The Equator Principles (EP) are a voluntary set of standards adopted by financial institutions for determining, assessing and managing environmental and social risks in project-related transactions.
All transactions that fall within the scope of EP undergo an initial environmental and social risk screening (using a checklist) conducted by the business. Typically for project finance deals, the business is supported by a suitably qualified technical advisor, who opines on the potential environmental and social effects, compliance with environmental laws and regulations and with the EP.
Additionally, such transactions are subject to enhanced due diligence by the Reputational Risk & ESE team (comprised of five employees). This includes a review of the transaction for compliance with the EP. The end result is documented and forms part of the credit application pack submitted to senior credit underwriters. Depending on the risk level, the prospective financing may be subject to a further and separate review of reputational risk through the ESE risk escalation process which may involve risk executives.
The requirements of the EP are embedded in the bank’s ESE risk management policy.
We are a member of the EP Association Steering Committee and during 2016, we co-led a working group on a potential new assurance standard to provide guidance on how EP financial institutions can undertake assurance on their implementation of EP.
Summary of 2016 EP deals
The reporting period for data and implementation is from 1 January 2016 to 31 December 2016 (2015 data is provided for comparison).
During this period, seven Project Finance transactions and two Project-Related Corporate Loans to which we had applied the EP reached financial close. We were mandated on one Project Finance Advisory Service deal. All deals that fell within the scope of the EP were located in the UK (including one in Gibraltar, a British Overseas Territory) or Republic of Ireland.
The EP use a scale of categorisation – A to C – to determine the scale of environmental and social impacts, with Category A being projects with the highest impacts and Category C the lowest. Six of the Project Finance transactions were Category B, and the remaining one was Category C. The Project-Related Corporate Loans were both Category B.
In comparison, the total number of project related transactions financed in 2015 was 5, 60% of which were in the UK.
2016 & 2015 Project Finance and Project-Related Corporate Loans categorised against Equator Principles by industry sector
Sector 2016 2015 A B C Total A B C Total Mining 0 0 0 0 0 0 0 0 Infrastructure 0 1 0 1 0 0 0 0 Oil & Gas 0 0 0 0 0 0 0 0 Power 0 7 1 8 0 4 1 5 Total 0 8 1 9 0 4 1 5
2016 & 2015 Project Finance and Project-Related Corporate Loans categorised against Equator Principles by region
Region 2016 2015 A B C Total A B C Total Americas 0 0 0 0 0 1 0 1 Europe, Middle East & Africa 0 8 1 9 0 3 1 4 Asia Pacific 0 0 0 0 0 0 0 0 Total 0 8 1 9 0 4 1 5
2016 EPIII Project Finance transactions, Project-Related Corporate Loans and Project Finance Advisory Services
2016 Project Finance Transactions Project Category Sector Region Designated Country? Independent Review 1. B Power Europe, Middle East & Africa Yes Yes 2. B Power Europe, Middle East & Africa Yes Yes 3. B Power Europe, Middle East & Africa Yes Yes 4. B Power Europe, Middle East & Africa Yes Yes 5. B Power Europe, Middle East & Africa Yes Yes 6. B Power Europe, Middle East & Africa Yes Yes 7. C Power
Europe, Middle East & Africa Yes Yes 2016 Project-Related Corporate Loans Project Category Sector Region Designated Country? Independent Review 1. B Infrastructure Europe, Middle East & Africa Yes No 2. B Power Europe, Middle East & Africa Yes No 2016 Project Finance Advisory Services Sector Region 1. Power Europe, Middle East & Africa