The Equator Principles provide a due diligence framework for banks to manage the social and environmental risk of financing large projects.
The framework ensures that these projects are developed and operate in accordance with good international environmental and social standards. HSBC voluntarily adopted the Equator Principles when they were first launched in 2003. The latest (fourth) iteration of the Equator Principles (“EP4”) came into effect on 1 October 2020.
The Principles were originally drawn up to address the sustainability impact of project finance. This is a long-term method of financing where lenders are repaid primarily through revenues generated by a specific project – typically large and complex installations such as power plants or mines.
Since 2013, financial institutions that have signed up to the Equator Principles have been required to apply the standards to project-related corporate loans and project-related bridge loans, as well as advisory mandates. HSBC has always voluntarily applied the Principles beyond pure project finance to other types of loans for projects.
One of the obligations under the Equator Principles is to report on how we implement them and the following sections provide details and figures of the transactions undertaken by HSBC.
Supporting higher standards on infrastructure projects globally
Since 2003, HSBC has applied the Equator Principles to over 900 transactions, ensuring high environmental and social standards were met. This included:
- Finance for over 700 loans totaling approximately USD70 billion
- Advisory services on 200 deals
HSBC’s procedures for applying the Equator Principles are included in its credit risk policies. For transactions that fall under the scope of the Equator Principles, our global businesses must complete the appropriate implementation template, including the requirements for each applicable Principle, and conduct a risk analysis and recommendation through the credit risk process. We have more than 75 Sustainability Risk Managers – working in the Risk function across the bank – to assist our global businesses on Equator Principles requirements where appropriate. Global businesses must refer high-risk Category A projects, as well as some Category B projects, to Reputational & Sustainability Risk for guidance and approval. The Reputational & Sustainability Risk team is required to approve or decline any transaction that is deemed to be high-risk under the Equator Principles.
The Reputational & Sustainability Risk team is also responsible for the development and management of the Equator Principles policy, which outlines our internal processes for applying the Equator Principles. The Equator Principles policy is approved by the Risk Management Meeting, a sub-committee of the Group Executive Committee.
2019 Equator Principles reporting
As part of our commitment, we are required to report the number of transactions we have reviewed using the Principles, with breakdowns by sector and by region. This is shown in the PDF below. HSBC has reported on project-related corporate loans – now a requirement of the Principles – for a number of years and continues to do so. We also provide data on the number of loans that were independently reviewed, showing we go above the minimum requirement to review Category A and select Category B projects only.
In 2019, total deal volumes under the Principles were up slightly relative to last year. In 2019, all of our financings in the power sector under the Principles were for renewable energy projects – including financings for solar projects as well as onshore and offshore wind. Ninety-five per cent of our loans under EP were independently reviewed and all project finance names were disclosed to the EP Association.
We’re taking action on ESG
A new climate ambition and extra support for customers and colleagues are some of HSBC’s latest environmental, social and governance (ESG) highlights.
HSBC helps UK raise funds to fight climate change
We are advising the UK government on its first ever sovereign green bond.
Cutting carbon for companies
HSBC has led a financing deal that will pay for sectors including construction and utilities to reduce their emissions in China and beyond.