Equator Principles to be updated

Since they were first published in 2003, the Equator Principles (EPs) have formed an important part of the framework for investment in Africa and other emerging markets for many commercial lenders. Today, 96 financial institutions in 37 countries adhere to the third version of the Equator Principles III (EP3) published in 2013. The EPs are used as a sustainability framework for project finance transactions more widely than just by Equator Principles Financial Institutions (EPFIs) and so, even if the arranging lender is not an EP signatory, it may be difficult to syndicate the loan unless it is able to confirm to potential syndicate banks that the project is to be conducted in compliance with the EPs.

When a project is proposed for financing, an EPFI will, as part of its internal environmental and social review and due diligence, categorise it based on the magnitude of its potential environmental and social risks and impacts. The screening is based on the environmental and social categorisation process of the International Finance Corporation (IFC). The categories are:

  • Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented;
  • Category B – Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and
  • Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.

The EPs are now in the process of being revised. Norton Rose Fulbright have conducted a review of the latest iteration of the EPs (EP4), which are currently the subject of consultation before being formally adopted. We summarise the main changes proposed in the EP4 below.

What are the Equator Principles?

The EPs are a risk management framework for financial institutions to identify, assess and manage environmental and social risks when financing projects. The EPs apply globally to all industry sectors and defined financial products. 

The Equator Principles Association (being the unincorporated association of member EPFIs) reviews and updates the EPs from time to time in order to reflect ongoing learning and emerging good practice. 

Proposed amendments 

The following amendments to the EPs are being proposed by the Equator Principles Association: 

Scope of applicability

The EPs apply to certain financial products above specified value thresholds. 

EP4 propose to decrease the threshold for in-scope Project-Related Corporate Loans to US$50 million. That amount represents the aggregate of any EPFI’s loan amount and its individual commitment (before syndication or sell down). There has also been an addition to the scope of applicability of the EPs in the form of Project-Related Refinancing and Project-Related Acquisition Financing provided the following criteria are met: 

(a) the underlying Project was financed in accordance with the EPs; 

(b) there has been no material change in the scale or scope of the Project; and 

(c) the Project is not yet completed. 

In the current version of the EPs, there is an exception for Project-Related Corporate Loans for sovereign borrowers for certain projects. This exception will be removed from the EP4 for all Category A and, as appropriate, Category B Projects. 

Applicable standards in designated vs. non-designated countries 

Principle 3 of the EPs includes a list of ‘designated countries’ which are high income OECD countries where compliance of a Project with local host country laws will be sufficient. The new version clarifies that EPFIs will be expected to evaluate the specific risks of each Project to determine whether any IFC Performance Standards could be used as guidance to address those risks. 

EPFIs will also need to include a review of how any specific Project meets each of the Equator Principles in any Category A and Category B Projects’ due diligence. 

Human rights and social risk 

The preamble of the draft EP4 stipulates that financial institutions will fulfil their responsibility to respect human rights consistent with the UN Guiding Principles on Business and Human Rights. Principle 2 of EP4, (Environmental and Social Assessment), strengthens the language on human rights, and states that an assessment of adverse human rights impacts should be included in any environmental and social impact assessment. 

Two text options are presented in relation to the concept of Free, Prior and Informed Consent for stakeholder consideration and feedback. Option 1 outlines the need to engage in a meaningful consultation with affected Indigenous Peoples with a goal to achieve their Free Prior and Informed Consent. Further action is considered where consent has not been achieved at the time of EPFI's due diligence. Option 2 requires a demonstration by the client to the EPFI’s satisfaction that the Free, Prior and Informed Consent is obtained. 

Climate change 

The role of EPFIs with respect to the 2015 Paris Climate Change Agreement is recognised. This includes the need for availability of climate-related information in line with the recommendations of the Task Force on Climate-related Financial Disclosures.

Principle 2 of EP4 introduces a climate change assessment as part of ESIA or other Assessment. 

  • For Category A and some Category B Projects the climate change assessment will include consideration of relevant physical risks.
  • For all Projects, in all locations, when combined Scope 1 and Scope 2 Emissions are expected to be more than 100,000 tonnes of CO2 equivalent annually, the climate change assessment will include consideration of relevant transition risks and the completion of an alternatives analysis to evaluate less Greenhouse Gas (GHG) intensive alternatives. 

Principle 10 of EP4 now introduces the requirement of public reporting on an annual basis on GHG emission levels. 

Consultation and feedback 

An initial round of consultation with key stakeholders was undertaken in 2018. The results of those consultations can be found on the Equator Principles website or by clicking here

A second round of external consultation is taking place in July and August 2019. 

[1] Unless defined in this article , the terms starting with capital letters follow, for ease of reference, the definitions in the EP4.


Africa is as dynamic a market as it is diverse. We understand that changes impacting your business can arise rapidly and vary significantly across the continent.

Our understanding of Africa’s markets stems from extensive experience on the ground. Through our Inside Africa blog, we aim to apply this insight to provide you with timely commentary on the latest developments across Africa, as well as insight into the many nations that make up this vast continent.

Read more
Blog Network