The equator principles (EP) is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in development projects. The ten principles are review and categorization, environmental and social assessment, applicable environmental social standards, environmental and social management system and equator principles action plan, stakeholder engagement, grievance mechanism, independent review, covenants, independent monitoring and reporting, and transparency. A 2020 EP reportLinks to an external site. explains the framework provides the minimum standard for due diligence to support responsible decision-making. While the EPs are not intended to be applied retroactively, practicing institutions apply them to the expansion or upgrade of an existing project in the case changes in scale or scope may create significant environmental and social risks. The EPs have greatly increased the attention and focus on social/community standards and responsibility, including robust standards for indigenous peoples, labour standards, and consultation with locally affected communities within the project finance market.
I decided to investigate J.P. Morgan Chase because it is the bank I use for my own finances. Apparently, Chase adopted the equator principles in 2006. I interpret Chase as a great example of greenwashing as its 2019 reportLinks to an external site. indicates 2/3 of the corporation’s project finance has been in the oil and gas sector. Further, half of its project-related corporate loans were in the oil and gas sector. In the report’s implementation and reporting section, the process designed to integrate EP is not outlined specifically. For example, it vaguely reads “lines of businesses” are responsible for referring relevant EP transactions to the environmental and social risk management group. When there is a significant issue it “may” be escalated to one of the firm’s reputation risk committees. Since the EP only require independent review, as opposed to involvement from a third party, Chase is not successful in terms of identifying sustainable investment opportunity.
While Chase is members of sustainably-worded coalitions, there is no information about how the partnerships are specifically cultivating positive environmental change. It lists intentions and values instead of impact statistics. Further, the corporation has 2020 goals to contribute to the United Nations Sustainable Development Goals; however, there is no proof of 2019 progress in that regard. Implementation of the projects will lead to more sustainable projects worldwide. The principles are not the issue. Rather, it is greenwashing, in terms of not actually carrying out the actions, which is the problem. Clearly, the EP already have an established international scope. So, the potential is there.
Perhaps, having third party verification is key to enabling the EP to function at their potential.
Comment by Edward Segura:
The Equator Principles (EP) risk management framework is a good start for banks to monitor their projects on implementing more sustainable practices. Yet, there are flaws that do not guarantee eco-friendly practices within such institutions. For example, you chose to investigate the projects Chase chose to be a part in. You discovered that 2/3 of the bank’s project-related corporate loans were sent to gas and oil based ones. This type of field participation does not identify investments in sustainable opportunities. Therefore, this overall risk management framework can be used as a “greenwashing” tool to improve their reputation among other sustainable supporting individuals and organizations. These principles do not enforce such institutions to invest in renewable energy practices where pollution and emissions are significantly reduced. You mentioned how Chase is a member of sustainably-worded coalitions, yet there is no information how they are specifically cultivating positive environmental change. I think this framework is a good start to potentially spark banks into participating in sustainable and safer practices, but more needs to be done because this participation in Equators Principle can be used to false state such institutions truly lean towards the importance of safer sustainable practices.
Equator Principles. 2020. “The Equator Principles 2020.” Equator Principles. Accessed 11 August 2020. https://equator-principles.com/wp-content/uploads/2020/05/The-Equator-Principles-July-2020-v2.pdf