Project financing, a method of funding in which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure, plays an important role in financing development throughout the world. Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets. The Equator Principles Financial Institutions (EPFIs) have consequently adopted these Principles in order to ensure that the projects financed are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately.
It is believed that adoption of and adherence to these Principles offers significant benefits to financial institutions, borrowers and local stakeholders through borrowers’ engagement with locally affected communities. Financial Institutions therefore recognise that their role as financiers affords them opportunities to promote responsible environmental stewardship and socially responsible development. As such, EPFIs will consider reviewing these Principles from time-to-time based on implementation experience, and in order to reflect ongoing learning and emerging good practice. These Principles are intended to serve as a common baseline and framework for the implementation by each EPFI of its own internal social and environmental policies, procedures and standards related to its project financing activities.
In effect, loans may not be provided to projects where the borrower will not or is unable to comply with respective social and environmental policies and procedures that implement the Equator Principles. The Principles apply to all new project financings globally and across all industry sectors. In addition, while the Principles are not intended to be applied retroactively, application to all project financings cover expansion or upgrade of an existing facility where changes in scale or scope may create significant environmental and/or social impacts, or significantly change the nature or degree of an existing impact. The Principles also extend to project finance advisory activities. In these cases, EPFIs are committed to make the client aware of the content, application and benefits of applying the Principles to the anticipated project, and request that the client communicate to the EPFI its intention to adhere to the requirements of the Principles when subsequently seeking financing.
Presentations made by HSBC, IDFC, ICICI, SBI during the seminar on Low Carbon Financing (https://bharatvasandani.wordpress.com/2010/05/25/financing-low-carbon-economy/) indicate that Indian companies have started facing questions on their project’s impact on environment and society.
We assist companies access their project’s social & environmental impact and provide solutions. For more details, visit www.fountainhead2.com