OECD Countries are countries that are not members of the OECD.628
629
Official Agency is a multilateral development bank, a multilateral or bilateral financial institution or630
an OECD Export Credit Agency631
632
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Other Stakeholders are those not directly affected by the Project but that have an interest in it. They633
could include national and local authorities, neighbouring Projects, and/or non-governmental634
organisations.635
636
A Project is a development (in any sector) at an identified location. It includes an expansion or637
upgrade of an existing operation that results in a material change in output or function. Examples of 638
Projects that trigger the Equator Principles include, but are not limited to; a power plant, mine, oil639
and gas Project (including drillships and Floating Production Storage and Offloading (FPSO) vessels),640
chemical plant, infrastructure development, manufacturing plant, large scale real estate641
development, or any other Project that creates significant environmental and/or social impacts. 642
643
Project Finance is a method of financing in which the lender looks primarily to the revenues644
generated by a single Project, both as the source of repayment and as security for the exposure. This645
type of financing is usually for large, complex and expensive installations that might include, for646
example, power plants, chemical processing plants, mines, transportation infrastructure,647
environment, and telecommunications infrastructure. Project Finance may take the form of 648
financing of the construction of a new capital installation, or refinancing of an existing installation,649
with or without improvements. In such transactions, the lender is usually paid solely or almost650
exclusively out of the money generated by the contracts for the Project’s output, such as the651
electricity sold by a power plant. The borrower is usually a Special Purpose Entity that is not652
permitted to perform any function other than developing, owning, and operating the installation.653The consequence is that repayment depends primarily on the Project’s cash flow and on the654
collateral value of the Project’s assets. For reference go to “Basel Committee on Banking Supervision,655
International Convergence of Capital Measurement and Capital Standards ("Basel II")” , November656
2005. http://www.bis.org/publ/bcbs118.htm. Reserve-Based Financing in extractive sectors that is657
non-recourse and where the proceeds are used to develop one particular reserve (e.g. an oil field or658
a mine) is considered to be a Project Finance transaction covered under the Equator Principles.659
660
Project Finance Advisory is the provision of advice on the potential financing of a development661
where one of the options may be Project Finance. 662663
Project-Related Corporate Loans are corporate loans, made to business entities (either privately,664
publicly, or state-owned or controlled) related to a single Project, either a new development,665
expansion (e.g. where there is an expanded footprint) or upgrade, where the Known Use of Proceeds666
is related to a single Project in one of the following ways:667
668
a. The lender looks primarily to the revenues generated by the Project as the source of 669
repayment (as in Project Finance) and where security exists in the form of a corporate or670
parent company guarantee;671
672
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b. Documentation for the loan indicates that the majority of the proceeds of the total loan are673
directed to the Project. Such documentation may include the term sheet, information674
memorandum, credit agreement, or other representations provided by the borrower into its675
intended use of proceeds for the loan.676
677
In the case of Export Finance, the infrastructure or industrial project to which the export is intended678
will be considered the “Project”.679
680
Excluded transactions include Asset Finance (such as for cargo ships or airplanes), general working681
capital facilities, and general capital expenditure facilities used to maintain, enhance and upgrade a682
company's operations.683
684
Loans that are not directed towards a Project, for example general corporate purposes loans, are not685
in the scope the Equator Principles.686
687
Stakeholder Engagement refers to IFC Performance Standards provisions on external688
communication, environmental and social information disclosure, informed consultation, and689
grievance mechanisms. For the Equator Principles, Stakeholder Engagement also refers to the overall690
requirements described under Principle 5.691
692
EXHIBIT I: CATEGORISATION OF PROJECTS 693694
As part of their review of a project’s expected social and environmental impacts, EPFIs use a system695
of social and environmental categorisation, based on the IFC’s environmental and social screening696
criteria, to reflect the magnitude of impacts understood as a result of assessment.697
698
These categories are:699
700
Category A – Projects with potential significant adverse social or environmental impacts that are701
diverse, irreversible or unprecedented;702703
Category B – Projects with potential limited adverse social or environmental impacts that are few in704
number, generally site-specific, largely reversible and readily addressed through mitigation705
measures; and706
707
Category C – Projects with minimal or no social or environmental impacts. 708
709
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Exhibit II: Illustrative List of Potential Environmental and Social and Environmental710
Issues to be Addressed in the Environmental and Social And Environmental 711Assessment Documentation712
713
In the context of the business of the pProject, the Assessment documentation will address, where714
applicable, the following issues:715
716
a) assessment of the baseline environmental and social and environmental conditions717
b) consideration of feasible environmentally and socially preferable alternatives718
c) requirements under host country laws and regulations, applicable international treaties and719
agreements720d) protection of human rights by acting with due diligence to prevent, mitigate and manage721
adverse human rights impacts722
d)e) protection of and community health, safety and security (including risks, impacts and723
