Press Release: New Governance Rules Introduced for The Equator Principles

01 July 2010

Rules to improve efficiency, and formalize existing practices, procedures and member responsibilities. The Equator Principles (EPs), the leading voluntary standard for managing social and environmental risk in project financing, will formally adopt new Governance Rules from 1 July 2010, the result of several years’ intensive work by the Equator Principles Financial Institutions (EPFIs).

 

The Governance Rules (“the Rules”), that form the basis of the newly created Equator Principles Association, have been established to confirm the purpose, operation and management structure of the Equator Principles. The Rules formalize existing practices and procedures, increase the transparency of the Association, and will ensure that EPFIs meet their responsibilities such as public reporting on EP implementation.

The new Rules include the following significant steps:

  • Greater transparency in the management of the Equator Principles Association – the Rules have also been publicly disclosed and available to all interested stakeholders, including prospective EPFIs, clients and civil society.
  • Greater clarity on annual public reporting requirements, and a newly introduced process for delisting non-compliant institutions.
  • Introduction of an ‘Associate’ category, whereby financial institutions who do not undertake project finance, may legitimately join the Association in order to inform Associates' broader approach to sustainability or potentially use the EPs as a source of good practice and knowledge for other transaction types beyond project finance.

Shawn Miller, Chair of the EPFI Steering Committee and Citi’s Environmental and Social Risk Management (ESRM) Director said:

“The Equator Principles have had deep and lasting positive impact on the global financial services sector: the Principles are now one of the most successful voluntary environmental and social risk diligence frameworks in the sector, with the number of adopting institutions growing every year since their launch in 2003. The Rules significantly strengthen the Equator Principles, and the new governance framework ensures that there are effective decision making procedures for the enlarged group of adopting institutions. The Rules will make us more efficient as we continue to grow, and members will be held accountable to them. We believe that the Rules are an important step forward in a broader strengthening of the Association’s governance and EP implementation.”

About the Equator Principles

For a number of years, banks working in the project finance sector had been seeking ways to assess and manage the environmental and social risks associated with such investment activities.

In October 2002, nine international banks convened in London, together with the World Bank Group's International Finance Corporation (IFC), to discuss these issues. Four of the banks present – ABN Amro, Barclays, Citi (formerly Citigroup) and WestLB – acknowledging the general consensus amongst those present, volunteered jointly to develop a banking industry framework for addressing environmental and social risks in project financing that could be applied globally and across all industry sectors.

At the time, the banks themselves soon concluded that the best, most commonly known and widely tested environmental and social policy framework in the finance sector were those established and used by the IFC in emerging markets. These standards included IFC’s Environmental and Social Safeguard Policies, Pollution Prevention and Abatement Guidelines (these have evolved into what is currently known as the Performance Standards) and risk categorization screening criteria.

The EPs were launched in Washington D.C. on 4 June 2003, and were initially adopted by ten global financial institutions: ABN AMRO Bank, N.V., Barclays plc, Citigroup, Inc., Crédit Lyonnais, Credit Suisse First Boston, HVB Group, Rabobank Group, The Royal Bank of Scotland, WestLB AG, and Westpac Banking Corporation. The original EPs were revised in 2006 and currently there are 67 adopters, who have committed not to provide project finance to customers who are unable to meet the EPs social and environmental standards.

Project financing, 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, plays an important role in financing development throughout the world. Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets.

The EPFIs have consequently adopted the EPs in order to ensure that the projects they finance are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately.

The EPFIs believe that adoption of and adherence to the EPs offers significant benefits to them, their borrowers and local stakeholders through their borrowers’ engagement with locally affected communities.

The EPFIs therefore recognise that their role as financiers affords them opportunities to promote responsible environmental stewardship and socially responsible development.

The EPs are intended to serve as a common baseline and framework for the implementation by each EPFI of its own internal social and environmental policies, procedures and standards related to its project financing activities.

Media Contacts

Key Contact: Andrea Hurst, (Citi)  JLIB_HTML_CLOAKING , Telephone: +1 212 559 4767
Secondary Contact: Andrew Cave, (RBS),  JLIB_HTML_CLOAKING , Telephone: +44 131 6263659