The final in-person consultation session on the new draft of the Equator Principles, EP4, took place in Toronto on Tuesday, July 30. Around 20 stakeholders including Indigenous Peoples, sustainable business and socially responsible investors, and NGO advocates attended the session, which was the first and only EP4 in-person consultation that took place in the Americas.
In addition to moderators from BSR – the not-for-profit that the Equator Principles Association (EPA) engaged to conduct the stakeholder consultation process – representatives from two Equator Principles Financial Institutions (EPFIs) attended.
First Peoples Worldwide attended the Toronto meeting to expand on feedback delivered at the London consultation and suggestions given in advance of the Tokyo consultation, as well as to share additional concerns and solutions that have come to light since the review process began with the public release of EP4 on June 24.
As outlined in First Peoples' initial response to EP4, the proposed revisions do not adequately align with international human rights standards or best practices. While the preamble of the Equator Principles mentions the United Nations Guiding Principles on Business and Human Rights, EP4 must express a stronger commitment to the Guiding Principles’ Respect, Protect, Remedy framework to adequately assess risk. Additionally, the draft presents two options related to the free, prior and informed consent (FPIC) of Indigenous Peoples, neither of which adheres to the minimum standards set forth by the UN Declaration on the Rights of Indigenous Peoples.
In Toronto, two areas proved especially salient: 1) the need to eliminate the "Designated" and "Non-designated" distinction, and 2) the need for increased clarity on what stakeholder engagement means and how financial institutions plan to operationalize FPIC.
As a Framework to Support Responsible Decision-making, EP4 Must Lose the "Designated" vs. "Non-designated" Country Distinction
The moderators and representatives from the Equator Principle Financial Institutions (EPFIs) repeated several times during the Toronto meeting that the framework is designed to offer only the minimum standard for environmental and social risk assessment. They reminded stakeholders that as financial institutions, they have additional standards and frameworks that impact their operations. However, the EP4 as currently written does not reflect the realities of social risk facing banks and is not aligned with minimum standards on business and human rights.
This is most obviously evidenced by the EPA's insistence that the applicability of the EPs depends on whether a project occurs in a country that is or is not on the list of “Designated” countries. In reality, human rights violations happen everywhere.
The stakeholders in Toronto unanimously agreed that maintaining the distinction between "Designated" and "Non-designated" was not only inappropriate but also creates confusion. Some even raised concerns that making the distinction potentially creates additional social risk because it assumes "Designated" countries (essentially developed nations) have local laws that consider and respect Indigenous Peoples. This is not the case as shown by the material loss that banks and other stakeholders incurred during the Dakota Access Pipeline controversy; not to mention similar opposition currently taking place around the Keystone XL Pipeline, Enbridge Line 3, Mauna Kea and other projects in the United States that are negatively affecting Indigenous communities.
During intense discussion of the "Designated" vs. "Non-designated" distinction, it came to light that a major stumbling block of EP4 is the reliance on language from Performance Standard 7 drafted by the International Finance Corporation (IFC). The IFC focuses its business on developing countries, so the standard applies to emergent economies. However, it is inappropriate and misguided to assume these standards can be ‘copy and pasted’ without considering the realities of Indigenous Peoples in "Designated" countries. It is here where Indigenous communities exist separately, autonomously and often in developing-world conditions due to a history of human rights violation from the "Designated" country where the Indigenous lands sit.
In addition, there is no single set standard identified in EP4 as to what constitutes a "Designated" country, and there are various guidelines that the EPA draft references or draws from without providing clarity on which distinctions are used and why (e.g. the IFC, OECD, the World Bank, etc.)
From an investor's standpoint, without uniform guidance, the banks have to individualize their own process, which increases uncertainty. Such a faulty minimum standard renders the EPs far from the "gold standard" it purports to be. The distinction between "Designated" and "Non-designated" countries impedes financial institutions' capacity to conduct adequate social risk assessment. The simplest, most effective solution is to eliminate the distinction altogether.
As one stakeholder pointed out, this is an opportunity for the EPA to raise the bar on social risk assessment and better serve EPFIs to protect themselves against material loss. As currently drafted, EP4 pushes the EPs towards irrelevance.
UNDRIP and other International Guidance Provide a Clear Minimum Standard for Free, Prior and Informed Consent
Another area where EP4 does not offer an adequate and informed minimum standard for social risk assessment is Indigenous Peoples' right to FPIC on projects that involve or affect their land, rights or resources.
