The newest release of the Equator Principles (EP III), launched on June 4th, 2013, covers more projects and streamlines the process to focus on legal compliance in countries with strong environmental and social protection regulations.
The EP framework is used by member financial institutions for determining, assessing and managing environmental and social risk related to financing development projects of US$10m or more. Over 70 financial institutions worldwide are members including HSBC, Lloyds Banking Group and the Royal Bank of Canada.
Scope of Application
The new EP III clarifies that the principles apply to project funding from financial institutions, but also to corporate loans where 50 per cent or more of the funds are used to finance a single project. Disguising project funding as a corporate loan had been a way of avoiding the EP framework in the past.
Compliance with Host Country Regulation
The reworded Principle 3, states that: “the Assessment process should, in the first instance, address compliance with relevant host country laws, regulations and permits that pertain to environmental and social issues.” This is in an effort to streamline assessments, especially in countries that have robust environmental and social governance, legislation and institutions. This is done by designating countries on a list, to be published shortly, where host country laws already meet the requirements of environmental and/or social assessments (Principle 2), management systems and plans (Principle 4), stakeholder engagement (Principle 5) and, grievance mechanisms (Principle 6). In this case, an evaluation of compliance with host country laws is sufficient. Elsewhere, compliance with the applicable International Financing Corporation (IFC) Performance Standards (updated in January 2012) and the World Bank Group Environmental, Health and Safety Guidelines is required. The concept of “High-Income OECD” countries present in EP II no longer exists in EP III.
Other changes include:
– public disclosure of the Environmental and Social Impact Assessment for the project, or at a minimum, its summary statement;
– analysis of alternatives to address greenhouse gas reductions;
– in non-designated countries, consideration of the new IFC Performance Standards around labour standards, and occupational health and safety diligence requirements in relation to primary supply chain employees and contracted workers, and possibly human rights due diligence in limited “high risk circumstances”. The new IFC Performance Standards also require Informed Consultation and Participation of affected peoples, or even, Free Prior and Informed Consent for certain projects. This latter is stronger than most of the legally required consultation frameworks around the world.
While the EP III takes effect on the 4th June 2013, funding organizations have until the 31st December 2013 to implement the changes to the framework.