Increasingly, the work of environmental practitioners is scrutinised by powerful external lobbies that can make or break a commercial project. Although we may believe that our minimum work standards are dictated by statutory requirements (or lack thereof), this is not the whole truth. Industry self-regulation significantly effects the traditional focus for ecological assessment, especially when it is at the demand of a third-party lender. Our standards in practice are already being used to indemnify institutional arrangements beyond domestic legislation.
In 2003, Westpac was one of a handful of banks to adopt international voluntary guidelines to assess social and environmental issues before lending more than $50 million to development projects. Today, the Equator Principles, developed by members of the World Bank's International Finance Corporation (IFC) are used by over 40 banks, world-wide, to decide whether or not to finance particular ventures. The latest set of principles was published in July 2006.
Australian and New Zealand banks that have adopted the Equator Principles to date, include:
official response to the Gunns Pulp Mill (Tas) proposals, stating that the Equator Principles would be used to decide whether or not to fund the development. Although ANZ refused funding there are a number of reasons, including the above, that would have been given consideration. It was the opinion of some high profile conservation organisations, such as the Wilderness Society, that the decision not to finance the project was done for environmental reasons (ABC News, May 2008).
What are the Equator Principles?
Principle 1: Review and Categorisation
When a project is proposed for financing, the Equator Principles Financial Institutions will, as part of its internal social and environmental review and due diligence, categorise such
project based on the magnitude of its potential impacts and risks in accordance with the environmental and social screening criteria of the International Finance Corporation (IFC)
Principle 2: Social and Environmental Assessment For each project assessed as being either Category A or Category B, the borrower has conducted a Social and Environmental Assessment (“Assessment”) process to address, as appropriate and to the EPFI’s satisfaction, the relevant social and environmental impacts and risks of the proposed project.
Principle 3: Applicable Social and Environmental Standards The Assessment will establish to a participating EPFI’s satisfaction the project’s overall compliance with, or justified deviation from, the respective Performance Standards and EHS
Guidelines. The Assessment process should address compliance with relevant host country laws, regulations and permits that pertain to social and environmental matters.
Principle 4: Action Plan and Management System
For all Category A and Category B projects the borrower must prepare an Action Plan (AP) which addresses the relevant findings, and draws on the conclusions of the Assessment. The AP will describe and prioritise the actions needed to implement mitigation measures, corrective actions and monitoring measures necessary to manage the impacts and risks identified in the
Principle 5: Consultation and Disclosure For all Category A and, as appropriate, Category B projects the government, borrower or third party expert must consult with project-affected communities in a structured and culturally
appropriate manner. The Assessment documentation and AP, or non-technical summaries thereof, will be made available to the public by the borrower for a reasonable minimum period in the relevant local language and in a culturally appropriate manner.
Principle 6: Grievance Mechanism For all Category A and, as appropriate, Category B projects to ensure that consultation, disclosure and community engagement continues throughout construction and operation of the project, the borrower will, scaled to the risks and adverse impacts of the project, establish a grievance mechanism as part of the management system. This will allow the borrower to receive
and facilitate resolution of concerns and grievances about the project’s social and environmental performance raised by individuals or groups from among project-affected communities.
Principle 7: Independent Review For all Category A projects and, as appropriate, for Category B projects, an independent social or environmental expert not directly associated with the borrower will review the Assessment,
AP and consultation process documentation in order to assist EPFI’s due diligence, and assess Equator Principles compliance.
Principle 8: Covenants An important strength of the Principles is the incorporation of covenants linked to compliance. Where a borrower is not in compliance with its social and environmental covenants, EPFIs
will work with the borrower to bring it back into compliance to the extent feasible, and if the borrower fails to re-establish compliance within an agreed grace period, EPFIs reserve the
right to exercise remedies, as they consider appropriate.
Principle 9: Independent Monitoring and Reporting To ensure ongoing monitoring and reporting over the life of the loan, EPFIs will, for all Category A projects, and as appropriate, for Category B projects, require appointment of an
independent environmental and/or social expert, or require that the borrower retain qualified and experienced external experts to verify its monitoring information which would be shared with EPFIs.
Principle 10: EPFI Reporting
Each EPFI adopting the Equator Principles commits to report publicly at least annually about its Equator Principles implementation processes and experience, taking into account appropriate confidentiality considerations.