management of pProject’s use of security personnel)724
e)f) protection of cultural property and heritage725
f)g) protection and conservation of biodiversity, including endangered species and sensitive726
ecosystems in modified, natural and critical habitats, and identification of legally protected areas727
g)h) sustainable management and use of renewable natural resources (including sustainable728
resource management through appropriate independent certification systems)729
h)i) use and management of dangerous substances730
i) j) major hazards assessment and management731
j)k) labour issues (including the four core labour standards), and occupational health and safety732
k)l) fire prevention and life safety733
l)m)socio-economic impacts734
m)n) land acquisition and involuntary resettlement735
n)o) impacts on affected communities, and disadvantaged or vulnerable groups736
o)p) impacts on indigenous peoples, and their unique cultural systems and values737
p)q) cumulative impacts of existing pProjects, the proposed pProject, and anticipated future738
pProjects739
q)r) consultation and participation of affected parties in the design, review and implementation of 740
the pProject741
r)s) efficient production, delivery and use of energy742
t) pollution prevention and waste minimisation, pollution controls (liquid effluents and air743
emissions) and solid and chemical waste management 744
u) viability of Project operations, of reasonable foreseeable changing weather patterns/climatic745
conditions, together with adaptation opportunities.746
747
748
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Note: The above list is for illustrative purposes only. The Social and Environmental Assessment749
process of each pProject may or may not identify all issues noted above, or be relevant to every750
pProject.751
752
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Exhibit III: IFC Performance Standards on Environmental and Social Sustainability 753
and Environmental, Health and Safety Guidelines 754755
The Equator Principles refer to two separate parts of the IFC Sustainability Framework as “the then756
applicable environmental and social standards” under Principle 3.757
758
1. The IFC Performance Standards on Environmental and Social Sustainability759
760
As of January 1, 2012, the following list of IFC Performance Standards were applicable:761
762
Performance Standard 1 - Assessment and Management of Social and Environmental Risks and763
Impacts764
Performance Standard 2 - Labor and Working Conditions765
Performance Standard 3 - Resource Efficiency and Pollution Prevention766
Performance Standard 4 - Community Health, Safety and Security767
Performance Standard 5 - Land Acquisition and Involuntary Resettlement768
Performance Standard 6 - Biodiversity Conservation and Sustainable Management of Living Natural769
Resources770
Performance Standard 7 - Indigenous Peoples771
Performance Standard 8 - Cultural Heritage772
773
The IFC has developed a set of Guidance Notes to accompany each Performance Standard. While774
EPFIs do not formally adopting the Guidance Notes, however EPFIs or and borrowers may find them775
use the Guidance Notes as useful points of reference when seeking further guidance on or776
interpretingation of the Performance Standards.777
778
The IFC Performance Standards, Guidance Notes and Industry Specific Sector EHS Guidelines can be779
found at http://www.ifc.org/ifcext/policyreview.nsf/Content/2012-Edition. 780
781
Important Note:782
783
The EP Association Steering Committee has provided guidance on how members, clients and784
stakeholders can transition smoothly and consistently from the 2006 to the 2012 IFC Performance785
Standards. Please refer to http://www.equator-principles.com/index.php/all-ep-786
associationnews/254-revised-psfor this guidance. 787
788
789
790
791792
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2. The IFC Environmental, Health and Safety (EHS) Guidelines793
794
The IFC EHS Guidelines are technical reference documents containing examples of Good795
International Industry Practice (GIIP), as defined in Performance Standard 3 on Resource Efficiency796
and Pollution Prevention. They contain the performance levels and measures that are normally797
considered acceptable for Projects in emerging markets, as well as being achievable in new facilities798
at reasonable costs by existing technology. Two Guidelines are used:799
800
The General EHS Guidelines801
802
These Guidelines contain information on cross-cutting environmental, health, and safety issues803
potentially applicable to all industry sectors. They are divided into sections entitled: Environmental;804
Occupational Health and Safety; Community Health and Safety; Construction; and Decommissioning.805
They should be used together with the relevant Industry Sector Guideline(s).806
807
The Industry Sector Guidelines808
809
These Guidelines contain information on industry-specific impacts and performance indicators, plus810
a general description of industry activities. They are grouped as follows:811
812
Agribusiness/Food Production813• Annual Crop Production814
• Aquaculture815
• Breweries816
• Dairy Processing817
• Fish Processing818
• Food and Beverage Processing819
• Mammalian Livestock Production820
• Meat Processing821
• Plantation Crop Production822
• Poultry Processing823
• Poultry Production824
• Sugar Manufacturing825
• Vegetable Oil Processing826
827
828
829
830
831832
Chemicals833• Coal Processing834
• Large Volume Inorganic Compounds835
Manufacturing and Coal Tar Distillation836
• Large Volume Petroleum-based Organic837
Chemicals Manufacturing838
• Natural Gas Processing839
• Nitrogenous Fertilizer Manufacturing840
• Oleochemicals Manufacturing841
• Pesticides Formulation, Manufacturing and842Packaging843
• Petroleum-based Polymers Manufacturing844
• Petroleum Refining845
• Pharmaceuticals and Biotechnology846
Manufacturing847
• Phosphate Fertilizer Manufacturing848
849
850
851852
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Forestry853
• Board and Particle-based Products854
• Forest Harvesting Operations855
• Pulp and Paper Mills856
• Sawmilling and Wood-based Products857
858
General Manufacturing859
• Base Metal Smelting and Refining860
• Cement and Lime Manufacturing861
• Ceramic Tile and Sanitary Ware862
Manufacturing 863
• Construction Materials Extraction864
• Foundries865
• Glass Manufacturing866
