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    profile of innovation

     
    Title: The Equator Principles: Financing Collaboration Produces Global Benefits
    Organization: The Equator Principles  
    Date: Monday, May 2, 2005
    Region of Impact: Caribbean, Central Africa, Central America, Central Asia, East Africa, East Asia, Easter Europe, Middle East, North Africa, North America, Oceania, South America, South Asia and Himalayas, Southeast Asia, Southern Africa, West Africa, Western Europe  
    Themes: Business Ethics, Community Development, Ecological Flourishing, Human Empowerment, Human Health, Labor, Peace making
    Keywords: sustainability, social responsibility, environmental awareness, financial sector
    Reference No.: 000277
     

    Key Ideas

    A number of major financial institutions have come together to adopt a framework for determining, assessing and managing environmental and social issues in project financing. These global voluntary regulatory guidelines, the “Equator Principles” (EPs), are revolutionizing the way large projects are financed. Banks that adopt the EPs apply them globally to project financing in all industry sectors including mining, oil and gas, and forestry, and they make loans only to those projects whose sponsors aim to be socially responsible and environmentally sound.

     

    Innovation

    The June 2003 announcement regarding adoption of the Equator Principles (EPs) by ten major banks in seven countries highlighted the collaborative efforts of competitors in the project finance market. The news signaled that, over time, businesses can and will make conscious decisions to pursue a triple bottom line of economics, environment, and people. The EPs are an innovative set of guidelines for assessing and managing environmental and social risks in the area of project financing. They provide clear policies and procedures for financing projects greater than $50 million. Banks that adopt the EPs apply them globally, and make loans only to organizations that aim to be socially responsible and environmentally sound.

    In order for a firm to obtain project funding from an “Equator bank,” it must conduct an environmental assessment and address issues such as sustainable development, socioeconomic impact, land acquisition, involuntary resettlement, and pollution prevention. By working collaboratively, the banks have been able to raise standards and ensure the long-term sustainability of their projects and clients.

     

    Impact

    By April 2004, 29 banks had adopted the EPs. At that point in time, those banks controlled approximately 75% of global project financing resources. EPs banks are intent on addressing negative social response and costly litigation that can result from the absence of environmentally and socially responsible project financing. The EPs have a far-reaching impact, cutting globally across a spectrum of industries including finance, healthcare, education, infrastructure, manufacturing and extraction. Adoption of the EPs is a catalyst for change that requires banks to rewrite credit procedures, educate and train staff, and adopt new internal audit procedures. The EPs are bringing together competitors who see the benefits of collaboration, and efforts continue to build support for the initiative.

     

    Inspiration

    The Equator Principles are a dynamic and inclusive document that will remain at the center of the world’s most important debates – bio-diversity, climate change, agri-business, and employment standards. The preamble of the EPs document states: “We recognize that our role as financiers affords us significant opportunities to promote responsible environmental stewardship and socially responsible development.” There is a growing sense of obligation for banks to adopt the EPs, which will produce an eventual shift in mindset and higher standards for doing business.

     
     
    Discussion
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    Organization Links
  • The Equator Principles:Official Site
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    Additional Resources
  • BAWB Feature Story
  • Corporate Green by WASHINGTON POST
  • CitiGroup: Corporate Citizenship
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    The World Inquiry editorial team edited this profile from the original submission of the interviewer or other source. The views expressed do not necessarily represent Case Western Reserve University, the Weatherhead School of Management or the Center for Business as an Agent of World Benefit.  More >>