Applying the Equator Principles to ESG Impact Solutions

1 month ago

This is an introduction to a three-part series on applying the Equator Principles (EPs) to ESG Impact Solutions: Part 1 – Review and Assessment; Part 2 – Management and Implementation; and Part 3 – Reporting and Transparency. This series details critical ESG topics embedded in these principles. Companies wanting to meet EP requirements need to consider and address these topics to ensure long-term success.

Equator Principles Preamble

“Large infrastructure and industrial Projects can have adverse impacts on people and on the environment. As financiers and advisors, we work in partnership with our clients to identify, assess and manage environmental and social risks and impacts in a structured way, on an ongoing basis. Such collaboration promotes sustainable environmental and social performance and can lead to improved financial, environmental and social outcomes.”

(http://www.equator-principles.com/resources/equator_principles_III.pdf)

The Ten Principles

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

These ten EPs, currently in their third version, are easily aligned with key elements of ESG activities and related investments. They support rigorous processes built on best practices, support transparency and continuous stakeholder engagement, rely on evidence-based assessments, and operationalize the importance of long-term monitoring. All of these are critical elements in properly identifying and managing ESG risks.

It should be noted that controlling for adverse outcomes is only one side of the proverbial coin. Good ESG management also depends upon generating positive, lasting impact. Though explicitly designed to avoid the negative, the EPs offer sound methodology with respect to promoting beneficial outcomes as well.

Increasing numbers of companies and sources of capital are adopting and adhering to the EPs, The Equator Principles Association, a network of 89 financial institutions across 37 countries, is the collective force behind these standards. Together, these institutions represent more than “…70 percent of the International Project Finance debt in emerging markets.”

The group describes the EPs as “a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.”

The Association further notes that these are applicable to project financing and lending concerns across all industry sectors and geographies.

In Part 1 of this series we discuss Principles 1 to 3, which focus on review and assessment. Part 2 covers Principles 4 to 6, focusing on effective mechanisms for ESG impact management. Finally, Part 3 addresses Principles 7 to 10, examining the importance of transparency, adequate reporting, sustained stakeholder engagement, and long-term monitoring.