Equator principles

October 25, 2011
From: Felipe Rodrigues de Abreu

Equator Principles

Equator Principles are a set of environmental and social requirements applicable into demands to the banking system forfinancing large infra-structure projects around the globe, in order to achieve environmental sustainability. Dozens of finance institutions worldwide have officially adopted them, covering over 70 percentof international project finance debt in emerging markets. The project finance has an important role in economic development by providing financing, particularly in emerging markets, long-term andoften almost in its absolute majority, sensitive projects in the environmental and social fields. It is expected that the EP will serve as the basis and a common standard for the implementation ofprocedures and standards related to individual and internal social and environmental issues for project financing activities across all industry sectors on a global basis.

The application of theconcepts is based on establishing a socio-environmental rating, made by financial institutions. Therefore, projects are classified as A (high risk), B (medium risk) or C (low risk). This means that theprojects presented by companies must contain information such as environmental risk, biodiversity protection and use of renewable energy, health protection and cultural and ethnic diversity; adoption ofsystems of occupational health and safety and fire prevention, evaluation of socioeconomic impacts, efficiency in production, distribution and consumption of water resources and energy, mechanisms ofprevention and control of pollution, among others, to be assessed by the financial institution.

The principles are important for environmental responsibility, and to financial institutions, sincethey have more security for the loan that are providing, this is because environmental problems generated by borrowers and/or issuers of equities may have serious impacts on their ability to pay their...