The Equator Principles Association (EPA) has released a third version of the Equator Principles (EPs) for public consultation and comment. The EPA's stated purpose in updating the EPs is to ensure that they remain "gold standard" for environmental and social risk assessment and management in financing.

The key changes proposed by the draft are the extension of the application of the EPs beyond their current project finance scope to cover project-related corporate and bridge loans, a greater emphasis on human rights and climate change, and enhanced monitoring and reporting requirements for lenders and borrowers.

Covenants linked to compliance with the EPs would be required in the documentation for all projects within scope, including for the many projects which are currently exempt from this requirement on the basis that they have been categorised as having minimal or no adverse environmental or social impacts.

The final version is expected to be adopted and launched in early 2013.


The Equator Principles were launched by 10 financial institutions and the International Finance Corporation (IFC) in 2003 and first updated in 2006. They establish an environmental and social risk management framework, and a minimum due diligence standard for identifying, assessing and managing environmental and social impacts in project finance transactions. They have been adopted by 77 financial institutions to date, which together are responsible for the vast majority of project financings around the world. In 2010, the EPA launched a Strategic Review into the EPs which has culminated in the draft of the revised EPs released for consultation (the draft and related documentation published by the EPA are available here).


Currently, the EPs apply to project finance lending and advisory activities, although they have sometimes been applied voluntarily to other types of financial products. The draft would formally extend the scope of the EPs to cover:

  • project-related corporate loans of at least US$100 million and of two years in term, and where the borrower has effective operational control (direct or indirect) over the project; and
  • bridge loans that will be refinanced by project finance or a project-related corporate loan.

A "project-related corporate loan" is defined as a loan related to a single project (either a new development, expansion or upgrade) and where (a) the lender looks primarily to the revenues generated by the project as the source of repayment (as in project finance) and where security exists in the form of a corporate or parent company guarantee, or (b) the loan documentation indicates that the majority of the loan proceeds are directed to the project. Other general corporate purpose loans would continue to be excluded from the scope of the EPs, as will corporate loans used to finance a portfolio of projects.

The EPA acknowledges that lenders have less influence over a project financed through a corporate loan than through project finance, and so the draft EPs impose significantly fewer requirements in respect of corporate loans. However, where a project with 'high risk impacts' is funded by a corporate loan, the borrower would need to appoint an independent consultant to conduct a review of the environmental and social impact assessment.

There have been some calls from campaign groups for the EPs to be applied to all areas of financing. However, the EPA has confirmed that the focus will remain on project finance and project finance advisory services, pointing out that other types of financing lack long-term "hooks" like covenants and monitoring requirements and that any wider scope may lead to inconsistencies in the application of the EPs.

Human rights

The draft places greater emphasis on human rights considerations than previous versions of the EPs. The preamble and Exhibit II (which lists potential environmental and social issues to be assessed) refer to the importance of addressing human rights in the due diligence process. Although the references are brief they would be the first use in the EPs of the term "human rights".

According to the EPA, this amendment acknowledges the second pillar of the UN's Protect, Respect and Remedy Framework for Business and Human Rights developed by Professor John Ruggie (available here) urging business to "act with due diligence to avoid infringing on the rights of others and to address adverse impacts with which they are involved."

Projects with adverse impacts on indigenous people in non-OECD countries or OECD countries that are not 'High-Income' (as designated by the World Bank Development Indicators Database) will require the free, prior and informed consent of those people. This is a significant change and reflects both amendments made to the revised IFC Performance Standards earlier this year (available here) and the text of the UN Declaration on the Rights of Indigenous Peoples of 2007.

Climate change

For projects expected to emit over 100,000 tonnes of carbon dioxide equivalent annually, borrowers would be required by lenders to:

  • conduct an analysis of alternatives, including less carbon intensive fuel sources and technologies based on requirements stipulated in the updated IFC Performance Standards; and
  • publicly report greenhouse gas emissions levels during the operational phase of the project.

Further detail on these requirements is set out in a new Annex A and the EPA notes that further guidance on implementation will be released in due course. These changes also reflect recent amendments to the IFC Performance Standards.

Reporting and transparency

The draft seeks to strengthen reporting and transparency requirements. Specifically, lenders would be required:

  • to comply with detailed reporting requirements set out in a new Annex B, including a requirement to provide, subject to borrower consent, a list of projects for publication on the EPA website; and
  • for certain higher risk projects, to require the borrower to disclose its ESIA and Environmental and Social Management Plan (ESMP) online.

Applicable standards

Both the current EPs and the new draft acknowledge that laws, regulations and permits in High-Income OECD countries will generally meet or exceed the requirements of the EPs.

The draft expressly states that the Environmental and Social Impact Assessment (ESIA) carried out by the borrower must establish a project's overall compliance with or justified deviation from:

  • for projects in High-Income OECD countries: applicable local laws, regulations and permits; and
  • for projects in other counties (i.e. non-OECD countries or OECD countries that are not designated as High-Income): applicable IFC Performance Standards and IFC Environmental, Health and Safety (EHS) Guidelines.

The draft confirms that for projects in High-Income OECD countries, compliance with local  laws, regulations and permits will be sufficient to comply with Principles 2 (environmental and social assessment), 4 (management systems and plans), 5 (stakeholder engagement), and 6 (disclosure and grievance mechanisms). The draft also confirms that individual lenders may, at their sole discretion, apply additional standards and requirements.


The current EPs require covenants linked to compliance with the EPs, environmental and social laws, reporting requirements and decommissioning to be included in the loan documentation, except for category C projects which are defined as those with minimal or no adverse environmental and social impacts.

The draft would extend this requirement to all projects, including category C projects. This is significant because in practice many projects are categorised as having minimal impacts, and to date there has been no requirement for EPs related covenants to be used.


The EPs do not include any provisions or mechanism for enforcement as they were conceived as a set of voluntary guidelines. Principle 6 requires borrowers to establish a grievance mechanism through which a third party might challenge the borrower, but not the lender. This can be contrasted with the Compliance Advisor Ombudsman which is an independent recourse mechanism for complaints relating to IFC funded projects, and the role of National Contact Points (NCPs) which handle complaints alleging breaches of the OECD Guidelines for Multinational Enterprises. The draft proposes no changes with respect to enforcement, even though the inability to enforce compliance by lenders with the EPs has been criticised by NGOs who claim that it results in an inconsistent application of the EPs and a lack of accountability.

Next steps

Revised EPs are expected to be approved adopted by a vote of the EPA members in January 2013. Institutions that have adopted the EPs and borrowers should assess and prepare for the proposed changes, particularly in respect of financings which will be brought within the scope of the EPs for the first time and projects for which additional EPs requirements will apply.