The equator Principles 1 (the “Principles”) were established in 2003 by a group of private banks led by Citigroup, ABN AMRO, Barclays and WestLB and can be defined as voluntary environmental and social standards to be respected by private banks in project financing. The corporate projects are, in most cases, limited to major projects such as mining, dams and telecoms. Hence the equator Principles do not apply to general, mainstream loans to companies.

The first version of the Principles (EP I) only applied to projects exceeding 50 million dollars US and concerned only around a dozen international banks. The second version adopted in July 2006 (EP II) is based on criteria developed by the IFC (International Finance Corporation), as the World Bank Group institution in charge of the private sector. The last version of the Principles (EP 4) which introduced more explicit references to human rights, came into effect on 1 October 2020 2 . As of March 2021, 117 financial institutions in 37 countries had adopted the Equator Principles Financial Institutions (EPFIs), which highlights the growing interest for responsible financing.

What is the scope of the Principles?

The EPFIs are actually committed to provide loans only to projects supporting sustainable development, the protection of health, of cultural heritage and of biological diversity, the prevention and control of pollution, and to consider the impact the projects may have on indigenous populations and communities.

The 10 equator Principles are guidelines intended to assist the banks in deciding which projects to finance. They apply “globally and to all industry sectors” 3 and to four different financial products 4  :

  • Project Finance Advisory Services (for projects with a total capital cost of at least US$10 million)
  • Project Finance (for projects with a total capital cost of at least US$10 million)
  • Project-Related Corporate Loans in certain circumstances 5
  • Bridge Loans (short-term loan advanced to cover the period between the termination of one loan and the start of another 6 )
  • Project-Related Refinance and Project-Related Acquisition Finance under certain criteria

The application of the Principles for Project-Related Corporate Loans and Bridge Loans was excluded in EP I and EP II. The latter only applied to project-financing, which represents about 1% to 2% of corporate and investment banks’ activities.

EP 4 state 7  :

  • Principle 1: Review and Categorisation

    When a project is proposed for financing, the EPFI will, as part of its internal social and environmental review and due diligence process, categorise the project based on the magnitude of its potential impacts and risks in accordance with the environmental and social screening criteria of the IFC.

  • Principle 2: Environmental and Social Assessment

    For each project assessed, the borrower is required to conduct an adequate environmental and Social Assessment to address the relevant social and environmental impacts and risks and scale of impacts of the proposed project. The Assessment should also propose relevant measures to minimise, mitigate, and where residual impacts remain, to compensate/offset/remedy for risks and impact. The borrower is expected to include assessments of potential adverse Human Rights impacts and climate change risks as part of the assessments (this is mandatory for some project categories). The borrower should refer to the UNGPs when assessing Human Rights risks and impacts, and the Climate Change Risk Assessment should be aligned with Climate Physical Risk and Climate Transition Risk categories of the Task Force on Climate-related Financial Disclosures.

  • Principle 3: Applicable Environmental and Social Standards

    The assessment of environmental and social risks will refer to the applicable IFC Performance Standards revised in 2011, to the applicable Industry Specific environmental, Health and Safety Guidelines (“eHS Guidelines”), but also to the host country environmental and social laws and regulations.

  • Principle 4: Environmental and Social Management System (ESMS) and Equator Principles Action Plan

    For each project assessed, the borrower is required to develop or maintain an environmental and Social Management System (ESMS) to deal with the social and environmental risks involved by the implementation of the project.

    Such ESMS will be completed with the development by the borrower of an environmental and Social Management Plan (ESMP) describing the actions needed to implement mitigation measures, and monitor the measures necessary to manage the impacts and risks identified during the assessment process.

    If compliance of the project with the applicable standards is still not considered satisfactory by the EPFI, the latter will agree on an equator Principles Action Plan (AP) with the borrower to outline gaps and commitments to meet EPFI requirements in line with the applicable standards.

  • Principle 5: Stakeholder Engagement

    For each project assessed, the EPFI will require the borrower to demonstrate its effective engagement with all stakeholders of the project. An Informed Consultation and Participation Process will have to be conducted by the borrower for all projects with a potentially adverse impact on communities. Such process will have to be realised in a culturally appropriate manner, and tailored to the language preferences and decision-making processes of the affected communities, as well as to the needs of their most vulnerable groups. Projects affecting indigenous peoples will be subject to a similar consultation process and require Free Prior and Informed Consent (FPIC) consistently with IFC Performance Standard 7, to establish whether they have adequately incorporated the concerns of these communities.

