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Management and Future Development of the Equator Principles Association

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Management of the Equator Principles Association

Organizational Management of the Equator Principles Association

Equator Principles Financial Institutions (EPFIs) adopted the Governance Rules and established the Equator Principles Association (EPA) in July 2010. EPA is a private–bank–led international organization without a dedicated staff and office. It consists of five entities: the Chair, the Steering Committee, the Working Groups, the Secretariat, and the Trustee. Organizational management is handled by volunteer EPFIs and the Secretariat.

  • *Links to the Equator Principles Association Official website

CHAIR

The Chair is the sole representative of EPA and presides over the Steering Committee. The Chair also acts as the coordinator between the Steering Committee and the working groups and/or other EPFIs. Standard Bank of South Africa is appointed as the current Chair of the EPA for June 2015 – May 2016 term.

STEERING COMMITTEE

Important agenda items such as revisions to the text of the Equator Principles (EPs) and/or the Governance Rules are determined through deliberations of all EPFIs. Other, EPs related matters are subject to the decision making of the Steering Committee (consisting of 15 banks including MHBK, as of July 2015).

WORKING GROUPS

Working Groups are formed to examine, review and make recommendations regarding important issues of the EPA. Steering Committee member serves as a Working Group Head and the participating members are widely recruited from among EPA. Communication is usually conducted via conference calls.

As of July 2015, the key working groups are External Relations, Outreach, Biodiversity, Climate Change and Social Risks.

Secretariat

The Secretariat's duties include operating the official website, arranging conferences and preparing the minutes of meetings. Currently, the job is outsourced to Work Ethics Ltd, a nonprofit organization, registered in United Kingdom.

TRUSTEE

Annual membership fee system was implemented in 2008. All the expenses are evenly divided among EPFIs. The Trustee oversees all income and expenditures.

Exchange of Opinions with Environmental NGOs

EPs were formulated in response to requests by environmental NGOs. As a key stakeholder, the environmental NGOs play an important role in the implementation of these Principles. EPA exchanges opinions, from time to time, on the progress of issues such as climate change with NGOs.

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Revision of IFC Performance Standards

The IFC revised its Performance Standards (PS) in January 2012.

To reflect changes in the IFC PS, EPFIs revised the EPs to focus on a number of themes, such as Biodiversity, Climate Change, and Social Risks, and launched the third version of Equator Principles (EP III) in June 2013.

EP III became effective on June 4, 2013.

Accomplishments of the Equator Principles

Three changes to project finance

EPs have resulted in three major changes to project finance.

  1. 1.With the EPs, environmental and social risks are now widely recognized by society as significant risk factors, in assessing the projects. In addition, the implementation of risk–responsive measures via an Action Plan, is now embedded in the financing agreement. As a result, consideration of environmental and social risks and the mitigation of risks have been prioritized, benefitting the global environment and local communities.
  2. 2.The application of EPs to a project has become an important competitive factor for private financial institutions in obtaining the position of lead arranger in project syndication. In addition, collaboration in coping with environmental and social risks has been encouraged among syndicate members. The establishment and dissemination of these Principles have given financial institutions focused initiatives when addressing environmental and social risks.
  3. 3.The vigorous exchange of opinions on the environmental and social risks of a project has been encouraged among banks, clients and environmental NGOs through the management of the EPs and their application to project finance.

As described above, EPs have brought a variety of advantages to stakeholders including project–affected communities, banks, clients and environmental NGOs.

Perspective

Expanding the Scope of Application and Adopting Banks

At first, EPs were only applied to Project Finance; however, with the revision of EPs to EP III in June 2013, corporate loans for large scale projects are now under the scope of EPs. Because expansion of scope strengthens mitigation of environmental and social risks, discussion of further scope expansion will be continued.

Moreover, increasing the number of adopting banks enhances the influence and leverage of EPs, which further leads to a decrease in environmental and social risks. Therefore, it is paramount for the EPA to continue outreaching to those financial institutions that have not yet adopted EPs and to increase the number of member banks.

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