Equator principles

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The Equator Principles ( English Equator Principles ) are a voluntary set of rules of banks for compliance with environmental and social standards in the field of project financing . The name 'Equator Principles' symbolizes the global aspiration of the guidelines.

The participating institutes undertake to finance only those projects for which the borrowers meet the environmental and social criteria of the principles.

The set of rules is based on the environmental standards of the World Bank and the social standards of the International Finance Corporation (IFC), a subsidiary of the World Bank, and applies to projects with a financing volume of US $ 10 million or more.

Although the Equator Principles are actually limited to project financing, they have also promoted the development of responsible environmental and social standards in other areas of the finance and banking sector.

history

The spark of these guidelines was provided by a declaration by non-governmental organizations , which was launched in January 2003 as part of the Public Eye in Davos . Based on this, the Equator Principles were worked out in cooperation with the IFC and in June 2003 ten globally active banks ( ABN Amro , Barclays , Citigroup , Crédit Lyonnais , Credit Suisse , HypoVereinsbank , Rabobank , Royal Bank of Scotland , WestLB , Westpac Banking Corporation ) signed.

The principles were revised in June 2006 in order to take into account the experiences made so far and to make further improvements; The most important changes, for example, were the project-relevant threshold value being reduced to ten million US dollars, the scope of application also being extended to include consulting activities in the context of project financing, and the environmental assessment being supplemented by social aspects ( Equator Principles II ).

In 2007, according to the "Infrastructure Journal", of the total of 74.6 billion US dollars that were officially granted as loans to the emerging markets, 52.9 billion US dollars were subject to the equator principles. This corresponds to a share of around 71% of the total funds made available for project financing in the emerging countries.

To date (as of February 12, 2009) the principles have been adopted by a total of 66 banks from 26 countries.

The principles

The Equator Principles require that participating financial institutions provide project finance only under the following conditions:

scope of application

The principles apply to all new project financing with a volume of 10 million US dollars and more in any industrial sector worldwide.

Principle 1: Review and Categorization

The risks posed by the project in the environmental and social field must be classified by the participating financial institution in one of three categories according to the IFC's selection criteria, depending on the type, location, perceptibility and scale of the project as well as the nature and scope of its possible ecological and social Effects.

Principle 2: Social and Environmental Impact Assessment

For all projects in categories A and B, a social and environmental impact assessment (SUP) is required to determine the environmental and social impacts and risks of the project and to determine whether it is in accordance with the laws of the respective country and the other guidelines of the World Bank and the IFC Fulfills. The SUP should also propose mitigation and management measures that are appropriate to the type and scope of the proposed project.

Principle 3: Applicable social and environmental standards

For projects outside of the high-income OECD countries, the review is based on the applicable IFC performance standards and the industry-specific environmental, health and safety guidelines ("IFC EHS Guidelines"). The standards and guidelines cover such sensitive topics as the resettlement of people, for example when building dams, and the use of dangerous substances such as potassium cyanide in gold mining. The criteria also include the protection of health, cultural property and endangered species, as well as the impact on the local population.

Since the legal requirements in high-income OECD countries usually meet or exceed the requirements of the above-mentioned standards, a successful completion of the national test process is seen as a permissible variant for compliance with the following principles 4, 5 and 6.

Principle 4: Environmental Management Plan

For all category A (and possibly category B) projects, the borrower must draw up an environmental management plan (UMP) based on the SUP and describe in detail how the identified ecological and social risks are to be mitigated, monitored and managed. To this end, he should set up a management system that controls the effects, risks and corrective measures of the project in such a way that the relevant laws and regulations of the host country are met.

Principle 5: Consultation and Disclosure

For all Category A (and, where applicable, Category B) projects, lenders must be provided with satisfactory evidence that the borrower has carried out a “structured and culturally appropriate” consultation with stakeholders, including indigenous groups and local NGOs. The SUP (or a summary) must have been made available to the public in the national language (s) for an appropriate minimum period; consultations must be taken into account in the UMP.

Principle 6: Complaint Mechanism

For all category A projects (and possibly category B), the borrower must set up a complaint mechanism as part of the management system, adapted to the risks and negative influences of the project.

Principle 7: Independent Review

For all Category A (and possibly Category B) projects, an independent expert must review the social and environmental impact assessment, the environmental management plan and the documents relating to the consultation process.

Principle 8: Loan Agreement Clauses

For all projects in categories A and B, the borrower must undertake in the loan agreement to comply with, among other things, all relevant social and environmental laws of the host country and the environmental management plan; periodically report to the lending bank and (where applicable) decommission the facilities created by the loan in accordance with the agreed decommissioning plan.

Principle 9: Independent Monitoring and Reporting

For all category A (and possibly category B) projects, the borrower must appoint an independent expert during the term of the loan who reports to the lending bank on the monitoring.

Principle 10: Reporting by the participating financial institution

Every financial institution that is committed to the Equator Principles reports publicly at least once a year on the experiences and implementation processes in connection with the Principles, taking into account the applicable confidentiality provisions.

criticism

The equator principles are the internationally accepted standard for project financing. Nevertheless, they are not always fully taken into account because, for example, non-equator banks carry out the transaction or equator banks are switched on too late, which means that the standards are only partially implemented. Non-governmental organizations such as the BankTrack network further criticize the fact that the implementation of the principles at the banks does not in general go beyond a mediocre level of commitment, and they complain that despite the signing of the voluntary agreement, controversial projects are still being financed by participating banks. Another point of criticism is the fact that there are no legally binding obligations to comply with the principles and that, strictly speaking, the principles only apply to project financing.

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