ESIA and the Equator Principles

4th April 2012


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Related tags

  • Management ,
  • Stakeholder engagement ,
  • Corporate governance ,
  • Construction

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IEMA

WSP's Martin Broderick reveals how by applying the Equator Principles the developing world is leading the way in environmental and social impact assessment (ESIA)

The Equator Principles have increased the attention given to social and economic issues within environmental and social impact assessment (ESIA) in developing countries.

Their application to development projects, particularly in the mining sector, by low-income economies is pointing the way to improve the effectiveness of socioeconomic impact assessment in the more developed economies.

Managing risk

The Equator Principles are a set of 10 principles creating a framework for determining, assessing and managing environmental and social risk in project finance transactions. While currently under review, the existing principles are:

  1. Review and categorisation
  2. Social and environmental assessment
  3. Applicable social and environmental standards
  4. Action plan and management system
  5. Consultation and disclosure
  6. Grievance mechanism
  7. Independent review
  8. Covenants
  9. Independent monitoring and reporting
  10. Equator Principles Financial Institutions reporting

Currently there are 74 financial institutions in 28 countries have officially adopted the Equator Principles, covering more than 70% of international project finance debt in emerging markets. Equator Principles Financial Institutions (EPFIs) commit to not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement the principles.

The principles are based on International Finance Corp (IFC) performance standards, which were introduced to manage the environmental and social risks associated with project financing in low-income economies, while high-income economies were considered to have sufficient legislation in place to manage the risks associated with investing in activities such as mineral extraction. Perversely, however, this may not be the case.

At a recent International Association for Impact Assessment (IAIA) conference, a representative from a major financial institution, that provides significant project financing to the mining sector among others, opined that many important infrastructure projects in the UK would have failed to secure funding from his organisation because of inadequate stakeholder engagement processes and the poor treatment of impact mitigation and monitoring.

Learning lessons in developed nations

ESIA practice in high-income economies could be improved by incorporating the integrated systems that have arisen from the Equator Principles to ensure stakeholder engagement, impact mitigation and monitoring are properly addressed in the ESIA process.

Since they were implemented, the effectiveness of the Equator Principles, in both the original and current form has been intensively scrutinised by non-government organisations (NGOs) as well as other interest groups.

EPFIs hail the guidelines as a major shift in the banking industry, and praise the adoptees for taking a leading role in ensuring environmental and social responsibility in the project financing sector. The principles have also been well received by NGOs, as a step in the right direction for ESIA and promoting corporate social responsibility in the financial sector.

While it is accepted there are certainly flaws in the Equator Principles, there are two valuable reasons to support them:

  • The compliance covenants provide an example of a mandatory ESIA standard.
  • The Equator Principles represent a statement of intention to include ESIA in the project finance process.

Research has demonstrated that in mining projects guided by the Equator Principles the ESIA process had been more rigorously applied with respect to stakeholder engagement and impact mitigation and monitoring. It has also revealed a greater emphasis towards a community-focused development process, to maximise the benefits and minimise the potential negative impacts of the development, in those projects which had applied the principles.

In the UK, the lack of mandatory monitoring is undermining the effectiveness of the ESIA process, and studies have recommended the requirement for an environmental action plan should become a standard planning condition with the results of any monitoring made available to the public. It is interesting to note that both of these recommendations are Equator Principle requirements.

Studies into the effectiveness of the ESIA process in the UK have concluded that the social dimension has been very much the “poor relation”. Similarly, although consultation and public participation, as well as mitigation of environmental impacts, are encouraged at each step in the process, these have been identified as common weakness in practice in richer economies.

Consultation with the public and the statutory consultees process can help to ensure the quality, comprehensiveness and effectiveness of the ESIA process, as well as ensuring that the various groups’ views are adequately taken into consideration in the decision-making process.

Despite the recognised benefits of public participation to the process, it is inconsistently applied in the systems of some developed countries. There is also considerable scope for improving the implementation of mitigation measures and for impact and implementation monitoring.

It is clear the social dimension of ESIA practice in high-income economies could be improved by taking on board some of the requirements of the Equator Principles which have improved the effectiveness of the process, particularly in the mining sector of low-income economies.


This article was written as a contribution to the EIA Quality Mark’s commitment to improving EIA practice.

Martin Broderick is a senior technical director at WSP Environment & Energy. A version of this article first appeared in Mining People & Environment, July 2011.

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