Equator Principles and Climate Change Issues: Examining the EPs’ Climate Change Policies and Analyzing the Likely Effectiveness of these Policies

Abstract

Climate change is a global environmental issue that adversely affects economic activities; on the other hand, economic activities, in particular infrastructure project financing, are one of the main drivers of current increases in atmospheric greenhouses gas (GHG) concentrations. Accordingly, based on the principles of shareholder, stakeholder, and institutional theories, a number of financial institutions, called the Equator Principles Financial Institutions (EPFIs), voluntarily developed the Equator Principles (EPs) as “a risk management framework for determining, assessing and managing environmental and social risk in projects” (EPs-website). In 2013, EPs were updated (EPIII) to include project-related climate change issues in project assessment. Doing so enables the EPFIs to reduce credit risks, enhance reputation, and gain legitimacy. However, despite the development of EPIII, its climate change policies are left vague, and different opinions have evolved around their likely effectiveness in helping the EPFIs to manage their climate risks and change their behavior towards climate change management. Apart from existing criticisms that the EPs fail to enforce the EPFIs’ commitment to voluntary standards, this study examines the likely effectiveness of the EPs’ mandates from a climate change perspective. This study follows two main methodological approaches: 1) primary document and policy analysis and 2) comparative legal and synthetic analysis to analyze the EPs’ climate change policies and identifying potential challenges to address climate change issues through Environmental Impact Assessment (EIA). This research analyzes the existing guidelines on climate change management and elaborates underlying principles and motivators for climate change policies to develop a set of generalized criteria for the effective incorporation of climate change issues into EIA. In light of these criteria, I then examine how EPIII include climate change in the EIA for projects proposed for bank financing. This study will analyze whether the EPs are having a positive impact on managing climate change issues and reveal to which extent the EPs confirms the principles of underlying theories and fulfills the primary motivators.