AT A GLANCE - Twenty-nine financial institutions have now adopted the Equator Principles, a voluntary set of guidelines based on IFC policies to ensure that social and environmental issues are fully addressed in their project finance business.
- Under the principles, finance is provided only to projects whose sponsors can demonstrate that those projects will be conducted in a socially and environmentally responsible manner and in compliance with the Equator Principles.
- From the adoption of the principles by 10 banks in 2003, the momentum to 29 today indicates that these principles have become the new standard in project finance. To successfully arrange a project financing, compliance with the Equator Principles has become almost essential.
- IFC is offering training to the Equator banks on its policies and procedures and has directly trained almost 400 bankers at 13 banks through this program. IFC also provides guidance to the banks on general issues, as needed, and advice, where appropriate.
- The Equator Principles indicate the change in the banking industry's focus on environmental and social issues as a business risk. Banks that are competitors have agreed that on environmental and social issues they would not compete.
- IFC is in the process of updating its Safeguard Policies. The Equator banks, which use these policies, are important stakeholders, and IFC is consulting with them during the formal consultation period on the Safeguard Policies.
Overview On June 4, 2003, ten leading banks from seven countries announced the adoption of the Equator Principles, a set of voluntary guidelines developed by the banks for managing social and environmental issues related to the financing of development projects. The banks apply the principles globally to project financings in all industry sectors, including mining, oil and gas, and forestry.
To date, the principles have been adopted by 29 financial institutions (including one export credit agency and three developing country banks): ABN AMRO Bank, N.V., Banco Bradesco, Banco do Brasil, Banco Itaú, Banco Itaú BBA, Bank of America, Barclays plc, BBVA, Calyon, CIBC, Citigroup Inc., Credit Suisse Group, Dexia Group, Dresdner Bank, EKF, HSBC Group, HVB Group, ING Group, KBC, MCC, Mizuho Corporate Bank, Rabobank Group, Royal Bank of Canada Scotiabank, Standard Chartered Bank, The Royal Bank of Scotland, Unibanco , WestLB AG and Westpac Banking Corporation. The Equator Principles are based on the policies and guidelines of IFC. The banks received extensive advice and guidance from IFC, the private sector investment arm of the World Bank, in drafting the Equator Principles. Together, the Equator banks are estimated to represent approximately 80 percent of the project loan syndication market globally during 2003, according to Dealogic. In implementing the Equator Principles, banks currently have or will put in place internal policies and processes consistent with the principles. In adopting these principles, a bank agrees to provide loans only to those projects whose sponsors can demonstrate, to the satisfaction of the bank, their ability and willingness to comply with comprehensive processes for ensuring that projects are developed in a socially responsible manner and according to sound environmental management practices. The banks apply the Equator Principles to all loans for projects with a capital cost of $50 million or more. Project finance, an important financing method in private sector development, refers to the financing of projects in which the repayment of the loan depends on the revenues that the project generates once it is up and running. The Equator Principles use a screening process based on IFC's environmental and social screening process. Projects are categorized as A, B, or C (high, medium or low environmental or social risk) by the banks, using common terminology. For A and B projects (high and medium risk), the borrower completes an environmental assessment addressing the environmental and social issues identified in the categorization process. After appropriate consultation with affected local stakeholders, category A projects, and category B projects where appropriate, will prepare Environmental Management Plans that address mitigation and monitoring of environmental and social risks. The borrower is required to demonstrate to the bank that the project complies with host country laws and the World Bank and IFC Pollution Prevention and Abatement Guidelines for the relevant industry sector. For projects in the emerging markets, the borrower also must demonstrate that the environmental assessment has taken into account the IFC Safeguard Policies, which provide guidance on issues such as natural habitats, indigenous peoples, involuntary resettlement, safety of dams, forestry, and cultural property. More information is available at: http://www.ifc.org/equatorprinciples or http://www.equator-principles.com/. Updated March 2005 Media Contacts:
Ann Pasco (202) 473 9167: Email: apasco@ifc.org
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