• Integrated Steel Mills867
• Metal, Plastic, Rubber Products868
Manufacturing869
• Printing870
• Semiconductors and Electronics871
Manufacturing872
• Tanning and Leather Finishing873
• Textiles Manufacturing874
875
Infrastructure876
• Airlines877
• Airports878
• Crude Oil and Petroleum Product879
Terminals 880
• Gas Distribution Systems881
• Health Care Facilities882
• Ports, Harbors and Terminals883
• Railways884
• Retail Petroleum Networks885
• Shipping886
• Telecommunications887
• Toll Roads888
• Tourism and Hospitality Development889
• Waste Management Facilities890
• Water and Sanitation891
Mining892
• Mining893
894
Oil and Gas895
• Offshore Oil and Gas Development896
• Onshore Oil and Gas Development897
• Liquefied Natural Gas (LNG) Facilities898
899
Power900
• Electric Power Transmission and901
Distribution902
• Geothermal Power Generation903
• Thermal Power904
• Wind Energy905
906
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907
EXHIBIT IV: INDUSTRY-SPECIFIC ENVIRONMENTAL, HEALTH AND SAFETY (EHS) GUIDELINES908
909
EPFIs will utilise the appropriate environmental, health and safety (EHS) guidelines used by the IFC910
which are now in place, and as may be amended from time-to-time.911
912
The IFC is using two complementary sets of EHS Guidelines available at the IFC website913
(http://www.ifc.org/ifcext/sustainability.nsf/Content/EHSGuidelines). These sets consist of all the914
environmental guidelines contained in Part III of the World Bank’s Pollution Prevention and915
Abatement Handbook (PPAH) which went into official use on July 1, 1998 and a series of 916
environmental, health and safety guidelines published on the IFC website between 1991 and 2003.917
Ultimately new guidelines, incorporating the concepts of cleaner production and environmental918
management systems, will be written to replace this series of industry sector, PPAH and IFC919
guidelines.920
921
Where no sector specific guideline exists for a particular project then the PPAH’s General922
Environmental Guidelines and the IFC Occupational Health and Safety Guidelines (2003) are applied,923
with modifications as necessary to suit the project.*924
925
The table below lists both the World Bank Guidelines and the IFC Guidelines as of March 1, 2006.926
927Industry Specific EHS Guidelines:928
929 930
World Bank Guidelines (PPAH) IFC Guidelines
1. Aluminium Manufacturing 1. Airports
2. Base Metal and Iron Ore Mining 2. Ceramic Tile Manufacturing
3. Breweries 3. Construction Materials Plants
4. Cement Manufacturing 4. Electric Power Transmission and Distribution
5. Chlor-Alkali Plants 5. Fish Processing
6. Coal Mining and Production 6. Food and Beverage Processing7. Coke Manufacturing 7. Forestry Operations: Logging
8. Copper Smelting 8. Gas Terminal Systems
9. Dairy Industry 9. Geothermal Projects
10. Dye Manufacturing 10. Hazardous Materials Management
11. Electronics Manufacturing 11. Health Care
12. Electroplating Industry 12. Life & Fire Safety
13. Foundries 13. Occupational Health and Safety
14. Fruit and Vegetable Processing 14. Office Buildings
15. General Environmental Guidelines 15. Offshore Oil & Gas16. Glass Manufacturing 16. Polychlorinated Biphenyls (PCBs)
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World Bank Guidelines (PPAH) IFC Guidelines
17. Industrial Estates 17. Pesticide Handling and Application
18. Iron and Steel Manufacturing 18. Plantations
19. Lead and Zinc Smelting 19. Port and Harbor Facilities
20. Meat Processing and Rendering 20. Rail Transit Systems
21. Mini Steel Mills 21. Roads and Highways
22. Mixed Fertilizer Plants 22. Telecommunications
23. Monitoring 23. Tourism and Hospitality Development
24. Nickel Smelting and Refining 24. Waste Management Facilities
25. Nitrogenous Fertilizer Plants 25. Wastewater Reuse
26. Oil and Gas Development (Onshore) 26. Wildland Management
27. Pesticides Formulation 27. Wind Energy Conversion Systems
28. Pesticides Manufacturing 28. Wood Products Industries
29. Petrochemicals Manufacturing
30. Petroleum Refining
31. Pharmaceutical Manufacturing
32. Phosphate Fertilizer Plants
33. Printing Industry
34. Pulp and Paper Mills
35. Sugar Manufacturing
36. Tanning and Leather Finishing
37. Textiles Industry
38. Thermal Power Guidelines for New Plants
39. Thermal Power Rehabilitation of Existing
Plants
40. Vegetable Oil Processing
41. Wood Preserving Industry
931
* Exception (the following are World Bank Guidelines not contained in the PPAH and currently in932
use)933
934
Mining and Milling - Underground935
Mining and Milling - Open Pit 936
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1
FREQUENTLY ASKED QUESTIONS
ON THE EQUATOR PRINCIPLES (EP III) UPDATE
OVERVIEW AND CONTEXT
1. WHAT ARE THE EQUATOR PRINCIPLES? .................................................................................................... 3
2. WHAT IS AN EQUATOR PRINCIPLES FINANCIAL INSTITUTION AND WHAT IS THE EQUATOR
PRINCIPLES ASSOCIATION?........................................................................................................................ 3
3. HAS THE PROJECT FINANCE MARKET CHANGED SINCE THE LAUNCH OF EQUATOR PRINCIPLES? ........... 3
4. WHY ARE THE EQUATOR PRINCIPLES BEING UPDATED AND WHAT DOES “EP III” MEAN? ...................... 3
5. WHAT ARE THE KEY AIMS OF THE EP III UPDATE PROCESS? ..................................................................... 4
6. WHAT ARE THE PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT IN THE EP III DRAFT?............ 5
7. HOW WILL THE PROPOSED CHANGES TO THE EQUATOR PRINCIPLES AFFECT INDUSTRY SECTORSAND CLIENTS? ............................................................................................................................................. 5
8. HOW CAN I CONTRIBUTE TO AND PARTICIPATE IN THE EP III UPDATE PROCESS? ................................... 5
PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT
9. CAN YOU SUMMARISE THE PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT
IN THE EP III DRAFT?.................................................................................................................................7
10. WHY IS THE EQUATOR PRINCIPLES ASSOCIATION EXTENDING THE SCOPE OF THE EQUATOR
PRINCIPLES? ............................................................................................................................................. 11
