Equator Principles

From Open Risk Manual


The Equator Principles is a financial industry benchmark for determining, assessing and managing environmental and social risk (ESG Risks) in Project Finance[1].


The Equator Principles where formally launched in Washington DC on 4 June 2003. They were based on existing environmental and social policy frameworks established by the International Finance Corporation. The principles evolved over the years and currently (2020) version 4 is applicable.


In terms of geographical scope, the Equator Principles apply globally. Similarly, in terms of economic activity, it applies to all industry sectors.

The Equator Principles apply to the Financial Products described below when supporting a new Project:

  • Project Finance Advisory Services where total Project capital costs are US$10 million or more.
  • Project Finance with total Project capital costs of US$10 million or more.
  • Project-Related Corporate Loans where all of the following three criteria are met:
    • The majority of the loan is related to a Project over which the client has Effective Operational Control (either direct or indirect).
    • The total aggregate loan amount and the lender's individual commitment (before syndication or sell down) are each at least US$50 million.
    • The loan Tenor is at least two years.
  • A Bridge Loan with a tenor of less than two years that is intended to be refinanced by Project Finance or a Project-Related Corporate Loan that is anticipated to meet the relevant criteria described in 2 and 3 above.
  • Project-Related Refinance and Project-Related Acquisition Finance, where all of the following three criteria are met:
    • The underlying Project was financed in accordance with the Equator Principles framework.
    • There has been no material change in the scale or scope of the Project.
    • Project Completion has not yet occurred at the time of the signing of the facility or loan agreement.

Statement of Principles

The benchmark consists of 10 distinct principles that are summarized in the table and expanded upon in individual entries (links in the first column)

Principle Description Summary
EP1 Review and Categorisation Introduction of three broad categories (A, B, and C) based on the magnitude of potential environmental and social risks and impacts
EP2 Environmental and Social Assessment The client is required to conduct an appropriate Assessment process
EP3 Applicable Environmental and Social Standards Address compliance with relevant host country laws, regulations and permits that pertain to environmental and social issues
EP4 Environmental and Social Management System and Equator Principles Action Plan For all Category A and Category B Projects the client must develop and / or maintain an Environmental and Social Management System
EP5 Stakeholder Engagement For all Category A and Category B Projects the client to demonstrate effective Stakeholder Engagement
EP6 Grievance Mechanism For all Category A and, as appropriate, Category B Projects the client must establish effective grievance mechanisms
EP7 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
EP8 Covenants Incorporation of covenants linked to compliance
EP9 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
EP10 Reporting and Transparency Both lender and client must adhere to specific disclosure requirements


The Equator Principles is a baseline and framework for developing individual, internal environmental and social policies, procedures and practices. The Equator Principles do not create any rights in, or liability to, any person, public or private. Financial institutions adopt and implement the Equator Principles voluntarily and independently, without reliance on or recourse to the IFC, the World Bank Group, the Equator Principles Association, or other EPFIs. In a situation where there would be a clear conflict between applicable laws and regulations and requirements set out in the Equator Principles including confidentiality obligations, the laws and regulations of the relevant host country shall prevail.

Due to the unprecedented circumstances caused by the global Covid-19 pandemic, the EP Association granted an extension to allow EPFIs a 3-month grace period on the transition. All EPFIs must implement EP4 by 1 October 2020.


  1. The Equator Principles, July 2020, available from www.equator-principles.com