Equator principles: Best Environmental and Social Risk Determinant in Project Financing.
Equator principles have turned out to be one of the most used management frameworks by financial houses across the globe. It is the standard and determinant for project financing and loan to corporate bodies.
It is a risk management tool adopted by 82 Financial Institutions in over 35 countries of the world with the sole aim of accessing social risk and managing the environment in project financing.
History of Equator principles
Equator principles was officially launched on 4 June 2003 in Washington DC. The principles of this determinant were based on the formal environmental and social policy frameworks put in place by The International Finance Corporation.
This principle holds globally when it comes to management frameworks for managing environmental and social risk in day-to-day project financing.
The standard for Equator principles has been recent been updated to match International Finance Corporation standard and that of social and environmental sustainability.
This principle has led to the development of other environmental standards and practices in the financial sectors like Carbon principles and Climate Principles.
Principles of Equator principles
This principle is based on the following areas:
Review and Categorization.
Environmental and social Assessment.
Applicable Environmental and Social Standards.
Environmental and Social Management System and Equator Principle Action.
Independent Monitoring Reporting.
Reporting and Transparency.
There has been some level of criticism that has downplayed the effectiveness of this principle in some quarters. One of the was the argument on the Baku-Tbilisi- Ceyhan pipeline that suffered about 127 alleged breaches in spite of the fact that Equator principles was followed by the financing banks.
This principle has helped in ensuring safety and best practices in the daily transaction of financial houses. The principle remains and strong determinant in risk management and project financing.