Equator Principles: Version 4

Publication November 2019


Norton Rose Fulbright has advised the Equator Principles Association (EPA) as counsel for the legal review of the fourth Equator Principles (EP4).

The Equator Principles (EPs) are a sustainability risk management framework for projects financed by the financial institutions that have adopted the Equator Principles (EPFIs) but in practice are being adopted more widely. The EPs provide a framework and a minimum standard for financial institutions to identify, assess and manage the environmental and social risks and impacts of projects both prior to entering into project financing documentation as well as throughout the project lifetime.

The EPs apply globally across all industry sectors and are applicable to certain financial products (subject to value thresholds) offered by the EPFIs. Currently the EPs have been adopted by 101 financial institutions across 38 countries.

EP4 strengthen the requirements for EPFIs to consider the potential environmental and social risks and impacts of projects mainly in the area of human rights, climate change and biodiversity.

The EP4 amendments include:

Scope of applicability of EPs

The Equator Principles apply to certain financial products above specified value thresholds.

EP4 decrease the threshold for in-scope Project-Related Corporate Loans from a total aggregate loan amount of US$100 million to US$50 million. Thus, newly, both the total aggregate loan amount and the EPFI’s commitment needs to be at least US$50 million.

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:

  • the underlying project was financed in accordance with the EPs framework
  • there has been no material change in the scale or scope of the project
  • the project has not yet occurred at the time of the signing of the facility or loan agreement.

Export finance in the form of supplier credit is now excluded from project-related corporate loans.

On the other hand, all Category A and, as appropriate, Category B loans to national, regional or local governments, governmental ministries and agencies are now within the scope of EP4 as well as all expansions and upgrades of an existing project.

Review and categorisation

The amended text of EP4 clarifies and expressly states what are the areas which need to be covered by the environmental and social review and due diligence. These areas must include human rights, climate change and biodiversity.

Applicable standards in designated and non-designated countries

The substance of applicable standards in designated countries (Principle 3) remains unchanged. The assessment of environmental and social risks and impacts in designated countries drives at substantive risk management and still requires compliance with host country laws, regulations and permits pertaining to environmental and social issues as has always been the case. In addition, the EPFIs will need to evaluate any project-specific risks to determine whether one or more of the IFC Performance Standards could be used as guidance to address those risks and if so, the EPFI will be free to decide whether it will undertake additional due diligence against additional standards relevant to the identified project-specific risks.

Human rights and social risk

Human rights in general

The preamble of the draft EP4 stipulates that financial institutions will fulfil their responsibility to respect human rights in line with the UN Guiding Principles on Business and Human Rights (UNGPs) by carrying out human rights due diligence. As stated above, Principle 2 strengthens the language on human rights and states that an assessment of adverse human rights impacts should be included in the assessment of every project regardless whether the level of risk warrants a full environmental and social impact assessment or whether a lesser assessment commensurate with a lower level of risk may be carried out. References are again made to the UNGPs. Thus the UNGPs have been clearly established as the risk management framework for human rights risks and impacts in projects. For Category A and, as appropriate, Category B projects other than project-finance-related refinance and project finance-related acquisition finance, Principle 10 introduces the requirement of inclusion of human rights risk analysis, when relevant, in the ESIA to be available on line.


Principle 5 (Stakeholder engagement) continues to require project proponents to demonstrate effective stakeholder engagement with indigenous communities, and now clarifies the circumstances where the free prior and informed consent of those communities should be obtained through reference to IFC performance standard 7.

The amended principle 5 provides for a process of independent environmental and social consultant evaluation on the consultation process with indigenous peoples against both host country laws and the requirement of IFC PS7 both in designated as well as non-designated countries. Where it is not clear whether FPIC has been achieved following a good faith negotiations in accordance with the IFC PS7 requirements, the EPFI, together with an independent environmental and social consultant, may decide whether this situation represents a justified deviation from the IFC PS7 or whether additional corrective actions need to be pursued to meet the objectives of IFC PS7.

Climate change

The role of the EPFIs with respect to tackling climate change is recognised. The Preamble states that the EPFIs will support the objectives of the 2015 Paris Agreement and recognise that they have a role to play in improving the availability of climate-related information such as set out in the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Principle 2 of EP4 introduces a climate change risk assessment as part of ESIA or other Assessment that aligns with the physical and transition risk categories of the TCFD.

  • For all Category A and, as appropriate, 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.

For Category A and, as appropriate, Category B projects other than project-finance-related refinance and project finance-related acquisition finance, Principle 10 introduces the requirement of inclusion of climate change risk analysis in the ESIA, when relevant, to be available on line.


For Category A and, as appropriate, Category B projects, the EPFIs will encourage their clients to share commercially non-sensitive biodiversity data with the Global Biodiversity Information Facility and relevant national and global data repositories (Principle 10).

The Equator Principles Association announced that it will be releasing guidance on EP4 in due course.

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