In our days, large industrial and infrastructure projects may have adverse impact on the environment, as well as on people in general, and, in particular, among other things, on climate change, biodiversity, human rights, ecosystems, and communities.
In order to avoid, where possible, such negative impacts, and to minimise, mitigate, and/or offset them if they are unavoidable, Equator Principles Financial Institutions ("EPFIs") have undertaken to finance and advise only on the projects that are developed in a manner that is socially responsible and reflects sound environmental management practices complying with ten (10) principles ("Equator Principles") that are described below.
The Equator Principles are a financial industry benchmark for determining, assessing and managing environmental and social risk in projects and apply globally and to all industry sectors. For the first time, these principles were adopted in 2003, but they are still not widely known in the financial sector since the environmental impact is not always on the list of the most important aspects within the financing.
Since the adoption of and adherence to the Equator Principles offers significant benefits, a large number of banks and credit institutions have started to become members of EFPIs. Almost all Spanish banks, such as Banco Santander, BBVA, Banco de Sabadell and Caixabank, as well as most of the international banks, such as Bank of America Corporation, Bank of Jiangsu, Bank of Montreal, Bank of Tokyo-Mitsubishi UFJ Limited, Credit Suisse Group, Royal Bank of Canada, Royal Bank of Scotland and Société Générale, have joined this Equator Principles' club.
The EPFIs agreed to provide the following type of financing only to those projects that meet the Equator Principles' requirements:
- Project Finance with total project capital costs of US$10 million or more.
- Project-Related Corporate Loans (including Export Finance in the form of Buyer Credit), where (i) the majority of the loan is related to a single Project over which the client has Effective Operational Control, (ii) the total aggregate loan amount is at least US$100 million, (iii) the EPFI's individual commitment is at least US$50 million, and (iv) the loan tenor is at least two years.
Furthermore, the EPFIs shall make the client aware of the content, application and benefits of applying the Equator Principles to the intended project, requesting the client to communicate its intention to adhere to the requirements of the Equator Principles when subsequently seeking long term financing, within the provision of the following services:
- Project Finance Advisory Services where total project capital costs are US$10 million or more.
- Bridge Loans with a tenor of less than two years that are intended to be refinanced by Project Finance or a Project-Related Corporate Loan that is expected to meet the relevant criteria described above.
For the third and last time, the Equator Principles were modified in June 2013 and include the following principles:
- Review and Categorisation
- Environmental and Social Assessment.
- Applicable Environmental and Social Standards.
- Environmental and Social Management System and Equator Principles Action Plan.
- Stakeholder Engagement.
- Grievance Mechanism.
- Independent Review.
- Independent Monitoring and Reporting.
- Reporting and Transparency.
The full description of the Equator Principles, as well as the list of all EPFIs, can be found on the official site (www.equator-principles.com).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.