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The Equator Principles

Large infrastructure and industrial Projects can have adverse impacts on people and on the environment. The Equator Principles (EP) are intended to serve as a common baseline and risk management framework for financial institutions to identify, assess and manage environmental and social risks when financing Projects.

The EP apply globally, to all industry sectors and to five financial products:

1) Project Finance Advisory Services,

2) Project Finance,

3) Project-Related Corporate Loans,

4) Bridge Loans, and

5) Project-Related Refinance, and Project-Related Acquisition Finance.

Information on detailed thresholds and criteria for application can be found below under ‘Scope of the Equator Principles’.

Equator Principles Financial Institutions (EPFIs) implement the 10 EP through their internal environmental and social risk management policies, procedures and standards in order to comply with the EP. EPFIs may (at their own discretion) choose to utilise the EP for additional financial products outside the scope of the EP.

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EP4

EP4

The Equator Principles (EP) are updated periodically to build upon implementation expertise and ongoing learning by EPFIs and wider stakeholders, as well as to reflect changes in the evolving operating environment and emerging good practice.

EP4 is the latest iteration of the EP. Following an extended transition period due to the global Covid-19 pandemic, EP4 came into effect for all EPFIs on 1 October 2020.

Click on the button below to download EP4 in English or go to Resources to download EP4 in an additional 6 languages and to view the suite of Guidance documents that support EP4.

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Benefits of applying the Equator Principles

The Equator Principles (EP) have become the financial industry standard for environmental and social risk management in projects. Financial institutions adopt the EP to ensure that the projects they finance are developed in a socially responsible manner and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible. If unavoidable, negative impacts should be reduced, mitigated and/or compensated for appropriately.

Equator Principles Financial Institutions (EPFIs) believe that the adoption of and adherence to the EP offers significant benefits to them, their borrowers and local stakeholders through their borrowers’ engagement with locally affected communities. Adopters should be able to better assess, mitigate, document and monitor the credit and reputation risk associated with financing development projects.

Additionally, the collaboration and learning on broader policy application, interpretation and methodologies between adopters, and with their stakeholders, helps knowledge transfer, learning and best practice development. The adopters‘ role as financiers affords them opportunities to promote responsible environmental stewardship and socially responsible development.

Scope of the Equator Principles

The Equator Principles (EP) apply globally and to all industry sectors.

An EPFI must apply the EP to any new Project that meets the below criteria:

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

While the EP are not intended to be applied retroactively, EPFIs are required to apply the Principles to the financing of expansions or upgrades of an existing Project.

More details on the EP definition of the five financial products listed above can be found at Exhibit I (Glossary of Terms) in the Equator Principles. 

Overview of the 10 Equator Principles

Principle 1

Review & Categorisation

Principle 2

E&S Assessment

Principle 3

Applicable E&S Standards

Principle 4

E&S Management System & EP Action Plan

Principle 5

Stakeholder Engagement

Principle 6

Grievance Mechanism

Principle 7

Independent Review

Principle 8

Covenants

Principle 9

Independent Monitoring & Reporting

Principle 10

Reporting & Transparency