Sustainable finance

Equator Principles

The Equator Principles provide a framework to help banks manage the impacts on society and the environment from infrastructure and other projects that they finance. They were adopted by Standard Chartered in 2003. We apply them to all project finance and advisory engagements, exceeding the minimum threshold required by the Principles which are limited to those above $10 million.

Following the Principles means that we categorise the risks of lending opportunities, based on criteria common to all signatories. We require borrowers to demonstrate the extent to which they meet agreed guidelines and standards. Loans for high and medium-risk projects include covenants requiring borrowers to comply with their action plan to address the risks. We monitor compliance and work with borrowers if necessary to help them achieve their plans.

Equator Principles Projects

  2005 2006 2007 2008
Equator Principles1        
Category A transactions approved 5 5 8 5
Category B transactions approved 10 12 22 19
Category C transactions approved 3 3 4 4
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Our revised Sustainable Lending training now integrates Equator Principles training
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Breakdown of 28 Equator Principle projects approved in 2008 by risk category Number approved Percentage of projects approved Percentage of Bank’s share of project value
Category A 5 18% 5.5%
Category B 19 68% 3.5%
Category C 4 14% 7.6%
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Breakdown of Equator Principle projects approved in 2008 by geographic region Middle East Asia Africa Americas and UK/Europe
Category A 1 2 1 1
Category B 7 7 1 4
Category C 2 2
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Breakdown of Equator principle projects approved in 2008 by sector Percentage
of projects
approved
Project value ($m) Bank’s share of
project value
($m)
Oil & Gas 31% 14,436 604
Chemicals 4% 5,519 79
Infrastructure 11% 1,386 109
Power 25% 6,653 297
Mining 7% 1,160 39
Renewables 4% 156 59
Biofuels 0%
Other 18% 3,709 246

Geographic location of projects

Geographic location of projects

Sector breakdown of projects

Sector breakdown of projects

Equator Principles categories

Category A: High Risk

Projects with potential significant adverse social or environmental impacts that are diverse, irreversible or unprecedented

Category B: Medium Risk

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

Category C: Low Risk

Projects with minimal or no social or environmental impacts

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Rapu Rapu mine

Rapu Rapu is a mining project in the Philippines. As one of five banks in the lending group we had concerns over a number of environmental and social aspects of the project.

During its commissioning, the Rapu Rapu mine was affected by a number of environmental and climatic events, including three typhoons and two accidental discharges of non-toxic effluent to waterways in late 2005. Lenders also became aware of shortfalls in community engagement and grievance mechanisms available to address livelihood concerns. Adding to our concerns, at the time of financing, the project did not meet the capital requirements for application of the Equator Principles.

As a matter of priority, we acted quickly to apply the Principles from the time of our involvement.

The mining company, with the support of the financiers, implemented a number of changes, including the construction of improved waste water management systems, drainage channels and by increasing the height of the tailings dam to further protect the surrounding communities. In addition, several community action programmes were initiated.

The eventual insolvency of the company meant that many of these planned actions were not completed. In March 2008, the project finance lenders (including Standard Chartered) sold their debt exposure to the project’s existing 26% shareholder.

The end of our involvement brought forth a dilemma that confronts many Equator banks - Do lenders have leverage over clients beyond loan exposure?

The Equator Principles succeed on the ability of a bank to improve project outcomes through specific recourse if a project does not comply with the required social and environmental covenants. Beyond the confines of our sphere of influence, Equator banks seek to be a promoter of environmentally sound financing by reaching out to other banks to encourage adoption of the Principles.

In 2009, we are going to work closely with financial institutions in our markets including China to encourage adoption of the Principles and help build their capacity to manage environmental and social risks in lending.

 
 
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Highlights

  • 28projects approved under the Equator Principles
  • 13Sector and Issue Position Statements Developed
  • $8–10bncommitted for renewable and clean tech projects by 2012