On May 14, 2013, the Equator Principles Association announced the adoption of Equator Principles III (“EP III”), the latest, and most robust, iteration of influential international norms for minimizing the negative environmental and social impacts of resource and infrastructure projects on local communities and environments. The adoption of EP III follows a lengthy consultation process that included a wide array of international CSR stakeholders and will formally take effect on June 4, 2013. Once in place, EP III will apply to all new infrastructure and resource projects financed by institutions that adhere to the Equator Principles (as well as expansions or upgrades of existing projects that create new significant environmental and social risks and impacts or change the nature or degree of an existing impact as originally assessed under EP II).
What are the Equator Principles?
The Equator Principles (EPs) are a voluntary set of principles designed to ensure that projects are developed in a socially and environmentally responsible manner. Financial institutions voluntarily adhere to the Equator Principles and by doing so agree to apply the Equator Principles standards to project financings of US$10 million or more (the scope has broadened under EP III). Companies seeking financing from Equator Principles financial institutions (now numbering 76) for these projects are required to commit and adhere to the Equator Principles to qualify for and maintain financing.
Why EP III?
Evolutions in CSR since the adoption of EP II in 2006, along with the introduction of more diverse funding structures in the project finance market, prompted an internal review and consultation by the Equator Principles Association to ensure the ongoing relevance and effectiveness of the Equator Principles. Improvements in CSR standards for best practices for environmental and social risk management have critically included: the 2012 update of the International Finance Corporation (IFC) Sustainability Framework and its Performance Standards (which underpin the Equator Principles), as well as the development of the United Nations Protect, Respect and Remedy Framework for Business and Human Rights and its companion, Guiding Principles on Business and Human Rights.
The EP III expands the scope of application of the Equator Principles to extend beyond project finance to include project-related corporate loans where certain criteria are met and bridge loans; includes enhanced reporting, disclosure and transparency requirements; places greater emphasis on human rights and human rights due diligence; imposes increased requirements relating to the management of climate impacts; and increases the scope of labour standards and occupational health and safety diligence requirements in relation to primary supply chain employees and contracted workers. Further, since the implementation of the new IFC Performance Standards in January 2012, projects affecting Indigenous Peoples additionally require the implementation of “Free Prior and Informed Consent” (FPIC) where projects take place in non- “High-Income OECD” countries.
Transition
A transition period has been proposed to permit both financial institutions and companies seeking financing for resource and infrastructure projects sufficient time to understand and incorporate the new requirements of EP III. Equator Principles financial institutions will have until December 31, 2013 to implement EP III for all project financing within the covered scope of the Equator Principles. EP II may still be applied to transactions signed during this transition period, after June 4, 2013 and until December 31, 2013. It is expected that EP III will be applied to all new transactions after January 1, 2014.
View the Equator Principles.