11. THE DEFINING CRITERIA FOR PROJECT-RELATED CORPORATE LOANS IS VERY SPECIFIC,
WILL THIS MEAN MANY PROJECTS WILL NOT BE ASSESSED UNDER THE EQUATOR PRINCIPLES
FRAMEWORK? ......................................................................................................................................... 12
12. WHY DOESN’T THE EQUATOR PRINCIPLES FRAMEWORK APPLY TO ALL AREAS OF FINANCE? .............. 12
13. HOW IS THE EQUATOR PRINCIPLES ASSOCIATION WORKING TO IMPROVE CONSISTENCY IN
EQUATOR PRINCIPLES IMPLEMENTATION? ............................................................................................ 13
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14. WHY HAS THE EQUATOR PRINCIPLES ASSOCIATION FOCUSED ON ENHANCED REPORTING ANDTRANSPARENCY? ..................................................................................................................................... 13
15. HOW DO THE ENHANCED REPORTING REQUIREMENTS IMPROVE COMPLIANCE AND
TRANSPARENCY? ..................................................................................................................................... 13
16. HOW IS THE EQUATOR PRINCIPLES ASSOCATION WORKING TO IMPROVE THE PROVISION OF
GRIEVANCE MECHANISMS AT PROJECT LEVEL? ...................................................................................... 13
17. HOW DO THE PROPOSED CHANGES TO THE EQUATOR PRINCIPLES ACKNOWLEDGE THE UN’S
“PROTECT, RESPECT AND REMEDY” FRAMEWORK AND GUIDING PRINICPLES ON BUSINESS
AND HUMAN RIGHTS? ............................................................................................................................ 14
18. HOW IS THE GAP BETWEEN THE EFFECTIVENESS DATE OF EP III AND THE UPDATED IFC
PERFORMANCE STANDARDS BEING MANAGED? .................................................................................... 14
19. WHY DOESN’T THE EP III DRAFT ADDRESS ALL THE RECOMMENDATIONS IN THE EQUATOR
PRINCIPLES STRATEGIC REVIEW REPORT? ............................................................................................. 15
THE EP III UPDATE PROCESS & STAKEHOLDER ENGAGEMENT
20. WHAT IS THE PROCESS FOR UPDATING THE EQUATOR PRINCIPLES? ..................................................... 16
21. HOW IS THE EQUATOR PRINCIPLES ASSOCIATION ENSURING STAKEHOLDERS ARE CONSULTED?
HOW CAN I SUBMIT COMMENTS? .......................................................................................................... 17
22. WHERE WILL MY COMMENTS GO? AND WILL THEY BE PUBLISHED? .................................................... 18
23. WILL I GET A RESPONSE? ........................................................................................................................ 18
24. HOW WILL MY COMMENTS AFFECT THE EP III DRAFT? ......................................................................... 18
25. WHEN WILL THE NEW EQUATOR PRINCIPLES BE LAUNCHED AND IMPLEMENTED? ............................. 19
26. WHO CAN I CONTACT TO ASK A QUESTION ABOUT ANY OF THIS? ........................................................ 19
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OVERVIEW AND CONTEXT
1. WHAT ARE THE EQUATOR PRINCIPLES?
The Equator Principles (EP) is a risk framework for identifying, assessing, and managing environmental and
social risks in Project Finance transactions.
The EP framework is based on the International Finance Corporation (IFC) Performance Standards on
environmental and social sustainability and on the World Bank Group Environmental, Health, and Safety
Guidelines.
There are currently 77 adopting financial institutions (74 Equator Principles Financial Institutions and 3
Associates).
2. WHAT IS AN EQUATOR PRINCIPLES FINANCIAL INSTITUTION AND WHAT IS THE EQUATOR PRINCIPLES
ASSOCIATION?
Currently, an Equator Principles Financial Institution (EPFI) is a financial institution that adopts the EP and is
active in Project Finance or Project Finance Advisory services. EPFIs commit to not providing loans to
projects where the borrower will not, or is unable, to comply with their respective social and environmental
policies and procedures.
The EP Association is the unincorporated association of member EPFIs and Associates whose objective is
the management, administration and development of the EP framework.
3. HAS THE PROJECT FINANCE MARKET CHANGED SINCE THE LAUNCH OF EQUATOR PRINCIPLES?
There has been significant development in the Project Finance market since the launch of the EP
framework in 2003. The market has become more culturally diverse with a variety of global and local
financial institutions active in the market. In addition, there are more diverse financing structures for
example where the proceeds of a financing are used partly for Project Finance and partly for the other
general financing needs of the client, or where financing is for a project and there may be a “guarantee”
from the Parent (which some banks do not view as pure Project Finance). Furthermore, experience
managing environmental and social risk within financial institutions and awareness with clients and their
advisors has greatly improved.
4. WHY ARE THE EQUATOR PRINCIPLES BEING UPDATED AND WHAT DOES “EP III” MEAN?
As noted in the current EP text, the EP Association is committed to reviewing the EP framework from time-
to-time to reflect ongoing learning and emerging good practice.
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4
Since the launch of the EP framework in June 2003 and a subsequent revision in 2006, there has been
significant growth in the number of EP adopters from the original 10 to 77 financial institutions from 32countries across the globe. During this period there has been significant development in environmental and
social risk management practices, partly as a result of the greater challenges impacting affected
communities and the environment and partly due to the changing financial landscape, particularly the
ongoing financial crisis and changing public perception of the role of financial institutions.
In 2010, the EP Association initiated a Strategic Review which produced a series of recommendations on
key thematic areas, namely: scope, climate change, human rights, reporting and transparency, stakeholder
engagement and governance. Parallel to this, the IFC initiated a review and update of their Sustainability
Framework, and their Performance Standards, which underpin the EP, were updated and re-launched in
January 2012.
