What are the Equator Principles?
The Equator Principles (EPs) are a framework that was developed primarily by financial institutions to identify, assess, and manage the impact of projects on the environment and society when financing to projects that involve large-scale developments and/or constructions.
Specifically, financial institutions develop their own written guidelines based on the IFC Performance Standards established by the International Finance Corporation (IFC), a member of the World Bank Group, and based on the World Bank Group EHS (Environment, Health, and Safety) Guidelines. Financial institutions also establish internal control systems to confirm that the projects consider environmental and social impacts.
The EPs apply to project finance loans, project-related corporate loans, bridge loans, project-related refinance and project-related acquisition finance in all countries and industry sectors, subject to relevant thresholds and criteria for application.
Financial institutions that have adopted the EPs confirm compliance with the guidelines developed for financing and do not finance projects that do not comply with the guidelines. As of the end of February 2022, 128 financial institutions in 38 countries have adopted the EPs, covering many international project finance deals.
Background of the adoption of the EPs
With “essentiality” as its investment philosophy, AMOAI manages infrastructure debt funds—through project financing—to finance infrastructure projects that are essential to countries and local communities. AMOAI adopted the Eps in November 2021, thinking that it is important to further enhance the management of environmental and social risks in the financed projects, as well as the operational structure within the company because large-scale projects could have significant impacts on the natural environment and local communities.
AMOAI’s specific approach
Operational structure within the company
When adopting the EPs, AMOAI assesses environmental and social risks, including the confirmation of compliance with the EPs, based on the Equator Principles Implementation Manual, which specifies the processes and rules when implementing the EPs. Specifically, the Investment Committee confirms compliance with the EPs and requests debtors to give environmental and social considerations based on the project categories.
Environmental and social risk assessment
AMOAI assesses projects’ potential risks and degrees of impact on the environment and societies based on Equator Principle 1 (Review and Categorization) and categorizes projects based on the assessment results. The definition of each category is as follows:
|Principle 1||Review & Categorization|
|A||Projects with potential significant adverse environmental and social risks or impacts that are diverse, irreversible, or unprecedented|
|B||Projects with potential limited adverse environmental and social risks or impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures|
|C||Projects with minimal or no adverse environmental and social risks or impacts|
◆ Review of environmental and social impacts
AMOAI confirms compliance with the EPs according to each category. For Category A projects with the highest risk, for example, AMOAI confirms that environmental and social considerations required by Principles 2 to 10 are given. In addition, AMOAI agrees with the debtor to the incorporation of pledges related to compliance with the EPs in the loan contract based on the confirmation results and Principle 8 (Covenants).
|Principle 2||Environmental and Social Assessment|
|Principle 3||Applicable Environmental and Social Standards|
|Principle 4||Environmental and Social Management System & EP Action Plan|
|Principle 5||Stakeholder Engagement|
|Principle 6||Grievance Mechanism|
|Principle 7||Independent Review|
|Principle 9||Independent Monitoring & Reporting|
|Principle 10||Reporting & Transparency|
IFC Performance Standards and the World Bank Group EHS Guidelines
The EPs refer to the IFC Performance Standards and the World Bank Group EHS (Environmental, Health, and Safety) Guidelines. These are broadly used worldwide as a benchmark for environmental and social risk management in the private sector.
◆ IFC Performance Standards
These standards, composed of the following eight performance standards (PS), are environmental and social guidelines for project implementers.
- PS1: Assessment and Management of Environmental and Social Risks and Impacts
- PS2: Labor and Working Conditions
- PS3: Resource Efficiency and Pollution Prevention
- PS4: Community Health, Safety, and Security
- PS5: Land Acquisition and Involuntary Resettlement
- PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
- PS7: Indigenous Peoples
- PS8: Cultural Heritage
For details, please visit the official website of the IFC.
◆ The World Bank Group EHS Guidelines
These guidelines form the standards of “Environment,” “Health,” and “Safety” established by the World Bank Group and are to be observed when implementing a project. The guidelines are composed of the General EHS Guidelines that commonly apply to all industries and the Industry Sector Guidelines, which include industry sector-specific indicators.
For details, please visit the official website of the IFC.
Application of the EPs
Projects signed between April 1, 2022 and March 31, 2023 to which the EPs apply are as follows:
1. Project finance
There was one EPs-applied project financing deal between April 1, 2022 and March 31, 2023. A breakdown is provided below.
|Number of projects by category|
|Category A||Category B||Category C|
|Breakdown of the number of projects by category|
|Sector||Category A||Category B||Category C|
|By region and country||Category A||Category B||Category C|
|Designated country/non-designated country||Category A||Category B||Category C|
|Independent review||Category A||Category B||Category C|
Since the EPs apply to development projects, post-completion projects that have been financed are not included. On the other hand, AMOAI voluntarily confirms compliance with the EPs for projects to which the EPs does not apply.
2. Project-related corporate loans
3. Project-related refinance and project-related acquisition finance
Projects that fall under project-related refinance and project-related acquisition finance are included in 1. and 2. above because environmental and social risk assessment is conducted in the same way as project finance and project-related corporate loans.
4. Project finance advisory services
Monitoring of compliance with the EPs
AMOAI regularly monitors that the applicable projects comply with pledges related to the EPs through regular reports, etc. submitted by debtors and makes efforts to continuously ensure the environmental and social considerations of the projects.
Upon the adoption of the EPs, in addition to the development of in-house manuals, AMOAI conducted in-house training to deepen the understanding of the concept of the EPs and the flow of environmental and social risk assessment. AMOAI will continue to make efforts to raise the awareness of environmental and social considerations through regular in-house training, etc.