Are Equator Principles Still Relevant after Rio+20 and UN PRI?
The 2003 launch of the Equator Principles signaled a virtuous spiral for environmental and social risk management in project finance. In light of Rio+20 and emergence of the UN-backed Principles for Responsible Investment are the EPs still relevant?
A couple of recent blog entries in The Guardian’s
As blogged in greater detail
Today, the Equator Principles have been formally adopted by nearly 80 so-called Equator Principles Financial Institutions (more commonly referred to as ‘Equator Banks’) worldwide. In addition, some 15 European Development Finance Institutions and over 30 Export Credit Agencies from the Organisation for Economic Co-operation and Development (OECD) refer to the IFC Performance Standards in their operations.
The Equator Principles are generally applied to project finance and advisory mandates that exceed US$ 10 million. Given the need for syndication of large deals in emerging markets that can involve a dozen or more financial institutions, ECAs and political risk insurers, the Equator Principles have become the de facto environmental and social (E&S) risk management standard that is applied in the process of environmental and social due diligence and financing of these deals. Also, many financial institution that adopt E&S risk management or sustainable finance practices tend to apply these across many other products and services.
In May 2012, the
However, ten years since the launch of the Equator Principles, its members’ activities continue to be criticized by advocacy NGOs (see
Perhaps more fundamentally, other voluntary frameworks relating to the financial sector have emerged. These promote the incorporation of Environmental, Social and Governance (ESG) issues into financial decision-making and ownership practices. Given UN’s increasing focus on collaboration with the private sector, this includes the emergence of the United Nations-backed Principles for Responsible Investment Initiative (
As an organization, it seems that the Equator Principles Association still needs to continue to make its case why and how its existence adds (unique?) value to its members, its members’ clients and society at large. It may also need to close the gap between leaders and laggards, raise the reporting standards and introduce assurance, scale up further (and faster) and justify why it should not be absorbed by other initiatives which can provide additional benefits. For example, the UN PRI provides much greater co-branding opportunities (cynics refer to this as ‘blue washing’) and the scale of UN PRI means it can spread costs over a much larger membership footprint.
Do you feel that the Equator Principles has been successful in improving and scaling up E&S risk management practices in the financial sector? What role should the Equator Principles play post Rio+20 and since emergence of UN PRI?
About the author: Mehrdad Nazari (MBA, MSc, LEAD Fellow) is a Corporate Responsibility & E&S Risk Advisor, and Director of