In this context it was deemed an appropriate time to reflect on the implementation experience of EP
Association members, and that of our clients, and update the EP to ensure they remain a relevant and
practical risk management tool and supportive of sustainable financing objectives.
The result of the EP Update process will, if approved by members, be the third version of the Equator
Principles – hence the term “EP III”.
5. WHAT ARE THE KEY AIMS OF THE EP III UPDATE PROCESS?
The keys aims of the EP III Update process are:
• To ensure EP Association members continue to appropriately manage environmental and social risk
and impacts for their institutions, clients and relevant stakeholders with regard to the financing of
projects,
• To reflect the recent update of the IFC Performance Standards, and
• To maintain the level playing field on which international and local financial institutions operate,
with regards to sustainable financing objectives.
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5
6. WHAT ARE THE PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT IN THE EP III DRAFT?
In summary, key themes and areas of development proposed in the EP III draft include:
• An extension in the scope of the EP to Project-Related Corporate Loans and Bridge Loans.
• Changes reflecting the recent update of the International Finance Corporation (IFC) Performance
Standards.
• New requirements related to managing impacts on climate.
• Greater emphasis on human rights considerations in due diligence and an acknowledgment of the
UN "Protect, Respect and Remedy" Framework for Business and Human Rights and Guiding
Principles on Business and Human Rights.
• A strengthening of reporting and transparency requirements.
The proposed changes are fully detailed in the section - KEY CHANGES AND AREAS OF DEVELOPMENT IN
THE EP III DRAFT.
7. HOW WILL THE PROPOSED CHANGES TO THE EQUATOR PRINCIPLES AFFECT INDUSTRY SECTORS AND
CLIENTS?
The proposed changes to the EP will help improve the identification, assessment and management of
environmental and social risks and impacts in projects. This will be achieved through a widening of the
scope of application to other financial products, increased transparency and access to information for
financial institutions and local communities, and the incorporation of language that reflects the updated IFC
Performance Standards. The proposed changes should also enable more consistent implementation of the
EPs, thus making it easier for clients to implement the EP on-the-ground and to manage their relationships
with EPFIs.
8. HOW CAN I CONTRIBUTE TO AND PARTICIPATE IN THE EP III UPDATE PROCESS?
The formal 60 day stakeholder consultation and public comment period will give all interested parties and
stakeholders (including EP Association members, other financial institutions, clients, industry bodies and
associations, non-governmental organisations, consultants, law firms and regulatory bodies) an opportunity
to review the EP III draft and provide comments. The EP Association is committed to openness,
transparency and responsiveness and will consider all stakeholder feedback.
You can submit your views and participate in the process in one or more of the following ways:
• Complete the online submission form.
• Email comments to [email protected].
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6
• Participate in a webinar and/or face-to-face meeting – details are published on the EP III web
pages. Note that places are limited and by invitation only – you can register your interest inattending by emailing [email protected].
The EP III Update process and timeline is fully detailed in the section – THE EP III UPDATE PROCESS.
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7
PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT
9. CAN YOU SUMMARISE THE PROPOSED KEY CHANGES AND AREAS OF DEVELOPMENT IN THE EP III
DRAFT?
KEY TOPIC RELEVANT SECTION DESCRIPTION
Structure and
Language
All • The document has been divided in to 3 distinct sections to
enable clear distinction between mandatory requirements
in Main Text and Annexes, and supporting information in
the Exhibits:
1. Main Text – Preamble, Scope and Statement of
Principles.
2. Annexes – This contains implementation requirements
for applying certain aspects of the EP framework. The
content of the Annexes are an integral part of the EP
and the requirements within them are mandatory.
3. Exhibits – This contains supporting information
including a new Glossary of Terms.
• Several footnotes have been incorporated in the main text
or added to the Glossary of Terms.
• Several Principles have been shortened and language has
been adjusted or clarified.
• The document language has been refined to align with
new/changed language in the 2012 IFC Performance
Standards.
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8
KEY TOPIC RELEVANT SECTION DESCRIPTION
Scope • Scope
• Principles 2, 4, 7,
and 9
• Exhibit I
• The inclusion of Project-Related Corporate Loans
(Corporate Loans related to one specific project) subject
to a US$100m threshold and a loan tenor of at least 2
years. It should be noted that general corporate purposes
loans are excluded from the scope of the EP (refer to the
Scope section of the EP III draft for the criteria).
• The inclusion of Bridge Loans that will be refinanced by
Project Finance or a Project-Related Corporate Loan.
Categorisation • Principle 1
• Exhibit I in EP II
• Exhibit I has been deleted and Categorisation has been
included in the main text. It should be noted that further
guidance material on Categorisation will be developed.
Climate
Change
• Principle 2 and
10
• Annex A
• There is a new requirement for an analysis of alternatives,
including less carbon intensive fuel sources and
technologies, for projects emitting over 100.000 tonnes
CO2 equivalent. It should be noted that the alternatives
analysis is based on the requirements stipulated in the
updated IFC Performance Standards.
• There is a new requirement for borrowers to publicly
report on emissions for projects emitting over 100.000
tonnes CO2 equivalent.
• It should be noted that further guidance material on
implementation of these requirements will be developed.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Applicable
Environmental
and Social
Standards
• Preamble
• Principle 3
• Various other
Principles
• An overarching statement regarding the application of the
EP framework in High-Income OECD Countries has been
included in the Preamble.
• Principle 3 now provides clarity to EPFIs and clients on the
meaning and intent of the application of standards in
different jurisdictions. Where possible, reference to
application in High-Income OECD Countries has been
deleted from individual Principles.
