The Equator Principles
The Equator Principles (EPs) is a risk management framework adopted by financial institutions for determining, assessing and managing environmental and social risk in projects. It’s primarily intended to provide a minimum standard for due diligence and monitoring to support responsible risk decision-making.
The EPs apply globally to all industry sectors and to five financial products: 1) project finance advisory services, 2) project finance, 3) project-related corporate loans, 4) bridge loans and 5) project-related refinance and project-related acquisition finance. The relevant thresholds and criteria for application is described in detail in the scope section of the EPs.
The EPs are adopted and applied voluntarily by what’s known as ’Equator Principles Financial Institutions’, or EPFIs. Currently 116 EPFIs in 37 countries have officially adopted the EPs, covering the majority of international project finance debt within developed and emerging markets.
The last review update of the EPs came into full effect as of 1 October 2020. Amendments and new commitments were made related to human rights, climate change, indigenous peoples and biodiversity. The scope of the EPs has also been extended to capture more project-related transactions. The final EP4 document and a summary of stakeholder input received during the consultation period, plus EPA’s response to those recommendations, can be found at www.equator-principles.com/ep4.
ING was one of the 10 first adopters of the EPs in 2003 and was one of the process coordinators for the review that resulted in EP4. We served as chair of the Steering Committee from 2012–2014, where we played an important role in finalising EP III. We actively advocate and promote the EPs, as we recognise their ability to positively contribute to society.
ING has a well-established Environmental and Social Risk Framework (ESR Framework) that lists the standards we expect of clients and ourselves, including application of the EPs.
Applying the Equator Principles
As an Equator Principles Financial Institution (EPFI) we don’t provide project finance or project-related corporate loans to clients that are unable to or choose not to comply with the principles.
We also implement the EPs in our internal environmental and social policies, procedures and standards. These are embedded in our ESR framework, and require involvement of the following three banking areas:
- Front office: The departments that originate transactions and have direct contact with clients or sponsors.
- Risk managers: The departments that provide control over Front Office activities and generally can sign off on the environmental and social impacts for ’low-risk’ EP deals.
- Environmental and social risk: The dedicated department within risk management that assesses the environmental and social impacts associated with ’high-risk’ transactions.
An example of how the EPs form part of our transaction assessment:
Sarulla – geothermal power plant:
“ING was one of the financiers of the world’s largest geothermal facilities [at the time], under construction on the Indonesian island of Sumatra since 2014. The project develops the steam resources, constructs and operates the geothermal power plants with a total net deliverable capacity of 330 MW for 30 years. Three power plants will be built, including a 20 km transmission line as interface point with the national electricity grid.
The transaction was assessed in accordance with the Equator Principles and our Environmental and Social Risk Policy for the energy sector. An independent technical, environmental and social due diligence was also applied to the project to ensure that appropriate environmental and social management plans were in place. We initially identified some safety, biodiversity and social impacts that had to be addressed prior to any approval for finance, in order for the project to comply with our Environmental and Social Risk policies and the applicable Environmental & Social standards .
Regarding safety, the project area may be affected by earthquakes. We therefore requested the project to comply with the international seismic design codes and monitoring of micro tremoring and slope stability assessments. The project is currently under construction and the latest monitoring reports confirm good progress in this respect.
The majority of the project’s environmental footprint is located within a modified habitat with an unlikely, although possible impact on endangered species. The project therefore conducted field surveys, developed a biodiversity action plan and a biodiversity offset management plan in line with applicable international standards. As a consequence, the project is committed to successfully apply a biodiversity mitigation hierarchy.
Social impacts involved the right of way affecting part of the land used by some households. We requested the project to manage this issue in compliance with the requirements of the related IFC Performance Standards. As a consequence, consultation and participation activities are organised for the affected households and are effective to date. The project in fact delivers public consultations and disclosure activities in various forms and has established an effective grievance mechanism.
We are pleased to see the positive developments brought by the efforts of the Sarulla management team. In addition to adequately mitigating environmental and social risks, this project will reduce Indonesia’s reliance on diesel and provide long-term reliable electricity to an area subject to power shortages through renewable energy production.”
The full text of the Equator Principles can be on the Equator Principles website.
Please find ING’s most recent Equator Principles reporting on the Members & Reporting page of EP.