Almost two decades from the first introduction of the concept of environmental, social and governance (ESG), ESG issues have now become one of the core values of not only project owners, but also financial institutions across the globe. In considering, whether to finance the development of a project, financial institutions normally scrutinize a project from various perspectives to ensure the project’s viability and, if required, impose measures to be implemented by the project in order to minimize the negative impacts of the project on the surrounding environment. In this connection, it is helpful that financial institutions have internationally recognized guidelines to refer to.
The Equator Principles (EP) are intended to provide a minimum standard of due diligence in supporting responsible decision-making when assessing risk. They are designed to be a financial institution’s benchmark for determining, assessing, and managing the environmental and social issues related to projects. Equator Principles adopting financial institutions (EPFIs) are committed to follow certain requirements and comply with ongoing reporting obligations of their project lending activities and resulting outcomes. The adoption to EP is completely voluntary and open to those who meet the relevant adoption requirements.
EP applies to five types of projects across all industries. Those five projects are: project finance advisory services, project finance, project-related corporate loans, bridge loans, project-related refinance, and project-related acquisition finance. In order to comply with EP, EPFIs must implement ten EPs through their internal environmental and social risk management policies, procedures and standards. Commencing from the point at which the financing of a project is proposed, the EPFI will review and categorise the project based on the magnitude of the potential environmental and social risks and impact. The assessment will be in accordance with the International Finance Corporation (IFC)’s environmental and social (E&S) categorisation process. Accordingly, the level of each of E&S assessment process, applicable E&S standards, E&S management systems, EP action plan, stakeholder engagement, grievance mechanism, independent review, covenants, independent monitoring, reporting and transparency required for each project will depend on its categorisation.
Currently, 129 financial institutions from 39 countries have officially adopted EPs. On 31 January 2022, The Siam Commercial Bank Public Company Limited (SCB), one of Thailand’s leading commercial banks announced that it had become a signatory of the Equator Principles. This marks the first financial institution of Thailand adopting EP and is therefore a significant step towards the adoption of ESG by Thailand’s financial institutional sector.
Financial institutions around the world have been reminded of the importance and practicality of promotion of ESG through EP adoption. Given the recent announcement by SCB, it will be interesting to see whether other Thai financial institutions will follow suit. To that end, we hope to see EP becoming an increasingly important component of project financing by Thai financial institutions in Thailand and elsewhere, therefore bringing about more sustainable and responsible lending practices.
Jessada Sawatdipong
Co-managing partner
E: jessada.s@mhm-global.com
Sarunporn Chaianant
Senior Associate
E: sarunporn.c@mhm-global.com
Chandler MHM
17th and 36th Floors
Sathorn Square Office Tower
98 North Sathorn Road, Silom
Bangrak, Bangkok 10500, Thailand
W: www.chandlermhm.com
