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Australia – Equator Principles III – Release Of Implementation Note.

16 August 2014

 

Legal News & Analysis – Asia Pacific – Australia – Environment 

 

WHAT YOU NEED TO KNOW

 

  • Following the release of the Equator Principles III in May 2013, the Equator Principles Association released an Implementation Note on 21 July 2014.
  • The Implementation Note provides information, examples and guidelines to assist in the implementation of the Equator Principles.
  • Guidance is provided about the Equator Principles relating to scope, climate change and reporting in the form of scenarios, questions and answers, and examples.


WHAT YOU NEED TO DO

     

    • The Implementation Note does not create any new principles or requirements, but is a useful tool to further understand the obligations imposed under the Equator Principles.
    • Equator Principles Financial Institutions and project developers should consider reviewing their reporting methods in light of the guidance provided in the Implementation Note.

     

    The Equator Principles – A Background

     

      The Equator Principles (EPs) were developed in 2003 by 10 US and European financial institutions in response to pressure on financial institutions to promote responsible environmental and social management in project finance transactions. The aim of the EPs is to provide a voluntary benchmark for assessing and managing environmental and social risk in major development projects.
      The EPs underwent significant changes in 2013. There are currently 80 financial institutions from 35 countries that have adopted the EPs and are designated Equator Principles Financial Institutions (EPFIs).

       

      The Implementation Note

       

        The Implementation Note was released on 21 July 2014 by the Equator Principles Association. It comprises a series of modules containing information to support the implementation of the EPs on scope, climate change and reporting.

         

        Module I: Scope

         

          This module clarifies the types of projects and transactions that fall within the ambit of the EPs.

           

          • The EPs apply to offshore projects including floating production storage and offloading installations, drill ships and drill rigs where the asset is owned by the project developer (or a subsidiary) and the project developer (or a subsidiary) owns or operates the project where the asset is used. The EPs will also apply in certain circumstances to reserve-based financing.

           

          • The EPs do not apply to project bonds, corporate acquisition finance, bridge loan guarantees or letters of credit for bridge loans.

           

            Module II: Climate Change

             

              This module relates to EP 2 (Environmental and Social Assessment) and EP 10 (Reporting and Transparency).

               

                The Implementation Note includes the following guidance in relation to climate change:

                 

                • the project developer is obliged to report on Greenhouse Gas (GHG) emissions for the operational phase of the project over the life of the loan;
                • in calculating emissions the project developer should choose a methodology it considers appropriate, such as the GHG Protocol;
                • exemptions from reporting may be available where confidentiality is put at risk; and
                • GHG reporting requirements under the EPs will not be satisfied by reporting on an aggregate (corporate) portfolio basis.

                 

                  Module III: Reporting

                   

                    This module relates to EP 5 (Stakeholder Engagement) and EP 10 (Reporting and Transparency).

                    EP 10 imposes different reporting obligations on both the project developer and the EPFI.

                     

                    Obligations on the project developer

                     

                      The Implementation Note includes the following guidance in relation to reporting transparency and stakeholder engagement obligations:

                       

                      • documents that are required to be made publicly available should be published on an external website such as the project developer’s website, the website of a shareholder or sponsor or the website of an environmental authority or regulator;
                      • documents should be made available in the local language of the community affected by the project as well as being published in English; and
                      • where the project developer has limited or no website access they can be exempt from some reporting requirements.

                       

                        Obligations on the EPFI

                         

                          The EPFI is required to annually report on transactions subject to the EPs that have reached financial close, as well as on their EP implementation and processes.
                          The Implementation Note includes the following guidance:

                             

                            • the EPFI is not required to submit any project data where the client does not consent, where the disclosure violates applicable laws or regulations or where the disclosure would increase the EPFI’s liability; and
                            • any new adopters of the EPs have a one year grace period during which certain project data can be omitted from their public reporting.

                             

                              The Implementation Note also provides example tables to demonstrate how the EPFI can present its reports.

                               

                                What this means for you

                                 

                                  The Implementation Note does not create any new principles or requirements but is a useful tool to further understand the obligations imposed under the EPs.
                                  EPFIs and project developers should consider reviewing their internal processes and methods for reporting on the implementation of the EPs, particularly their climate change reporting.

                                   

                                   

                                  For further information, please contact:

                                   

                                  Clare Lawrence, Ashurst

                                  clare.lawrence@ashurst.com

                                   

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