The Equator Principles Annual Meeting 2017 on 24-25 October in São Paulo was the largest ever, with more than 130 individuals representing 60 Equator Principles Financial Institutions (EPFIs), including 3 new adopters in attendance from key markets (inc. China, South Korea).
The meeting served to debate and share knowledge on key topics of concern to EPFIs including application of Free, Prior and Informed Consent (FPIC) in different jurisdictions, the ‘Designated Countries’ approach within the EPs, climate risk, applying EP beyond scope, and effective approaches for EPFIs to manage environmental and social (E&S) risks during the monitoring phase of projects. Non-member participants joined specific sessions bringing expert views from Brazilian and international academia, civil society, consultancy companies, and clients.
The discussions reflected understanding that the debate on sustainable finance has moved on from June 2013 when the last iteration of the EPs was issued. The approach of FIs, regulators, clients and civil society to E&S risks in finance is rapidly changing. In particular, participants reflected on the important implications of the Paris Agreement, challenges in implementation of FPIC, and the recently released Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
The EP Association is therefore planning to start a process of updating the Equator Principles. This effort is in line with our commitment to “reflect ongoing learning and emerging good practice”, per the EP3 Preamble. The aim of the process will be on a targeted update to the EPs – ‘EP4’ – that will consider the key issues of scope of applicability, human rights (inclusive of the rights of Indigenous Peoples), and climate change, amongst others.
EPFIs recognise that one of the biggest added values of the EPs is to its own members. The EP Association wants to retain the overall approach of the EPs, being a risk management framework primarily intended to support FIs to identify, assess and manage the E&S risks and impacts of transactions in a structured way.
This round will be the first time that the EP undertakes a review that is not attached to an update of the International Finance Corporation’s (IFC) Performance Standards (PS). The IFC PS remain valuable and will continue to be the main benchmark standard that the Principles reference for non-Designated Countries.
The EP Association anticipates that this update process will take up to 18 months, and we expect to kick off this process shortly (after a brief scoping period within the Steering Committee). The review process will include external stakeholder consultation and will be conducted in accordance with the Association’s Governance Rules.
As part of the update, the Association will consider introducing a periodic review of the EPs, so that they would be updated on a regular cycle in future, to maintain their relevance in a rapidly changing world.
While EP3 is still in effect, and in view of the period that EP4 revision will take, a clarification note on some specific aspects regarding application of the EPs in Designated Countries will be developed and issued publicly by the Association.
– The Equator Principles Association Steering Committee