The Equator Principles (EP) are a risk management framework adopted by participating financial institutions (EPFIs) to determine, assess and manage environmental and social risk in the projects they finance. The fourth version (EP4) has applied since 1 October 2020. For private project sponsors in Viet Nam borrowing from international banks or syndicates, EP4 is usually the starting point of the lender's environmental and social due diligence.
Scope
The EP apply across all industry sectors and to five financial products:
- Project finance advisory services and project finance where total project capital costs are USD 10 million or more.
- Project-related corporate loans where the majority of the loan relates to a project over which the client has effective operational control, the total loan and the EPFI's individual commitment are each at least USD 50 million, and the tenor is at least two years.
- Bridge loans with a tenor of less than two years, intended to be refinanced by one of the above.
- Project-related refinance and acquisition finance of projects originally financed under the EP, where scale and scope have not materially changed and the project is not yet complete.
Designated and Non-Designated Countries
Designated Countries are those that are both OECD members and World Bank high-income economies; the list is published by the Equator Principles Association. Viet Nam is not on the list. Projects in Viet Nam are therefore assessed against the IFC Performance Standards on Environmental and Social Sustainability and the World Bank Group Environmental, Health and Safety (EHS) Guidelines, alongside Vietnamese law.
What changed in EP4
- Climate risk: a climate change risk assessment is required for Category A and B projects and for projects with combined Scope 1 and Scope 2 emissions expected to exceed 100,000 tCO2e per year; for the latter, the assessment must consider less greenhouse gas-intensive alternatives. EPFIs report on climate in line with the TCFD recommendations.
- Human rights: due diligence covers potential adverse human rights impacts, with reference to the UN Guiding Principles on Business and Human Rights.
- Indigenous Peoples: projects affecting Indigenous Peoples require informed consultation and participation aimed at free, prior and informed consent (FPIC), with reference to IFC Performance Standard 7.
- Wider scope: project-related corporate loans to government borrowers, and refinance and acquisition finance, are now covered.
What sponsors should prepare
For Category A and B projects, sponsors are typically expected to provide an environmental and social impact assessment to IFC standards, an environmental and social management system, a stakeholder engagement plan, a grievance mechanism, an Equator Principles Action Plan (EPAP) built into the loan covenants, and an independent review. An EIA approved under Vietnamese law is necessary but rarely sufficient; gaps between the national EIA and IFC requirements are best identified early so that they do not delay financial close or disbursement.