| dc.description.abstract | The Equator Principles are at the center of the financial industry’s voluntary codes for assessing environmental, social, and sustainability risks in project finance transactions. The financial industry’s umbrella association for the Equator Principles—the Equator Principles Association—comprises 89 Equator Principles financial institutions (EPFIs) as of January 2017. As per the Equator Principles Association (EPA), the EPFIs implement Equator Principles in their environmental and social risk management framework in 37 countries, covering over 70 percent of international project finance transactions in emerging markets. However, the EPFIs’ implementation of the Equator Principles is a subject of continued research and debate regarding their contribution to environmental and social sustainability. Premised on the environmental and social performance standards of the International Financial Corporation (IFC) and the environmental standards of the World Bank, the Equator Principles and the uncertainties surrounding them have brought together various stakeholders to face the pressing and significant issues of Equator Principles implementation and the effectiveness of their implementation.
To address the gap in the Equator Principles literature regarding their implementation, and to contribute to the literature, the present thesis examines the following research questions: (a) Why do EPFIs integrate the Equator Principles into their project-finance decision-making processes and how do EPFIs implement the Equator Principles? (b) How do Equator Principles influence the application and the management of environmental and social risks of project sponsors (project proponents)? And (c) How do Equator Principles impact project-affected communities (PACs)? The thesis also uses insights and influences from stakeholder and institutional theories as well as natural resource-based view theory and processes that further explain Equator Principles implementation in practice.
The objectives of the research are, firstly, to analyze the current Equator Principles implementation and to assess how EPFIs align with the intentions of the Equator Principles framework—as well as its evolving character—as a tool for contributing to sustainability. Secondly, the thesis seeks to deepen understanding of Equator Principles implementation at the project sponsor level. Specifically, the objective is to investigate the nature and quality of Equator Principles application and management in project sponsor operations as per Equator Principles framework. Thirdly, the thesis aims to investigate how project-affected communities engage with the Equator Principles and project sponsors. Fourthly and lastly, based on the discoveries related to the preceding three objectives, the thesis aims to evaluate how the Equator Principles stakeholders could move the implementation and application of Equator Principles framework towards a framework that increasingly contributes to sustainability.
Towards this end, the research methods involve: Firstly, research derived from analysis of peer-reviewed journal articles via research repositories, covering ten years of the Equator Principles—since their launch in 2003—to identify key themes and emerging features of Equator Principles implementation. Secondly, the study includes interviewing project sponsors, project-affected communities, and stakeholder organisations, such as NGOs, as well as representatives of nine key EPFIs—with five hundred and thirty-three project portfolios—some of whom were the Equator Principles founders and Chairs of the Equator Principles Association Steering Committee—the Association that manages, administers, and develops Equator Principles. Thirdly and lastly, the research uses a project case example of Kalumbila Minerals Ltd (KML), a Zambian subsidiary of First Quantum Minerals Limited, to understand the impact of the Equator Principles on a project sponsor, KML. The thesis also compares the character of the implementation practices as revealed in the collected data, with selected sustainability-based assessment criteria, and suggests how the Equator Principles implementation could begin a transition to lasting commitments to sustainability.
The research findings show that the outcomes of the Equator Principles Financial Institutions’ (EPFIs’) implementation of Equator Principles are a work in progress. The findings also show that project sponsors’ contribution to sustainability share and in some cases, reinforce the implementation shortcomings of their lenders, the EPFIs. In addition, the evolution of project sponsor systems and structures for Equator Principles implementation—subject to further research—suggest that they correspond to the extent, frequency, and duration of EPFI-project sponsor interactions, which stakeholders—such as BankTrack—have long argued is barricaded behind EPFI’s need for privacy and confidentiality. Moreover, to the extent that there are shortcomings in Equator Principles stakeholder engagement and grievance mechanisms, the research findings also indicate that the Equator Principles’ positive impacts on project-affected communities—at least in the project areas—are evolving or minimal, and non-existent at worst.
The findings from this Equator Principles research also contribute to Equator Principles literature in two ways; empirically and theoretically. Empirically, this research suggests that oversight is necessary for two key Equator Principles players—the EPFIs and the project sponsors, and that sustainability-based assessment should be an important consideration because of short-comings identified in the Equator Principles framework. Most importantly, findings from the study imply that the Equator Principles Association’s social and environmental policies should explore, and be open to, the possibility that undisclosed implementation gaps exist among the Equator Principles stakeholders—particularly project sponsors—that could impede stakeholders from achieving desired environmental and social policy objectives and sustainability outcomes. The Equator Principles Association could address these gaps of opportunity in their periodic policy reviews. These policy reviews would include the need for increased transparency—for covenants embedded in project-financing documents, and in project-finance advisory services—at the signatory level of the Equator Principles and transparency at the project sponsor (project proponent) level concerning disclosures about Equator Principles implementation.
Theoretically, this study provides Equator Principles literature with a rudimentary framework premised on institutional theory for understanding Equator Principles implementation. It highlights how the concept of “isomorphism” as described in institutional theory affect the implementation of Equator Principles along a chain of three important parties (Equator Principles Financial Institutions, project sponsors, and project-affected communities). A future study would conduct broad empirical investigations to determine if the resulting institutional theory effects at each of these impact points suggest features necessary for potential oversight of the Equator Principles.
Overall, the findings suggest a suite of recommendations that center on reforms for the Equator Principles stakeholders. The Equator Principles stakeholders could consider, for example, an implementation oversight mechanism such as the Equator Principles Compliance Authority (EPCA) for improved Equator Principles implementation to address NGO criticism of lack of transparency among members of the Equator Principles Association. | en |