• Principle 3 now states that the EPFI, at its sole discretion,
may seek to benchmark projects in these countries against
these or other internationally recognised environmental
and social assessment standards.
Action Plan
and
Managementsystems
• Principle 4
• Exhibit I
• The definition and purpose of an Action Plan, and related
management plans has been clarified.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Stakeholder
Engagement
and Human
Rights
• Preamble
• Principles 5, 6
and 10
• Exhibit I
• Exhibit II
• New language in the Preamble and Exhibit II
acknowledges the UN "Protect, Respect and Remedy"
Framework for Business and Human Rights and Guiding
Principles on Business and Human Rights, and the
importance of human rights in the due diligence process.
• Principles 5 and 6 include new language related to
Stakeholder Engagement (replacing the current
Consultation and Disclosure) to reflect the updated
language in the IFC Performance Standards on stakeholder
engagement hierarchy.
• The text referencing Free, Prior and Informed Consent for
projects in non-OECD countries and OECD countries not
designated as High-Income has been inserted so that it
reflects the important changes in the IFC Performance
Standards.
• Principle 6 has been shortened to reduce duplication of
the requirements in the IFC Performance Standards.
• Assessment disclosure requirements have been moved to
Principle 10.
Covenants • Principle 8, 2 and
4
• The requirement for covenants now explicitly refers to all
projects.
• Requirements for Bridge Loans and Project Finance
Advisory services have been included in Principle 2 and
Principle 4.
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KEY TOPIC RELEVANT SECTION DESCRIPTION
Reporting and
Transparency
• Principles 2, 5
and 10
• Annex B
• Principle 10 now includes all reporting and disclosure
requirements and is divided in to “Project Reporting” and
“EPFI Reporting”.
• Annex B includes detailed requirements for EPFI reporting.
• In addition to the client’s responsibility to disclose the
project Environmental Impact Assessment (EIA) locally,
the text now includes the requirement to disclose the EIA
and Environmental and Social Management Plan (ESMP)
(which is normally a component of the EIA), online unless
the borrower does not have a company website.
• Annex B also includes a new requirement to provide,
subject to borrower consent, a list of projects for
publication on the EP website.
• It should be noted that a grace period for reporting onProject-Related Corporate Loans will be reflected in EP
Association Governance Rules.
10. WHY IS THE EQUATOR PRINCIPLES ASSOCIATION EXTENDING THE SCOPE OF THE EQUATOR
PRINCIPLES?
The EP Association is responding to trends and practices on how projects are being financed. There has
been significant development in the Project Finance market since the launch of the EP framework in 2003.
The market has become more culturally diverse with a variety of global and local financial institutions active
in the market. In addition, there are more diverse financing structures for example where the proceeds of a
financing are used partly for Project Finance and partly for the other general financing needs of the client,
or where financing is for a project and there may be a “guarantee” from the Parent (which some banks do
not view as pure Project Finance). While in many of these cases environmental and social risks and impacts
are still present, these types of financing fall outside the scope of the current EP framework. Additionally
there has been a notable maturation of additional environmental and social risk and mitigation procedures
notably with regards to climate change and human rights.
Taking all these factors into account, it is proposed that the scope is extended to a defined sub-set of
Corporate Loans (Project-Related Corporate Loans) and Bridge Loans.
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11. THE DEFINING CRITERIA FOR PROJECT-RELATED CORPORATE LOANS IS VERY SPECIFIC, WILL THIS
MEAN MANY PROJECTS WILL NOT BE ASSESSED UNDER THE EQUATOR PRINCIPLES FRAMEWORK?
The proposed extension of scope to Project-Related Corporate Loans is a significant step forward and
should capture more transactions for assessment under the EP framework. The definition of Project-
Related Corporate Loans has been subject to extensive debate within the EP Association and the proposed
criteria have been deemed the most appropriate for a number of reasons, including:
• ensuring the consistent implementation of the EP framework,
• providing a starting point for capacity building for new adopters, and
• ensuring that adopters have sufficient leverage to implement the EP framework when non-
adopters are present in the syndicate or leading the syndication.
Furthermore it should be noted that financing a project through a Project-Related Corporate Loan is
different to Project Finance in two important respects.
In general, financial institutions have a lesser degree of influence/leverage over a project financed through
a Corporate Loan. There is also a higher degree of competition with financial institutions in certain
geographies including those that are not EP adopters. Furthermore loans are often arranged in a shorter
timescale meaning that parts of the EP framework would require a different approach.
The proposal to extend the scope to Project-Related Corporate Loans has taken these factors in to account
to ensure that the EP framework can be implemented by financial institutions. It should be noted that the
proposals also aim to ensure there are more stringent requirements for the highest risk Corporate Loan
projects.
12. WHY DOESN’T THE EQUATOR PRINCIPLES FRAMEWORK APPLY TO ALL AREAS OF FINANCE?
The EP framework was originally created for environmental and social risk management in Project Finance
transactions. While the proposal is to extend the scope of the EP to Project-Related Corporate Loans and
Bridge Loans, the focus will still be on Project Finance and Project Finance Advisory services as it easily
follows a project’s financing, development and operational cycle.
The EP framework does not lend itself readily to other areas of finance. For example, capital markets deals
(such as bonds and IPOs) are often general corporate purposes in nature, and in these transactions financial
institutions do not have long-term “hooks” such as Covenants or monitoring requirements.
Additionally, the level of due diligence required to apply the EP framework can be significant in terms of
timing and resources and many financing products are structured in a way which makes the consistentapplication of EP impractical or unfeasible. Therefore the scope has been limited to projects in order to
ensure that the EP framework can be applied consistently.
