A short answer to the question in our headline is that they are a set of environmental and social principles which bid fair eventually to affect every new construction project in the world. Not now, but eventually. They are the Equator Principles. And they won't be enforced by any government agency, but by the banks that lend the money for the construction projects.
What are they? They are a set of primarily social responsibility principles that are now dominating the lending of big money around the world. Eighty-one major banking and lending institutions in 36 countries have adopted the EPs, and they now cover over 70% of international project financing debt in emerging markets.
In their self-description, they declare, "We the Equator Principles Financial Institutions (EFPIs) have adopted the Equator Principles in order to ensure that the Projects we finance and advise on are developed in a manner that is socially responsible and reflects sound environmental management practices. We recognize the importance of climate change, biodiversity and human rights, and believe negative impacts on project-affected ecosystems, communities and the climate should be avoided where possible. If these impacts are unavoidable they should be minimized, mitigated and/or offset."
And in a flat statement, they continue, "We will not provide project finance or project-related corporate loans to projects where the client will not, or is unable to, comply with the Equator Principles." Remember that this fiat is coming from the 81 largest, most powerful and most influential lending institutions in the world.
The adopting members also say about themselves, "The EP apply globally to all industry sectors and to four financial products: 1) project finance advisory services 2)project finance 3) project related corporate loans and 4) bridge loans."
The 81 subscribing financial institutions are the biggies in the lending of big money globally--as in new mills, major rebuilds or repurposing. They might just sniff at a local minor project--but maybe not. If there ever was a case ripe for "trickle down" economics, it is here. But this trickling down is not about prosperity dripping down; it is about lending restrictions being pushed down. Smaller banks are often dependent on bigger banks for pass-through financing, some types of re-insurance, and may even be owned by one of the big guys. It is not likely that the biggies are not going to push down their principles to whatever levels come to their attention and concern.
The Equator Principles subscribers embrace the performance standards of the International Finance Corporation, a worldwide finance and lending uber-watchdog and member organization of the World Bank. The IFC performance standards demand concern for:
- Assessment and management environmental and social risks and impacts
- Labor and working conditions
- Resource efficiency and pollution prevention
- Community health, safety and security
- Land acquisition and involuntary resettlement
- Biodiversity conservation and sustainable management of living natural resources
- Indigenous peoples
- Cultural heritage
The EP group also says about itself that it is primarily intended to provide minimum standards for due diligence to support responsible decision-making. In the past and mostly in the present, due diligence in the pulp and paper industry has been mostly concerned about assets and markets. No so much longer, we predict. You can expect more and more attention, at all levels for which money must be borrowed, to increased attention and focus on social/community standards and responsibility, labor standards and consultation with locally affected peoples, in addition to close attention to environmental restrictions.