In response to stakeholder concerns about the modest revisions reflected in the new draft of the Equator Principles (EP4), The Steering Committee and EP4 Working Group, leads of the Equator Principles Association (EPA) published the Op Ed “The value of maintaining Equator Principles as a risk management framework.”
Answering questions about the ambition level of the EP4 update, the Steering Committee writes that stakeholders have suggested that the Equator Principles (EPs) shift from a risk framework to a policy platform, concluding that the EPs are strongest as a risk management framework “for determining, assessing and managing environmental and social risk.”
In fact, this is a false distinction that masks the interlinked nature of policy and risk assessment.
Without a policy position, there is little information from which to create a strong framework. Policy guides how risks are defined, which risks are important for assessment, how indicators will be measured, and to what degree certain risks will be managed. A risk assessment framework is thus distilled from policy to actualize those policy choices in a methodical and pragmatic manner.
First Peoples Worldwide has been involved in the EP4 review process because of the importance of the EPs as the type of risk management framework outlined above. Financial Institutions and clients alike benefit from a common industry-specific framework that is easily operationalized by all to robustly assess risk as to projects occurring around the world.
However, because all risk frameworks descend from policy, there is no contradiction in pushing for a stronger EP4 that distills best practices and pragmatic indicators from existing policies and standards that have already achieved a global consensus.
Since the EPs’ targeted review process aimed initially at including better risk assessment around human rights and climate change, First Peoples Worldwide is advocating for inclusion of technical risk assessment indicators taken directly from instruments such as the United Nations Guiding Principles on Business and Human Rights, the United Nations Declaration on the Rights of Indigenous Peoples, the 2015 Paris Agreement and the TCFD Recommendations.
While the Steering Committee and Working Groups have engaged in considerable effort and debate around the new revisions, EP4 remains a weak framework for not integrating operational indicators to assess social and environmental risk in alignment with those international standards.
There is incredible ambition in seeking to be the first framework to define those indicators at a global level for project finance, especially as to human rights and climate change. EP4 just does not evidence that level of leadership. And responding to stakeholders with the false distinction between policy and framework begs the question: If the EPA is committed to the detachment of a risk framework from global human rights norms and emerging practices to stem climate chaos, just how long can the Equator Principles remain an innovative industry standard?
Thumbnail image by Dru Oja Jay, Dominion, via Flickr/Wiki Commons.