On 18 November 2019, the Equator Principles Association (EPA) published the final text of a new version of the Equator Principles (EP4). This note explains the key changes introduced by EP4, when they apply and what financial institutions should do now to prepare for them.


The Equator Principles (EPs) are intended to serve as a common baseline for financial institutions to identify, assess and manage environmental and social risks when financing "Projects".

The EPs have been adopted by over 100 financial institutions (EPFIs), with the EPFIs committing:

  • to implement the EPs through their internal environmental and social policies, procedures and standards for financing Projects; and
  • not to provide financing to Projects which do not comply with the relevant EP requirements.

The EPs are updated from time to time to reflect ongoing learning and emerging good practice. The EPs were last updated in 2013 (EP3).

The road to EP4

The launch of EP4 follows an intensive two-year review and consultation process, including a consultation on the draft text of EP4 published in June 2019. When the EPA released the final version of EP4, it also published a table summarising the extent to which it had incorporated the recommendations and feedback received.

When will EP4 start to apply?

EP4 will apply to new Projects from 1 July 2020. Any EPFI may apply EP4 on a voluntary basis before then. The EPs expressly recognise that they are not intended to be applied retroactively (i.e. to all existing Projects). However, they will apply to expansions or upgrades of existing Projects where changes of scale or scope may create environmental and social risks and impacts, or significantly change the nature or degree of an existing impact.

EP4: overview of principal changes

EP4 introduces changes in four key areas:

  • The application of the EPs to Project Finance Advisory Services, Project Finance and Bridge Loans remains unchanged.

    In relation to Project-Related Corporate Loans (PRCLs), (a) the threshold amount for the application of the EPs to PRCLs (being the total aggregate loan amount and an EPFI's individual commitment) has reduced from US$100 million to US$50 million and (b) loans to sovereign borrowers for Category A or, as applicable, Category B Projects are now within scope.

    The scope of the EPs (and EPFIs' annual data reporting obligation in the EPs) has been extended to apply to Project-Related Refinancing and Project-Related Acquisition Financing where the following criteria are met: (a) the underlying Project was financed in accordance with the EP framework; (b) there has been no material change in the scale or scope of the Project and (c) Project Completion has not occurred at the time of signing the relevant facility.

    The Preamble to EP4 also contains, for the first time, an acknowledgement from EPFIs of a broader responsibility for managing adverse environmental and social risks and impacts, and respecting human rights, for financial products that fall outside the EP framework.

  • Principle 3 (Applicable Environmental and Social Standards) of EP4 remains unchanged for Projects located in Non-Designated Countries (IFC Performance Standards and World Bank EHS Guidelines) and Projects located in Designated Countries (relevant host country laws). However, EP4 requires:

    • for Projects located in Designated Countries, EPFIs to evaluate the specific risks of a Project to determine whether one or more of the IFC Performance Standards could be used as guidance to address those risks, in addition to host country law; and
    • for all Category A and B Projects globally, EPFIs' due diligence to review and confirm how the Project and the transaction meets each of the EPs.
  • Human rights and social risk

    The Preamble to EP4 states that EPFIs will fulfil their responsibility to respect human rights in line with the UN's Guiding Principles on Business and Human Rights, with Principle 2 (Environmental and Social Assessment) expressly requiring assessments of human rights impacts as part of the Project's assessments and for those assessments to be included in the Assessment Documentation.

    One of the key areas of discussion in the consultation process on EP4 related to Principle 5 (Stakeholder Engagement). Should there be an absolute obligation to obtain the Free, Prior and Informed Consent (FPIC) of Indigenous Peoples affected by a Project and if so, when should this apply? The final version of EP4 broadly requires FPIC to be obtained where required under IFC Performance Standard 7. However, it also provides a narrow mechanism allowing diversion from the IFC standard where the proper consultation requirements have been followed and documented.

  • Climate change

  • The Preamble to EP4 recognises that EPFIs have a role to play with respect to the 2015 Paris Agreement as well as efforts to improve the availability of climate-related information (referencing the recommendations of the Task Force on Climate-related Financial Disclosures (the TCFD)).

    Principle 2 (Environmental and Social Assessment) introduces a requirement for climate change assessment, adopting the risk categories identified by the TCFD. Annex A specifies some of the questions to be addressed in this assessment. For Category A or B Projects, this assessment is to include consideration of relevant physical risks. For all Projects in all locations, when combined Scope 1 and Scope 2 Emissions are expected to be more than 100,000 tonnes of CO₂ equivalent, this assessment is also required to consider relevant transition risks and the completion of an alternative analysis to evaluate less greenhouse gas (GHG) emission intensive alternatives.

    In relation to Category A and B Projects, Principle 10 (Reporting and Transparency):

    • requires the client to report GHG emission levels publicly and on an annual basis, with guidance on calculation and reporting specified in Annex A; and
    • states that EPFIs will encourage the client to share commercially non-sensitive Project-specific biodiversity data with the Global Biodiversity Information Facility and relevant national and global data repositories.

EP4: practical considerations for EPFI

EPFIs should (to the extent not already done):

  • familiarise themselves with EP4;
  • consider the changes required to their internal environmental and social policies, procedures and standards for financing Projects to meet the requirements of EP4;
  • consider the changes required to their EP reporting protocols to reflect the requirements of EP4; and
  • look out for implementation guidance on EP4, which the EPA intends to publish in Q2 2020.