The Equator Principles and Social Rights: Incomplete Protection in a Self-Regulatory World


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Keywords: Equator Principles, environmental responsibility, financial instalments, social and environmental assessment

Abstract: The new Equator Principles (EP2) now require lending banks that have signed up to EP2, and also the borrower, to take account of the social rights of affected communities as provided by the rules in EP2. However, there continue to be criticisms by NGOs of individual EP2 banks, in particular, relating to the monitoring by the banks of the covenants entered into by the borrower. There are also ongoing concerns by NGOs as to the transparency of certain actions of individual EP2 banks, with allegations that some banks are not complying with the provisions in EP2. A statutory system of regulation might address these issues, although such a system is unlikely to be introduced on a worldwide basis. It is also unclear whether a statutory system would provide better protection for affected communities. EP2 requires affected communities to be consulted, but the affected community is not required to agree to the project in order for it to go ahead. It is suggested that this is a fundamental weakness of EP2: the balance is tilted so as to enable such projects to be carried out even if the affected community does not want the particular project to take place.


The rights affected in domestic banking tend to be of a micro nature in that only one person or organisation is affected. In the arena of international banking, the social rights that are affected are of a macro nature affecting many thousands of individuals. The various banks, and now other organisations, that subscribe to the Equator Principles (EP2) - as modified in July 2006' - have agreed that their customers who borrow funds for projects above US $10 million2 will enter into special covenants with their respective bankers with regard to environmental and social rights3 affected by that project. EP2 is, of course, a voluntary code on the part of the banks or other
financial institutions that have agreed to adopt EP2 in their project finance lending. EP2 contains a number of other fundamentally important principles, which will be described below.


This article will focus on two key issues:

(1) whether the social rights of potentially affected individuals would be better protected by a system of regulation; and

(2) whether EP2 as drafted adequately protects the social rights of  affected individuals.

At least two leading legal practitioners working in the field have sought to describe EP2,4 but neither has sought to evaluate it and, in particular, to evaluate it in terms of the above issues, with regard specifically to the social rights of affected individuals. This article will not seek to describe all the provisions of EP2, but will seek to focus upon those aspects of the principles which raise issues relating to the social rights of individuals and groups affected by a given project.


Assessment and transparency

The EP2 principles, which form a complete set of rules, will now be described. It will be explained how EP2, introduced in July 2006, has modified the earlier set of principles contained in EP1, which was introduced on 4 June 2003. EP2 covers a number of matters with regard to a proposed project and includes the following.5

First, a general assessment must be made by the EP2 bank of the scope and effect of the proposed project.6 The important question is whether the project is classified as a Category A project (i.e. with 'potential significant adverse social or environmental impacts')7 or a Category B project (i.e. with¬ 'potential limited adverse social or environmental aspects')-8 EP1 contained a similar categorisation.

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