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The EP Association does acknowledge however that many members use the “EP” concept and the IFC
Performance Standards within their own internal policy frameworks for other finance activities.
13. HOW IS THE EQUATOR PRINCIPLES ASSOCIATION WORKING TO IMPROVE CONSISTENCY IN EQUATOR
PRINCIPLES IMPLEMENTATION?
The EP III Update process has facilitated extensive discussion within the EP Association on the challenges
and possible solutions for better consistency and these discussions will be ongoing. The EP III draft also
proposes language on how EPFIs might be able to exchange non-confidential information and communicate
with each other during the due diligence phase of a project. Furthermore, the EP Association will be
providing more opportunities for members to discuss this topic and it will be discussed at the next EP
Association Annual Meeting which takes place during Phase III of the EP III Update process.
14. WHY HAS THE EQUATOR PRINCIPLES ASSOCIATION FOCUSED ON ENHANCED REPORTING AND
TRANSPARENCY?
It is recognised that transparency is an important part of environmental and social risk management and it
contributes to overall accountability. As the EP Association has grown and developed this topic has become
an important consideration for members and stakeholders alike. The proposals in EP III draft take
important steps to enhance reporting and transparency and the implementation of the proposals will be
challenging. It is acknowledged that it will take both time and experience to create a level playing field on
this topic.
15. HOW DO THE ENHANCED REPORTING REQUIREMENTS IMPROVE COMPLIANCE AND TRANSPARENCY?
The new reporting requirements proposed in the EP III draft allow for greater transparency by:
• increasing the amount of information disclosed about the projects financed,
• requesting clients to publicly disclose project related assessment documentation,
• requesting client consent to publicly disclose project names and,
• creating structured ways for information sharing between EPFIs.
16. HOW IS THE EQUATOR PRINCIPLES ASSOCATION WORKING TO IMPROVE THE PROVISION OF
GRIEVANCE MECHANISMS AT PROJECT LEVEL?
The provision of grievance mechanisms is a very important component of the EP framework and the
requirements enable Project Sponsors to proactively address grievances and concerns at project level. The
proposals in the EP III draft aim to reflect the IFC’s current thinking on the subject (as detailed in the
updated Performance Standards and Guidance Notes).
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17. HOW DO THE PROPOSED CHANGES TO THE EQUATOR PRINCIPLES ACKNOWLEDGE THE UN’S
“PROTECT, RESPECT AND REMEDY” FRAMEWORK AND GUIDING PRINICPLES ON BUSINESS ANDHUMAN RIGHTS?
The EP Association has discussed the UN "Protect, Respect and Remedy" Framework for Business and
Human Rights and Guiding Principles on Business and Human Rights as part the EP III Update process and it
was agreed that the updated EP should acknowledge the framework.
The second pillar of the "Protect, Respect and Remedy" framework sets out the corporate responsibility to
respect human rights as follows:
“business enterprises should act with due diligence to avoid infringing on the rights of others and to
address adverse impacts with which they are involved”.
The EP provides financial institutions the required “due diligence” framework to identify, assess and
manage project impacts by defining the processes and standards for stakeholder engagement with affected
communities (including for Indigenous Peoples), labour rights, and occupational and community health and
safety. The important requirement for project-level grievance mechanisms also allows affected
communities to address grievances proactively with Project Sponsors which is an important component in
driving greater accountability at project level.
It should also be noted that the EP III draft introduces the term “human rights” in the EP framework for the
first time.
18. HOW IS THE GAP BETWEEN THE EFFECTIVENESS DATE OF EP III AND THE UPDATED IFC
PERFORMANCE STANDARDS BEING MANAGED?
Consistent with the current EP framework, the EP Association Steering Committee agreed that the revised
IFC Performance Standards would take effect for EP Association Members on 1 January 2012 (the official
implementation date for the IFC). Accordingly Exhibit III of the current EP, which previously referred to the2006 IFC Performance Standards, was updated on 1 January 2012.
The EP Association Steering Committee also made a recommendation to members, clients and
stakeholders on how to transition smoothly and consistently to the updated IFC Performance Standards
and provided the following guidance. As such EP Association members will already be applying the
updated IFC Performance Standards when EP III is officially adopted and launched.
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19. WHY DOESN’T THE EP III DRAFT ADDRESS ALL THE RECOMMENDATIONS IN THE EQUATOR
PRINCIPLES STRATEGIC REVIEW REPORT?
The Strategic Review was intended to be the first step in a longer term process to determine the future of
the EP framework. It was also intended to support the EP Association in developing a road map for
improved implementation, action and engagement, and communication with members and stakeholders
alike. As such, the EP III Update process has focused on many of the short and medium term priorities
identified in the Strategic Review. Additionally, it should be notes that the Strategic Review
recommendations that were not deemed as immediate priorities will be considered following the EP III
Update process.
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THE EP III UPATE PROCESS & STAKEHOLDER ENGAGEMENT 20. WHAT IS THE PROCESS FOR UPDATING THE EQUATOR PRINCIPLES?
PHASE I: Internal Consultation and Initial Drafting of EP III (July 2011 - August 2012)
Existing Working Groups and new Task Forces initiated discussions and detailed analysis for each topic area
and shared proposals with the EP Association Steering Committee on how the EP framework might be
updated to reflect changes to the IFC Performance Standards and current best practice. All members were
invited to join the discussion groups to ensure full participation.
The Working Groups and Task Force proposals were discussed more widely with EP Association members at
their Annual Meeting in October 2011 and the Working Groups and Task Forces were subsequently
commissioned to provide final proposals and updated/new language for incorporation in to the EP.
