Equator Principles: Version 4 released for public comment

Canada Publication June 2019

The Equator Principles Association released a draft of the proposed 4th version of the Equator Principles (EP4) on June 24, 2019. View the draft.

Norton Rose Fulbright conducted a legal review of the draft.

The following alert provides an overview of the major changes proposed in EP4.1

What are the Equator Principles?

The Equator Principles (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 reviews and updates the EPs from time to time in order to reflect ongoing learningand emerging good practice.

Proposed amendments

The following amendments 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:

  • The underlying Project was financed in accordance with the EPs
  • There has been no material change in the scale or scope of the Project
  • 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 4th version 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 beevaluating the specific risks of each Project to determine whether any IFC Performance Standards could be used as guidance to address those risks.

The 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

Human rights

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 dilligence. 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 the 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 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 will take place in July and August 2019.


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


Partner, Canadian Co-Head of Environmental, Social and Governance (ESG)
Partner, Canadian Co-Head of Environmental, Social and Governance (ESG)
Head of Sustainability, Europe, Middle East and Asia; Head of Environment, health and safety, Europe, Middle East and Asia; Partner

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