Equator Principles
The Equator Principles are a framework for managing environmental and social risk within the project finance industry. Project finance is a common method for financing large, complex and expensive projects such as power plants, mines or transportation infrastructure, where the lenders are primarily repaid by the revenues generated by the project. Financing is usually raised from a combination of financial institutions such as banks, multilateral development organisations and export-credit agencies.
These Principles form a core part of HSBC's approach to the management of sustainability risk and are applied to all projects which we finance as well as those to which we provide only financial structuring advice.
The Equator Principles set out the process for assessing a project in four key phases:
- Impacts are assessed on their degree of potential impact and are categorized as either A (High), B (Medium) or C (Low).
Category A – Projects with potential significant adverse social or environmental impacts that are diverse, irreversible or unprecedented;
Category B – Projects with potential limited adverse social and environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and
Category C – Projects with minimal or no social or environmental impacts. - An action plan to address those impacts is developed.
- If the commercial, environmental and social risks are manageable and meet the standards set by the Principles and HSBC's internal sector policies, an agreement to lend money is made, on the condition that the action plan is followed.
- The project's development in line with the action plan is monitored.
The majority of transactions fall into Categories B and C, as can be seen in the table below, although we do finance Category A transactions where the impacts can be managed responsibly in accordance with the Equator Principles and our internal sector policies. We also record the number of transactions in which we formally decline to participate where failure to comply with the Principles was a contributory factor. No transactions were declined in 2009 or 2010, reflecting the good standards of our clients and the experience of our risk managers in identifying high risk proposals at an early stage, and either positively influencing the project's development, or not proceeding with a loan approval request.
Further details of how HSBC implements the Equator Principles can be found on pages 12-14 of our 2010 Sustainability Report.
Assurance
In response to stakeholders' requests, HSBC has invited an independent third-party to review our transactions under the Equator Principles. Read more about PricewaterhouseCoopers' independent assurance on our application of the Equator Principles.
