The Equator Principles are a benchmark for the financial industry to manage environmental and social risk in project financing.
The Equator Principles
The Equator Principles (EP) are the standard in the financial industry for assessing and managing environmental and social risk in project finance transactions. The EP are adopted and applied voluntarily by financial institutions, which are referred to as Equator Principles Financial Institutions (EPFI). The EP are based on the International Finance Corporation Performance Standards on social and environmental sustainability (IFC PS) and the Environmental, Health, and Safety Guidelines (EHS Guidelines). The EP Association was formed by the EPFI. The goal of the EP Association is also to ensure long-term viability of the framework. The EP are approaching their tenth anniversary, growing from 10 members in 2003 to 79 members today. ING strongly supports the EP as we recognise their ability to positively contribute to society. Application of EP requires indepth research on environmental and social risks. By raising awareness of these risks, we help our customers in identifying opportunities to mitigate them. ING encourages clients to seek continuous improvement in environmental and social risk management and supports them to move towards international best practices. We incorporate conditions related to our ESR Framework in the financial documentation, making them part of the commercial relationship.
Equator Principles application in 2012
In 2012, out of the 386 enquiries centrally reviewed by ING’s ESR team, approximately 35 project-finance deals were subject to screening under the Equator Principles. The remainder of the ESR screening covered other aspects of our business. In order to improve our environmental and social risk management, ING
is taking a proactive role in applying best practices and testing the application of the EP in areas other than project finance. For example, ING applies the EP for corporate loans that will be used to develop projects.
Project financing and project advisory transactions undertaken by ING in 2012 are detailed below. The table includes transactions that commenced in 2011 but where the review and engagement were on-going in 2012. The Environmental and Social Risk (ESR) team has reviewed transaction documentation and provided specific advice to transactions located in non-high income OECD countries. Transactions in high-income OECD countries have been reviewed by the front office and risk management, in accordance with compliance with environmental and social host country laws and regulations and the relevant principles that apply. The table below provides a breakdown per EP category, region and outcome of ING’s ESR advice. ING applies the EP beyond project finance transactions; this is referred to in the table under the column ‘EP Spirit’. The depth and requirements applied under the ‘EP Spirit’ may vary based on our capacity and position to influence the underlying project. ING did not proceed with any transactions that received a negative ESR advice.
ING Chairs Equator Principles Steering Committee
On 1 May 2012, ING was elected as the new chair of the EP Association (EPA) Steering Committee for a one-year mandate. During the first six months in this role, ING led the review of a new version of the Equator Principles, called EP III. EP III is a significant development as it extends the scope of the Equator Principles beyond just project finance. Though ING Bank has been working with this focus for several years, this development will have a large impact on the world of financing with the potential to positively impact borrowers of all sorts. The revisions incorporate changing market practices and emerging environmental and social concerns. EP III also aims to increase transparency and consistency and further grow the acceptance of the EP within the financial sector. Furthermore, EP III is focused on creating a more level playing field of the EP across the banking industry by reconciling the diversity of policies, practices, cultural settings, client relationships, risk appetites and legal boundaries of its existing and potential new members. In August 2012, ING initiated the formal ‘EP III Stakeholder
Consultation and Public Comment’. This is a 60-day consultation process involving more than 30 external stakeholders (industry representatives, NGOs and other financial institutions) in North America, Latin America and Europe. We believe this open consultation with external and internal stakeholders will be
reflected in a more robust and feasible EP III. The EP III will be finalised in 2013.
ING’s dedicated team to environmental and social risks
ING’s Head of the Environmental and Social Risk Management team will, on behalf of ING, lead efforts as Chair of the EP Association Steering Committee. The Environmental and Social Risk (ESR) Team is responsible for embedding the EPs within ING and, operating independently from the commercial units, provides training, guidance and compliance advice on implementing the EPs. Each project sensitive to environmental and social risks is reviewed at least annually, depending on any additional conditions set or significant risks attached to the project. The review assesses if the project is still in compliance with the EPs and the given requirements. Some projects are ‘approved under conditions’, which means the basic elements are in place, but the client still has to meet some further requirements to be fully compliant.
ING Equator Principles figures 2012