On the 24 May 2011, the Equator Principles (EP) Association announced the conclusion of the Equator Principles Strategic Review Process with the public release of the Executive Summary and Appendix of the Equator Principles (EP) Strategic Review consultant report and associated EP Association Summary Response.

Launched last October, the Strategic Review consisted of a comprehensive research, review and stakeholder feedback process led by external consultants under the direction of the EP Association Steering Committee. During this process, targeted feedback was elicited from EP Association members, other financial sector peers, clients and industry bodies, civil society, and additional feedback was received from other interested parties.

In early 2011, the Strategic Review consultants delivered their report of findings and recommendations and the EP Association has completed an initial review and evaluation of these findings.  In order to increase transparency, the EP Association has publicly released the Executive Summary and Appendix of the EP Strategic Review consultant report and a corresponding Summary Response from the EP Association. The Summary Response indicates some of the short-term, medium-term and long-term actions that the EP Association will prioritise and consider in our next stage discussions.

"This 7 month process has helped the EP Association identify many complex issues facing the development of the Equator Principles as the leading industry standard for managing social and environmental risk, including scope of application, transparency, implementation and governance challenges. Many of the issues discussed were informed  by - and ultimately we benefited greatly from -  feedback we received from the stakeholders we consulted. The Strategic Review report will inform our EP III Update process which will occur later this year." said Shawn Miller, Chair of the EP Association and Managing Director of Environmental and Social Risk Management at Citi.

It is important to emphasise that the Strategic Review is the first step in a longer term process to determine the future of the EPs. This will include an EP III Update Process beginning in the latter half of 2011. This EP III Update Process will include a separate public comment and stakeholder feedback process, and a draft of the revised principles will be made publicly available for stakeholder comment and input for a reasonable minimum period.  This process will allow the EP Association to fully debate and evaluate the recommendations coming out of the Strategic Review, to evaluate the impact of planned changes in the IFC Performance Standards (on which the EPs are based), and to conduct further stakeholder engagement on the future of the EPs.

Background to the Strategic Review

On 19 October 2010, the EP Association announced the launch of a Strategic Review process intended to produce a multi-year strategic vision to ensure the EPs continue to be viewed as the “gold standard” in environmental and social risk management for project finance within the financial sector.

There has been a significant growth in the number of EPs adopters since its inception in 2003, growing from ten initial adopters to over 65 financial institutions from around the globe, making the EPs a leading and respected voluntary standard for the financial sector. As the EP Association has grown significantly and the number of EPs adopters continues to expand, so have the social and environmental challenges that concern and impact communities and the environment. All the while, the financial crisis continues to influence the market.  The Review process has allowed the Equator Principles Financial Institutions and Associates to assess the EPs’ progress to date and identify future challenges and opportunities in order to address these issues effectively in partnership with clients, and by listening to all stakeholder perspectives.

“Through seven years of proven success and impressive growth, the Equator Principles (EPs) framework has served us well. During this period, the financial sector’s landscape has changed considerably, while society’s attention and focus on environmental and social issues has increased. Our goal is to ensure the EPs continue to be the “go-to” environmental and social risk management standard for the financial sector and our clients. We encourage all stakeholders to provide their candid feedback during the Review process so that the EPs continue to help us manage our risk effectively while respecting people and planet.” said Shawn Miller, Chair of the EP Association and Managing Director of Environmental and Social Risk Management at Citi.

The Review has helped the Association:

• take stock of the current state of the EPs and develop a better understanding of the challenges and successes to-date,
• identify perceived areas of strength and weakness in the current EP framework through engagement with EPFIs and other stakeholders including clients and industry, civil society, and financial sector peers,
• identify recommended action points that will lead to the successful implementation of the vision/plan, and
• prepare for a likely update of the EPs in 2011 following the conclusion of the IFC Performance Standards Review and Update process

Following a competitive bidding process, the EP Association Steering Committee selected leading global environmental consultancy Environmental Resources Management (ERM), in partnership with independent sustainable banking consultant Suellen Lazarus, to manage the Review on the EP Association’s behalf, and synthesize feedback for consideration. ERM has solid on-the-ground project review experience and world-class expertise in advising Equator Principles Financial Institutions and their client base on EP compliance.

The EP Association elicited targeted feedback from EPFIs, financial sector peers, clients and industry bodies, and civil society, it also received additional feedback from interested parties.

An EP Strategic Review Meeting was held in Beijing, China on December 1 - 2, 2010 and the purpose of the meeting was to frame a strategic vision and plan for the Equator Principles to ensure that it continues to be the "gold standard" for financial institutions to manage environmental and social risk. The meeting, hosted by Citi China, presented an opportunity for Equator Principles Financial Institutions to examine the vision for the Equator Principles going forward.

It was attended by 31 participants (including Steering Committee members and Equator Principles Financial Institutions representing each region). The Strategic Review consultants presented views gathered through surveys and direct conversations with industry, civil society, and other key stakeholders such as the International Financial Corporation and other agencies.  Numerous issues were debated including the 'beyond project finance' issue, transparency and disclosure, consistency in Equator Principles application, and other Association-related governance topics.  The meeting also benefited of guest-speakers, including a senior representative of China's Ministry of Environmental Protection.