Equator Principles: How it drives business sustainability through investments

Why is there a need for Equator Principles?

There are numerous advantages a business can gain by integrating sustainability into its activities. Some businesses gain a competitive advantage by choosing to become more sustainable. Others may only be interested in attracting investors by making themselves a sustainable business.

However, one of the most immediate positive effects of becoming a sustainable business is the hedging of risk.

A lot of the sustainability issues in a business also tends to be financially material. And not solving these issues can have adverse impacts on the business’s bottom line.

This is why integrating sustainability into your business is one of the best ways of managing risks. And this opinion is shared by some major financial institutions as well. And that is what has led to the creation and the adoption of the Equator Principles (EPs).

Who uses the Equator Principles?

124 financial institutions from 37 different countries have adopted the Equator Principles, which covers most of their international project finance debt. The EPs apply to five financial products across all industry sectors: project finance advisory services, project finance, project-related corporate loans, bridge loans, project-related refinance and project-related acquisition finance.

The EPs help the financial institutions by providing a minimum standard for due diligence while making decisions. These Equator Principles Financial Institutions (EPFIs) have committed to implementing the EPs in their internal policies for environmental and social concerns. 

How do the Equator Principles make businesses sustainable?

Equator Principles are first and foremost, a risk management framework that is intended to be used by financial institutions. It helps the EPFIs to determine, assess and manage social and environmental risks that may arise in development projects.

They greatly improve the attention paid by financial institutions to the environmental and social implications of the projects that they are engaged in.

There are 10 Equator Principles that are to be adopted by all the EPFIs. The principles are explained in detail and accessible at this link.

1.  Review and categorisation
2. Environmental and social assessment
3. Applicable environmental and social standards
4. Environmental and social management system and equator principles action plan
5. Stakeholder engagement
6. Grievance mechanism
7. Independent review
8. Covenants
9. Independent monitoring and reporting 
10. Reporting and transparency

Together, the adoption of these principles helps improve the development of social and environmental management practices in the banking and financial industry.

Their adoption also means that these financial institutions are also brought closer to becoming sustainable, especially in environmental and social concerns. While the principles do not specifically use the word sustainability in their guidelines, the result of implementing them is the achieving of sustainability.

Communicating business sustainability

Apart from the benefits we have already discussed, sustainability in business carries a few other important ones as well. Others like increased stakeholder participation and engagement that can be achieved only with an optimised strategy for sustainability communication.

To make the most out of your sustainability efforts, your stakeholders should be part of the journey as well. 

Having an open line of communication for your efforts to become a sustainable business will improve stakeholder engagement, provide considerable PR value and make the business more attractive to investors as well.

This is where we can help improve your business with sustainability. SUSTINARO believes in sustainability that makes sense.

And sustainability only makes sense for your business if you experience the benefits of it, in the short-term as well as the long-term. Connect with us today, and take your all-important first step towards becoming a sustainable business.