The move towards becoming "green" has continued to
gain momentum in different sectors of the business world. Signatory
banks throughout the world have taken up the call to become
environmental stewards and to promote socially responsible
development by adopting voluntary principles known as the Equator
Principles, and becoming Equator Principles Financial
The Equator Principles are a voluntary set of standards for
determining, assessing and managing social and environmental risk
in project financing. Equator Principles expressly incorporate a
number of the policies and guidelines of the International Finance
Corporation (IFC) of the World Bank Group. Equator Principles have
become the standard for most banks and investors on how to deal
with potential social and environmental effects of projects
requiring finance. By adopting the principles, EPFIs undertake to
develop individual internal practices and policies consistent with
The Equator Principles apply where the total project capital
costs are US$10m or more and provide conditions under which
financial institutions agree to approve loans for these projects.
The principles suggest that banks do not operate in isolation when
assessing project finance, but incorporate environmental and social
considerations into project finance. Projects are classified
according to the risks they pose on the environment and society.
Depending on the level of risk, the borrower may be required to
provide a satisfactory environmental assessment or, in cases of
high risk, an environmental management plan as well, which may
require public consultation and reporting back to the
Presently, there are about 66 Equator Principles Financial
Institutions which operate globally. Amongst these are South
African banks such as FirstRand, Nedbank, Standard Bank and
What we may expect to find is that Equator Principles Financial
Institutions may not provide loans to projects where the borrower
will not or is unable to comply with the respective social and
environmental policies and procedures that are found in the
Principles. Financing may become conditional upon borrowers making
certain progress on environmental and social issues, undertaking to
comply with relevant environmental and social laws and regulations,
and reporting on their compliance throughout the project.
Non-compliance could possibly be incorporated into the finance
documents as an event of default, resulting in the Institution
cancelling the loan and demanding immediate repayment.
Leading the way in May 2004, the JSE's Socially Responsible
Investment (SRI) Index was launched in response to the burgeoning
debate around sustainable development globally and particularly in
the South African context. The SRI Index contains principles that
are in line with the King Code on Corporate Governance.
The Third King Report on Corporate Governance, which became
effective on 1 March 2010, emphasises that companies should become
responsible corporate citizens by undertaking triple bottom line
reporting and by measuring the impact of their business on social,
economic and environmental aspects. Companies should each develop
their own policies to define and guide their activities in order to
protect, enhance and invest in the long term wellbeing of society,
the economy and the environment.
The JSE has developed criteria to measure the triple bottom line
reporting of companies in the FTSE/JSE All Share Index, together
with an index comprising those companies that pass the criteria
requirements. The SRI Index serves as a tool for investors to
identify companies incorporating sustainability practices into
their business activities.
Business in South Africa is moving towards being better
corporate citizens, being accountable to the communities in which
they operate and ensuring sustainability of the economy, society
and the environment. This is illustrated in section 7 (a) of the
new Companies Act, which states that one purpose of the Act is to
promote compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law. This will include
considering the need to protect the environment.
This is not only at the public sector level but can be seen in
the private sector by the actions of banks and listed companies
particularly. We may well see the recognition and protection of the
economy, society and/or the environment become an important part of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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