EP4 presents two options around FPIC that EPFIs can consider when vetting projects that may affect Indigenous Peoples. The first option treats FPIC as a way to avoid proper consultation with Indigenous Peoples. It appears to be a fast track to "yes." The consensus in the room was that Option 1 is unacceptable. The second option better establishes FPIC as a right, though it still needs to be greatly improved.
When asked why there were two options, an EPFIs representative at the Toronto meeting reiterated what is stated in footnote 2 of EP4 that “there is no universally accepted definition of FPIC.” It was pointed out by several stakeholders that FPIC is defined in Article 43 of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), which enshrines the rights that “constitute the minimum standards for the survival, dignity and well-being of the Indigenous Peoples of the world”. This globally accepted international human rights instrument was crafted over more than 20 years of deliberation by UN member states and Indigenous groups and adopted in 2007. This definition of FPIC has been expanded upon and reiterated by numerous international documents and authorities.
One stakeholder noted that EP4 as written does not meet investor standards on social risk due diligence, even as a minimum framework. When moderators asked if there were any resources or guidelines that could help, First Peoples shared their Free, Prior and Informed Consent Due Diligence Questionnaire, and offered to submit additional guidance in the final written submission due this Friday, August 9.
It was also noted that there is an environmental protection component in terms of operationalizing FPIC as an Indigenous right. Indigenous Peoples hold 80% of world’s biodiversity. With proper consultation and involvement of Indigenous Peoples in project planning and assessment, environmental risk may also be avoided.
When Operationalizing FPIC, Consultation is not Consent
One final takeaway from the Toronto meeting – and in fact from the EP4 review process as a whole – is the question of consultation versus consent.
There is ongoing, systemic misunderstanding when operationalizing FPIC, which has led to pervasive improper practices throughout business, industry and government: the idea that consultation is a fast track to consent, or, even worse, that the process of consultation itself is tantamount to consent.
Dave Archambault II, Senior Fellow with First Peoples Worldwide and former Chairman of the Standing Rock Sioux Tribe, shared his experience during the Dakota Access Pipeline to highlight the failures in the federal government’s consultation process.
He noted that by the time the project was presented to the Tribe, the route had already been vetted and approved by developers as well the federal, state and local governments. The "consultations" became mere presentations, rather than meaningful engagements. Because the Tribe was not properly consulted during the project's early development, the pipeline was pushed through without proper due diligence and resulted in billions of material and avoidable loss to the companies and financial institutions supporting the pipeline.
Archambault then discussed the key elements of proper engagement, acknowledging that meaningful engagement is the process that supports the right of Indigenous Peoples to provide their free, prior and informed consent. Meaningful engagement includes the following elements:
(1) Indigenous Peoples must be included at every step of the process including the planning process. This allows Indigenous Peoples to state their concerns at the early stages of project development so that the project can be revised accordingly. Furthermore, Indigenous Peoples have a right to say no, at which time the project should not move forward.
(2) For proper stakeholder engagement to take place, it is imperative that the decision-makers are in the room. In the case of DAPL, conversations were too often with subcontractors, mediators or subordinates, so meaningful engagement was impossible in the process.
(3) A third factor is timeframe. Proper engagement does not have a time limit attached to it; rather the goal is to arrive at a point where all parties find mutually agreed upon solutions. This of course requires compromise from all parties involved, but ultimately goes much further to protect industry, banks, investors, assets, people and the planet.
More than one stakeholder at the Toronto meeting noted that the current stakeholder consultation process on EP4 lacked these key elements and was not aligned with best practices. This includes a compressed timeline, lack of transparency, absence of decision-makers in the room, and, especially in Toronto, an occasionally combative and patronizing posturing from EPFI representatives that pushed the meeting from a consultation to a debate.
If the consultation process surrounding EP4 reflects how the EPA intends its social risk assessment framework to work for financial institutions and clients engaging with Indigenous Peoples, the EPs are not only becoming irrelevant, they may be creating risk.
Given the extensive revisions needed for the EP4 to encompass minimum standards assessing social risk, stakeholders made a unanimous request to the EPA to extend the deadline for written comments as well as the overall consultation period so there would be opportunity for more meaningful review and consultation on the next draft before it is ratification at the EPA's annual meeting in Singapore. Stakeholders also requested that BSR make their full report and recommendations available to the public (currently, only a summary report will be made available).
As of this writing, the request is under consideration and the deadline for written comments Friday, August 23 [ed. the EPA extended the deadline from August 9 on 8/8/19]. Submit your feedback at http://equator-principles.com/EP4.
First Peoples will continue to track developments and report on any major updates, as well offer support and resources to members of the financial industry who want to properly assess social risk and meaningfully engage with Indigenous Peoples.