The Equator Principles: Retaining the Gold Standard – A Strategic Vision at 10 Years

Abstract

Launched in 2003, the Equator Principles (EP) signaled a major shift by international banks in their approach and responsibility for environmental and social outcomes in the projects to which they were lending. Ten European, US and Australian banks originally adopted the EPs. Within the first year, this had grown to 25 financial institutions from 14 countries, including a Japanese bank and an export credit agency. Ten years later, there are 80 Equator Principles Financial Institutions (EPFIs) from countries as diverse as Mauritius, Mexico and Morocco. In 2006, the EP were revised to reflect changes in IFC's Performance Standards and needed modifications based on implementation experience. The update process took less than six months, expanded the scope of the EPs and introduced reporting requirements. In 2010, the EP Association embarked on another revision process (EP III), which took more than two-and-a-half years to complete. What changed to make the process so much slower? Were the EP Association’s aspirations for this revision higher, were the issues more complex, did the broad geographic scope of the EP membership make consensus more difficult or had the management of EP Association become less efficient? The management system of the EP Association with its rotating chair, 14-member steering committee and ten working groups is both a strength and a weakness. With its flat structure and lack of dedicated professional resources, the EP Association now has to work longer and harder to develop solutions, reach consensus and make decisions. This extended process provides some insight into the complexity of managing a voluntary global standard with a broad range of constituencies. Among the trade-offs that had to be navigated were the desire to introduce more robust and consistent reporting requirements while recognising that some countries have a culture of corporate privacy; and addressing climate change and promoting lower carbon outcomes while accommodating those countries actively developing carbon-intensive industries such as tar sands, hydraulic fracturing and coal reserves. EP III reflects breakthroughs including the expansion of the scope of the EPs to include Project-Related Corporate Loans and strengthened reporting requirements. The release of EP III at the Association’s 10-year anniversary provides the opportunity to reflect on what the EPs have achieved and where challenges remain.