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 questionnaire) conducted by the business. Typically for project finance deals, the business is supported by a suitably qualified technical advisor, who provides an opinion 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 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 Reputational Risk Policy.
Summary of 2017 EP deals
The reporting period for data and implementation is from 1 January 2017 to 31 December 2017 (2016 data is provided for comparison).
During this period, eight Project Finance transactions to which we had applied the EP reached financial close. All deals that fell within the scope of the EP were located in the UK 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 two were Category C.
In comparison, the total number of project-related transactions financed in 2016 was 9, 89% of which were in the UK (including one in Gibraltar, a British Overseas Territory).