What are the Equator Principles?

Mary McMahon
Mary McMahon

The Equator Principles are a set of voluntary guidelines financial institutions may opt to use when developing project financing. These guidelines promote sustainability, including both environmental and social sustainability, and cover a number of topics associated with development projects. Institutions that choose to comply with the Equator Principles can advertise themselves as member institutions, using this as a marketing tool for investors and consumers concerned about sustainability issues.

The Equator Principles promote sustainability, including both environmental and social sustainability, and cover a number of topics associated with development projects.
The Equator Principles promote sustainability, including both environmental and social sustainability, and cover a number of topics associated with development projects.

There are ten different principles, covering topics like the need for independent review, adequate assessment of project impacts, and establishing a mechanism for filing grievances. The Equator Principles are concerned with topics like environmental sustainability, pollution, social issues, indigenous autonomy, and similar issues. The framework creates a system for evaluating potential projects and sources of financing to promote the most ethical approach while still allowing companies to make profits.

These guidelines were developed in 2003 with input from major financial institutions and other organizations worldwide. As with other corporate responsibility measures, while they are optional, companies may feel forced to adopt them in order to stay competitive. If a company does not demonstrate a commitment to the equator principles, it may be passed over when seeking bids and engaging in other activities.

While these principles concern project financing specifically, they can also be adapted to other financial activities. The basic framework can be a useful guideline for developing corporate responsibility statements and methods for enacting a plan of ethical investment. Experts in the Equator Principles and other ethical guidelines for the financial industry can provide consulting services to institutions, and these principles are also discussed in trade publications and workshops to provide companies with more information on how to apply them to their work.

Like other voluntary measures, the Equator Principles are only as useful as companies make them. A company can claim to abide by them while not actively following them, an issue that will only be discovered if complaints are filed and the company is investigated. Likewise, companies can stick more to the letter than the spirit of the principles, resulting in projects of dubious ethics that may technically abide by the terms of the Equator Principles. Organizations concerned about accountability may research and monitor companies, calling them to task if they do not live up to their sustainability claims. This can include filing complaints, encouraging journalists to write stories, and making members of the public aware of the issue.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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