The draft of EP4, the latest revision of the Equator Principles, has gone through extensive review by the Equator Principles Association (EPA) and signatory financial institutions (EPFIs) and has now been released to the public. The release of the EP4 draft marks the penultimate step in the EPA’s process to revise the social and environmental risk framework of the Equator Principles. The controversy surrounding the Dakota Access Pipeline (DAPL) catalyzed the EP4 revision process as many EPFIs faced intense pressure to amend the frameworks to adequately screen for the types of social risks that flowed from human rights violations during DAPL.
First Peoples Worldwide applauds the EPA and EPFIs for this undertaking to review and revise the Equator Principles to better meet with best practices around implementation of human rights and protecting the planet. EP4’s inclusion of language and targets to assess Climate Change Risk is a notable step towards protecting Mother Earth. The steps toward alignment with the 2015 Paris Climate Change agreement are important to stem climate chaos. However, First Peoples Worldwide remains concerned about the lack of a human rights-based implementation of free, prior and informed consent (FPIC) and the distinction between Designated and Non-Designated countries. Neither of these revisions are in line with international standards set forth in the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), nor aligned with the expectations of Indigenous Peoples which flow from international human rights instruments. Similarly, more specificity and accountability on human rights and climate impacts in reporting is necessary to ensure effective implementation of EP4 by clients, by EPFIs, and by the EPA.
In May 2018, First Peoples Worldwide provided expertise at the invitation of the EPA regarding human rights violations that become social risks when institutions fail to account for the rights of Indigenous Peoples to their lands and territories. First Peoples outlined the findings from its case study, Social Cost and Material Loss: The Dakota Access Pipeline, which drew from publicly available data on losses that occurred during the controversy. The case study is one of the first studies to successfully quantify the “S” in ESG and to put forward a new understanding of the social risks associated with a failure to adequately assess the human rights and Indigenous rights impacts of any project.
Significantly, the case study found that banks and financial institutions tied to the DAPL project lost at least $4.4 billion due to account closures. This figure does not account for losses tied to reputational damage or losses that occurred to those banks that sold their shares of the loan prior to project completion. The case study further concluded that the intense social pressure resulting from a failure to respect the human rights of Indigenous Peoples and from a failure to garner the FPIC of affected Indigenous Peoples resulted in significant material losses of no less than $12 billion to all entities – the parent company, financial institutions and other entities.
EP4 must integrate these findings to provide a framework that successfully aligns with the Respect, Protect and Remedy framework enumerated in the United Nations Guiding Principles on Business and Human Rights (UNGPs), as is the EPA’s stated commitment. The following recommendations to strengthen EP4 are necessary both to evidence a true commitment to respecting the human rights of Indigenous Peoples and to provide a global standard for adequately assessing social and environmental risk.
1) EP4 includes 2 options for operationalization of FPIC. Option 1 is grossly insufficient to protect the rights of Indigenous Peoples. Option 1 prioritizes process without reference to the right that Indigenous Peoples have to give or to withhold consent, which is central to a human rights-based implementation of FPIC. Option 2, by requiring clients to report whether FPIC of affected Indigenous Peoples is obtained, is a much more protective measure that more adequately aligns with the UNGPs and the UNDRIP. However, it still falls short of full implementation of FPIC as a right and as a process.
EP4 must include FPIC as a right, and not solely a process, as enumerated in the United Nations Declaration on the Rights of Indigenous Peoples and other international instruments. Reliance on host country standards to implement FPIC reduces the Equator Principles’ efficacy to both assess social risk and to respect Indigenous rights. Many countries purport to include the rights of Indigenous Peoples in their legal and political frameworks however most country commitments fall gravely short of international best practice and actually perpetuate the marginalization of Indigenous Peoples in their bid to maximize financial benefit from resource extraction on Indigenous lands and territories. To be the most fulsome social and environmental risk assessment framework, EP4’s standards as to FPIC and human rights must directly align with international instruments.
Robust inclusion of FPIC as a right in EP4 is imperative because FPIC is a safeguard of all of the rights of Indigenous Peoples. The ability to give or to withdraw consent is the core value encompassed by the right to FPIC. This right ensures that Indigenous Peoples are afforded their right to direct the development priorities of their lands, territories and resources. The process of soliciting FPIC is therefore driven by the need to provide a mechanism for discussion and negotiation in an open, fair and inclusive manner. EP4 shows a stronger commitment to implementation of FPIC by offering two options, but both fail to recognize the full right of Indigenous Peoples to give or to withdraw consent which further exposes EPFIs to material social risks by constraining consideration of Indigenous Peoples’ perspectives to procedural moments that do not fully integrate their perspectives into the project design or implementation.
