The New Equator Principles – Climate Change, US Application and What EP4 Means for You

After a year of review and feedback, the fourth iteration of the Equator Principles (“EP4”) has arrived. Expected to take effect on October 1, 2020, EP4 will both broaden the Equator Principles’ reach, particularly with respect to Designated Countries (including the United States) and increase the environmental and social assessment obligations placed on Equator Principles Financial Institutions (“EPFIs”) and Sponsors (such as strengthening climate change and human rights assessment requirements). In this alert, we provide an overview of EP4’s updates, highlight EP4’s impact on Projects located in the United States, suggest additional considerations for Sponsors and EPFIs and identify next steps in EP4’s implementation. As EP4 takes effect, we note several key impacts for transactions going forward. First, in addition to compliance with host country law, Projects can now be subject to additional requirements under EP4, including the IFC Performance Standards. Second, both EPFIs and Sponsors must also review the Equator Principle-related covenants and representations found in financing documents to ensure that compliance is practicable. Third, both EPFIs and Sponsors should be aware of the increased assessment and engagement requirements, which could require multiple consultants (beyond the Independent Engineer’s review) and pose significant timing considerations for transactions. Accordingly, EP4 should be discussed during the early stages of a financing. Fourth, Projects can be subject to more stakeholder engagement, including for indigenous peoples.

Please click here to read the full client alert: The New Equator Principles – Climate Change, U.S. Application and What EP4 Means for You.

For more firm insights, click here for the Law, Policy & Markets: Milbank Conversations podcast featuring discussions with partners across the firm that explore timely legal and business-related implications of the evolving macroeconomic situation, including valuation, liquidity, solvency, opportunity and risk, with a sophisticated understanding of the latest developments in law, markets and public policy.