EPFiEquator Principles Financial Institutions
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(135) To qualify for coverage, corporate loans must be for a single project with a loan duration of at least two years, with a total loan amount of at least $100 million, with an initial EPFI exposure of at least $50 million, and under circumstances where the borrower has control of the project.
One obvious point of emphasis that has not changed since the original EP I is the fact that the EPs are not meant to create any legal obligations or liability on behalf of either the EPFI or the borrower.
(7.) An EPFI is defined as "a financial institution that adopts the Equator Principles (EPs) and is active in Project Finance or Project Finance Advisory Services." To be an "active" member an EPFI must either have EP-related financing currently on the books, or have plans to finance EP-governed projects in the near future.
(81.) Principle 5 of EP II states that projects with significant social or environmental impacts should be accompanied by "free, prior and informed consultation" which the borrower will communicate back to the EPFI. EP II, supra note 65, at 4.
(156.) Principle 8 of EP III states that where "a borrower is not in compliance with its environmental and social covenants, the EPFI will work with the borrower on remedial measures." EP III (Draft), supra note 1, at 7-8.
Since their creation and subsequent revision the EPs have been met with mixed reviews; (6) Equator Principles Financial Institutions (EPFIs) (7) point to increased membership in the EPs (8) as evidence of their impact and efficacy, while non-governmental organizations (NGOs) (9) have lamented the lack of institutional transparency and implementation mechanisms embodied in the EP versions thus far.
One issue that has not been tested in court is whether an EPFI can be sued in either U.S.
(210) Therefore, if an EPFI fails to establish policies and procedures to ensure environmentally and socially responsible investing, such a failure may expose the bank to liability to socially responsible investors.
These changes broaden the scope of the Equator Principles, increase the number of responsibilities for the borrowers and EPFIs, and require more covenants between the borrower and the EPFI.
(231) For example, the borrower must employ an independent social or environmental expert to examine the SEA, AP, and other documentation to ensure compliance with the EPII and assist with the EPFI's due diligence requirements.
(234) The EPFIs are also required to report publicly, at least annually, about their "Equator Principles implementation processes and experience, taking into account appropriate confidentiality considerations." (235) At a minimum, these reports must include: "the number of transactions screened by each EPFI, including the categorisation accorded to transactions (and may include a breakdown by sector or region), and information regarding implementation." (236) Although these reports are limited to information that will not violate the borrowers' confidentiality, these disclosures should increase the EPFIs level of transparency regarding their implementation of the Equator Principles.
Finally, it is necessary to examine whether there have been any changes in loan covenants between the EPFI and the borrower.