FPIC cannot be an information-sharing process or a pro forma process to get to “yes.” In this regard, EP4’s language in Option 1 “with the goal of achieving their [Indigenous Peoples’] Free, Prior and Informed Consent” reflects a mere procedural implementation that does not align with the UNDRIP. Option 1 does not include meaningful opportunities for Indigenous Peoples to truly participate and have their perspective integrated into project design, planning or implementation.
Any process related to FPIC must be:
- an iterative process with multiple decision-making nodes;
- inclusive of negotiation, discussion and dialogue;
- driven by full disclosure of all relevant information in the appropriate language and with cultural competency; and,
- instituted early in the project planning phases.
2) EP4’s continued distinction between Designated and Non-Designated Countries contradicts their stated commitment to integrating respect for all Indigenous Peoples globally. If the framework is not universally applicable, then the rights of Indigenous Peoples in Designated Countries will continue to be violated. This certainly occurred when the United States, a Designated Country, greenlighted the DAPL project without securing the consent of the Standing Rock Sioux Tribe. Indigenous Peoples in all countries have been historically marginalized. As a result, Indigenous Peoples globally currently have little political, legal, social and economic power through which to protect their resources. There is little distinction between Indigenous communities in “Designated” and “Non-Designated” countries; making EP4’s continued distinction artificial as applied to Indigenous Peoples.
In fact, by maintaining distinctions between countries where the Equator Principles apply, and allowing EPFIs to use host country regimes as a proxy to screen for social and environmental risk, EP4 is allowing EPFIs to perpetuate many host countries’ discriminatory approach towards Indigenous Peoples that is rife with human rights violations. Not only is this contrary to a fair application of the UNGPs, it exposes EPFIs to material risks by cabining their assessment of social risks to the myopic lens used by those countries to view Indigenous rights. By maintaining these distinctions, EP4’s social risk assessment framework fails to provide EPFIs with the standards necessary to adequately assess and address social risks as related to Indigenous Peoples’ rights.
3) EP4 must include a stronger approach to creating access to grievance mechanisms and to instituting remedies, as set forth in the UNGPs. This approach must include two prongs. The first prong must be that the EPA holds EPFIs accountable for their actions under the standards set forth in the framework. For example, EP4 falls short of providing a global standard by not explicitly requiring signatory EPFIs to reject financing for projects where the FPIC of Indigenous Peoples has not been solicited, or where the project is proceeding without the affirmative consent of the affected Indigenous Peoples. The EPA must require practical mechanisms for implementation to ensure that the framework is being integrated into ordinary business practice. Option 2 for FPIC implementation, by asking for a client to demonstrate that they obtained consent, is a step in the right direction but does not proactively address the situation where FPIC is not obtained. EPFIs that proceed with financing without a mechanism to reject financing for projects that do not have the affirmative consent of Indigenous Peoples must be held accountable by losing their status as signatory institutions. Only by holding EPFIs accountable for their behavior can the EPA truly move the field forward as to human rights.
The second prong is that EP4 must require that EPFIs institute grievance mechanisms that facilitate access to remedy for Indigenous Peoples whose rights are being violated as to a specific project. As stated in the UNGPs, the remedies must be readily accessible and there must be a commitment on the part of EPFIs to participate in operational-level mechanisms so that violations can be identified early, and then can be addressed and remediated before they are compounded. Again, and returning to the first prong, the EPA must hold EPFIs accountable for creating accessible, on-the-ground mechanisms that facilitate the type of ongoing dialogue that prevents human rights violations from occurring, or from recurring.
4) Finally, through the upcoming consultation process, the EPA must ensure that EP4 integrates the perspectives of Indigenous Peoples, their representative organizations and civil society. Already the EPA has had high-level negotiations with EPFIs largely behind closed doors and there is a risk that the forthcoming consultation process is merely for information-sharing purposes. If the EPA cannot commit to listening, discussing and integrating the perspectives of Indigenous Peoples and civil society with an equal commitment to changing the draft of EP4 in response, it cannot expect EPFIs to do the same with regards to implementing FPIC as a right during financing.
In short, the draft of EP4 must take stronger steps to adhere to the EPA’s stated commitment to the UNGPs and to provide a robust and global standard for environmental and social risk assessment. If this draft does not integrate the rights of Indigenous Peoples as enumerated in international human rights instruments, does not include a strong commitment to remedies, and does not account for the perspectives of Indigenous Peoples and representative organizations during the EP4 consultation process, it will proceed as a flawed framework that perpetuates – and perhaps tacitly endorses – the types of human rights violations and high-risk financing scenarios that occurred in DAPL.