- 1 Definition
- 2 Statement of Principles
- 2.1 Principle 1: Review and Categorisation
- 2.2 Principle 2: Environmental and Social Assessment
- 2.3 Principle 3: Applicable Environmental and Social Standards
- 2.4 Principle 4: Environmental and Social Management System and Equator Principles Action Plan
- 2.5 Principle 5: Stakeholder Engagement
- 2.6 Principle 6: Grievance Mechanism
- 2.7 Principle 7: Independent Review =
- 2.8 Principle 8: Covenants
- 2.9 Principle 9: Independent Monitoring and Reporting
- 2.10 Principle 10: Reporting and Transparency
- 3 References
The benchmark consists of 10 distinct principles:
Statement of Principles
Principle 1: Review and Categorisation
When a Project is proposed for financing, as part of internal environmental and social review and Due Diligence, the firm will categorise the Project based on the magnitude of potential environmental and social risks and impacts (ESG Risks), including those related to Human Rights, climate change, and biodiversity. Such categorisation is based on the International Finance Corporation’s (IFC) environmental and social categorisation process.
The categories are:
- Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented;
- Category B – Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and
- Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.
The required environmental and social due diligence is commensurate with the nature, scale and stage of the Project, and with the categorised level of environmental and social risks and impacts.
Principle 2: Environmental and Social Assessment
The lender will require the client to conduct an appropriate Assessment process to address, to the firm's satisfaction, the relevant environmental and social risks and scale of impacts of the proposed Project. The Assessment Documentation should propose measures to minimise, mitigate, and where residual impacts remain, to compensate/offset/remedy for risks and impacts to Workers, Affected Communities, and the environment, in a manner relevant and appropriate to the nature and scale of the proposed Project.
Principle 3: Applicable Environmental and Social Standards
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.
Principle 4: Environmental and Social Management System and Equator Principles Action Plan
For all Category A and Category B Projects the lender will require the client to develop and / or maintain an Environmental and Social Management System (ESMS).
Principle 5: Stakeholder Engagement
For all Category A and Category B Projects the lender will require the client to demonstrate effective Stakeholder Engagement, as an ongoing process in a structured and culturally appropriate manner, with Affected Communities, Workers and, where relevant, Other Stakeholders.
Principle 6: Grievance Mechanism
For all Category A and, as appropriate, Category B Projects, the lender will require the client, as part of the ESMS, to establish effective grievance mechanisms which are designed for use by Affected Communities and Workers, as appropriate, to receive and facilitate resolution of concerns and grievances about the Project’s environmental and social performance.
Principle 7: Independent Review =
For all Category A and, as appropriate, Category B Projects, an Independent Environmental and Social Consultant, will carry out an Independent Review of the Assessment process including the ESMPs, the ESMS, and the Stakeholder Engagement process documentation in order to assist the lenders due diligence and determination of Equator Principles compliance.
Principle 8: Covenants
For all Projects, where a client is not in compliance with its environmental and social covenants, the lender will work with the client on remedial actions to bring the Project back into compliance. If the client fails to re-establish compliance within an agreed grace period, the lender reserves the right to exercise remedies, including calling an event of default, as considered appropriate.
Principle 9: Independent Monitoring and Reporting
For all Category A and, as appropriate, Category B Projects, in order to assess Project compliance with the Equator Principles after Financial Close and over the life of the loan, the lender will require independent monitoring and reporting.
Monitoring and reporting should be provided by an Independent Environmental and Social Consultant; alternatively, the lender will require that the client retain qualified and experienced external experts to verify its monitoring information, which will be shared with the EPFI in accordance with the frequency required in Principle 8.
Principle 10: Reporting and Transparency
- Client Reporting Requirements
- Lender Reporting Requirements
- The Equator Principles, July 2020, available from www.equator-principles.com