  • Principle 6: Grievance Mechanism

    For each project assessed, the borrower will establish a grievance mechanism as part of the above-mentioned ESMS to receive and facilitate resolution of concerns and grievances about the project’s social and environmental performance raised by individuals or groups from among project-affected communities. Such mechanisms will need to be scaled to the risks and adverse impacts of the project

  • Principle 7: Independent Review

    For project financing, an Independent Social and environmental Consultant not directly associated with the borrower will review the risk assessment documentation including the ESMS and the equator Principles AP, as well as the consultation process documentation in order to assist EPFI’s due diligence, and assess equator Principles compliance.

    For project related corporate loans, the Independent Social and environmental Consultant will need review only projects with potential high-risk impacts including damage to indigenous peoples, critical habitats impacts, significant cultural heritage impact, and large-scale resettlement, inter alia.

  • Principle 8: Covenants

    Where a borrower is not in compliance with its social and environmental covenants, EPFI will work with the borrower to bring it back into compliance to the extent feasible, and, if the borrower fails to re-establish compliance within an agreed upon grace period, EPFI reserve the right to exercise remedies, as they consider appropriate.

  • Principle 9: Independent Monitoring and Reporting

    For project-finance, either the Independent environmental and Social Consultant or a qualified and experienced external expert appointed by the borrower will have to monitor and assess project compliance with the equator Principles.

    The same process will have to be followed for projects-related corporate loans requiring an independent review under Principle 7.

  • Principle 10: Reporting and Transparency

    Each EPFI adopting the equator Principles commits to report publicly at least annually on its equator Principles implementation processes and experience, taking into account appropriate confidentiality considerations.

    Guidance notes regarding implementation of human rights assessments, climate change risk assessments, evaluating projects with affected indigenous peoples or on biodiversity data sharing were published to accompany the EP4. 8 .

The Equator Principles, changes and criticisms

EP 4 are considered as an improvement of the old principles. This is mainly due to the fact that they now encompass more projects because their applicability is no longer limited to project financing. In terms of commitment to respect international environmental and social standards, one can only welcome the explicit engagement to address human rights in the preamble of the new principles, especially through the reference to the Guiding Principles on Business and Human Rights, Implementing the UN Protect, Respect and Remedy Framework. EP 4’s new preamble also explicitly expresses the commitment to address climate change issues, and project reporting requirements on greenhouse gas emission levels have been included in the eP framework through a commitment to the 2015 Paris Agreement. Despite these important and positive changes, the principles remain criticised mainly for their vagueness (a) and the fact that they do not include a recourse mechanism (2) 9 .

Vagueness in the formulation of the principles

Many NGOs demand a review of the principles and of their application with denouncing the imprecision and vagueness of their formulation 10 . Banktrack 11 criticises the principles notably for their lack of transparency - they did not take up IFC’s policy of disclosure - and the fact that there are no provisions made for compensation to those affected by the projects.

Lacking independent review or recourse mechanism

Any bank can adopt the Principles but it should be noted that the EPFI have not implemented any control or review mechanisms to ensure that the Principles are being adhered to. The review of the equator Principles is carried out on a voluntary basis by one of the member banks on another member bank involved in a project. No doubt this lack of transparency leads to a conflict of interests or to a situation in which favours are exchanged. Moreover the Principles have not implemented any recourse mechanisms for affected communities. Despite the lack of an official complaint mechanism, it is possible to alert the equator principles’ Board of violations.

The Equator Principles in Action

Nine NGOs press charges against Calyon

On 18 May 2006, nine NGOs including Amis de la Terre (Friends of the Earth France) and BankTrack pressed charges against Calyon, a subsidiary of the Crédit Agricole Group, for violating the Equator Principles in the Botnia Paper Pulp Factory project in Uruguay. Due to the absence of an official complaints mechanism, the NGOs directly addressed the Crédit Agricole Group. The NGOs rejected an internal expert considered to be barring the participation of the local community. The charges were rejected by the Crédit Agricole who claimed the Principles were not applicable in this case, because they maintained that they were not doing ’project financing’. Considering that financing a project involves gathering and structuring various financial contributions necessary for large scale investments and considering that in this case Calyon financially supported a Finnish factory in Uruguay, there is no doubt that this response renders this bank’s commitment to the Principles highly questionable and taints the usefulness of the Principles in general.


In addition to the equator Principles, civil society organisations can look for environmental and social standards and complaint mechanisms that may be present within other private banks. For instance, the China Banking Regulation Commission (CBRC) issued in 2017 the Chinese Green Credit Guidelines. The Guidelines were revised in 2012. Sometimes called directives 12 they require Chinese banks to “effectively identify, measure, monitor and control environmental and social risks associated with their credit activities, establish environmental and social risk management system, and improve relevant credit policies and process management.” 13