The final proposals and updated/new language were examined and discussed at length by the EP
Association Steering Committee and members and the first draft of EP III was approved for public release
for the formal Stakeholder Consultation and Public Comment period.
PHASE II: Formal 60 day Stakeholder Consultation and Public Comment Period (August - October 2012)
The EP Association is committed to carrying out a robust and consultative process. The formal 60 day
stakeholder consultation and public comment period will give all interested parties and stakeholders
(including EP Association members, other financial institutions, clients, industry bodies and associations,
non-governmental organisations, consultants, law firms and regulatory bodies) an opportunity to
review the EP III draft and provide comments. The EP Association is committed to openness,
transparency and responsiveness and will consider all stakeholder feedback.
The EP Association Working Groups are working with specific stakeholder groups (e.g. Industry/clients,
NGOs) however the EP Association welcomes feedback and comments from any interested party on
both process and substance.
You can submit your views and participate in the process in one or more of the following ways:
• Complete the online submission form.
Phase II
Stakeholder Consultation
and Public Comment Process
Phase I
Internal Consultation and
Initial Drafting of EP III
July 2011 – August 2012 August 2012 - October 2012 October 2012 – January 2013
Phase III
Finalisation and
Launch of EP III
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• Email comments to [email protected].
• Participate in a webinar and/or face-to-face meeting – details are published on the EP III web
pages. Note that places are limited and by invitation only – you can register your interest in
attending by emailing [email protected].
PHASE III - Finalisation and Launch of EP III (October 2012 – January 2013)
The EP Association will review comments received from members and stakeholders during this period
and will consult with members on amending the EP III draft.
The EP Association will not publish every comment received on the EP website however it will publish a
summary (unattributed) of the key topics/issues raised during the Stakeholder Consultation and Public
Comment period. The summary will include statements on how and why issues/comments have or have
not been incorporated in to the EP III draft.
The EP Association will also agree a plan for the formal adoption and launch of EP III (including setting an
official launch date and implementation transition period, training and communications) and will finalise all
the relevant guidance notes during this period. It should be noted that the EP Association will carry out a
final voting process with members, in line with the EP Association Governance Rules, to approve and re-
adopt EP III.
Note that the timeline for the EP III Update process, described above, is tentative and may be extended by
the EP Association as appropriate. The EP website is updated on a regular basis to ensure members and
stakeholders are fully aware of all the relevant details and you can keep up to date with activities at
http://www.equator-principles.com/index.php/ep3
21. HOW IS THE EQUATOR PRINCIPLES ASSOCIATION ENSURING STAKEHOLDERS ARE CONSULTED? HOW
CAN I SUBMIT COMMENTS?
The EP Association is committed to carrying out a robust and consultative process. The formal 60 day
stakeholder consultation and public comment period will give all interested parties and stakeholders
(including EP Association members, other financial institutions, clients, industry bodies and associations,
non-governmental organisations, consultants, law firms and regulatory bodies) an opportunity to
review the EP III draft and provide comments. The EP Association is committed to openness,
transparency and responsiveness and will consider all stakeholder feedback.
The EP Association Working Groups are working with specific stakeholder groups (e.g. Industry/clients,
NGOs) however the EP Association welcomes feedback and comments from any interested party onboth process and substance.
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You can submit your views and participate in the process in one or more of the following ways:
• Complete the online submission form.
• Email comments to [email protected].
• Participate in a webinar and/or face-to-face meeting – details are published on the EP III web
pages. Note that places are limited and by invitation only – you can register your interest in
attending by emailing [email protected].
The EP Association will review comments received from members and stakeholders during this period
and will consult with members on amending the EP III draft.
The EP Association will not publish every comment received on the EP website however it will publish a
summary (unattributed) of the key topics/issues raised during the Stakeholder Consultation and Public
Comment period. The summary will include statements on how and why issues/comments have or have
not been incorporated in to the EP III draft.
22. WHERE WILL MY COMMENTS GO? AND WILL THEY BE PUBLISHED?
Comments from stakeholders are an integral part of the EP III Update process and the EP Association
will be considering them during Phase III (Finalisation and Launch of EP III, October 2012 – January
2013) of the EP III Update process.
On submission comments go to the EP Secretariat for collation and distribution internally and the
submitter will receive an automated message to confirm receipt.
The EP Association will not publish every comment received on the EP website however it will publish a
summary (unattributed) of the key topics/issues raised during the Stakeholder Consultation and Public
Comment process. The summary will include statements on how and why issues/comments have or
have not been incorporated in to the EP III draft.
23. WILL I GET A RESPONSE?
You will receive an e-mail thanking you for your comments and, where a question has been submitted, we
will endeavour to respond within 5 working days.
24. HOW WILL MY COMMENTS AFFECT THE EP III DRAFT?
The EP Association is committed to considering all comments received however no guarantee can be given
that your comment will have direct impact on the EP III draft. Furthermore, it should be noted that the EP
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Association is required to carry out a final voting process with members, in line with the EP Association
Governance Rules, to approve any changes to the content of the EP.
25. WHEN WILL THE NEW EQUATOR PRINCIPLES BE LAUNCHED AND IMPLEMENTED?
After full consideration of stakeholder feedback by members and an internal revision process, the EP
Association will agree a plan for the formal adoption and launch of EP III including setting an official launch
date and implementation transition period, training and communications. It should be noted that the EP
Association will carry out a final voting process with members, in line with the EP Association Governance
Rules, to approve and re-adopt EP III.
26. WHO CAN I CONTACT TO ASK A QUESTION ABOUT ANY OF THIS?
All questions and comments can be sent directly to the EP Association Secretariat at