The development, construction and operation and maintenance of any large project - be it hospital, prison, mine, or power plant for example - will invariably adversely affect the surrounding environment, and often in a number of different ways.

“Typically,” notes Mike Mclaren, Senior Associate in the Finance, Projects and Banking Practice at Cliffe Dekker Hofmeyr business law firm, “these projects are financed through a combination of debt and equity, with the debt portion often being project financed.

“Given the ever-changing favourable social attitude towards the environment, and the ever increasing commitment of financiers to ensure that the projects they finance comply with environmental laws and mitigate the adverse effects of such projects on the environment, a prudent finance lawyer should understand the implications of the Equator Principles in respect of projects which are to be project-financed.”

Mclaren says the Principles serve to provide an international financial industry benchmark, comprising a framework of guidelines based on international best practice, to assist borrowers and financiers (whether acting as financiers to the project or merely in an advisory capacity) to ensure that the projects they develop and/or finance are done so in a manner that is socially responsible and that reflects sound environmental management practices.

It is the stated aim of the Principles to ensure that the negative impacts that projects may have on the environment are "avoided where possible, and if these
impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately." (see www.equator-principles.com <http://www.equator-principles.com/> ).

“The Principles, which comprise ten individual principles, apply worldwide to all project finance transactions with total project capital costs in excess of $10 million in respect of each such project, and across all industry sectors,” he explains.

“Each financial institution that adopts the Principles (Equator Principles Financial Institution or EPFI) commits itself to give effect to the Principles, by implementing its own internal policies and processes which enable it to comply with the Principles.

“However, an EPFI's commitment extends even further than simply implementing its own internal policies and processes - EPFI's undertake not to finance projects where the borrower in respect of such project will not, or is unable to, comply with the EPFI's policies and processes,” Mclaren says.

Originally adopted in June 2003 by ten of the world's leading banks, as a means to develop a common and coherent set of environmental and social policies, the Principles have since been amended, in 2006, to address numerous criticisms levied at the original Principles and have now been adopted and endorsed by no less than 68 leading banks and financial institutions worldwide - accounting for more than 85% of the world's project and infrastructure financing capacity.

“Until recently, though, only Nedbank was an EPFI in South Africa. However, the adoption of the Principles by Standard Bank, FirstRand Bank and ABSA Bank in February 2009, July 2009, and October 2009 respectively, means that all of South Africa's major banks are now EPFI's.”

“This,” Mclaren adds, “coupled with the fact that most of the international banks that have a presence in the South African market are EPFI's, suggests that a large number of the possible financiers of projects will now require adherence with the Principles.

“In all future projects in South Africa, project participants will be required to fully understand the implications of the Principles to that project and ensure that all of the relevant project documents procure both the project's and the borrower's compliance with the relevant financier's policies and procedures that give effect to the Principles.”

 

Notes:
• Cliffe Dekker Hofmeyr is one of the largest commercial law firms in South Africa with some 115 directors/partners and 250 qualified lawyers located at offices in Johannesburg and Cape Town.

• Cliffe Dekker Hofmeyr lawyers specialise in services covering the complete spectrum of business legal needs in 11 core areas of practice. The firm also has dedicated sector-led teams consisting of lawyers with experience in a wide range of industries and the public sector.

• Cliffe Dekker Hofmeyr is the South African member firm of DLA Piper Group, an alliance of legal practices, which includes firms with offices around the globe that are affiliated to members of the DLA Piper Practice but are not themselves members of it.

• Cliffe Dekker Hofmeyr's Africa practice, in conjunction with DLA Piper Africa Group, is unrivalled in terms of pan-African legal services and geographical coverage.

• DLA Piper is an international legal practice with over 3,500 lawyers located in 30 countries and 69 offices throughout Asia, Europe, the Middle East and the US.

Written by Mike Mclaren, Senior Associate, Cliffe Dekker Hofmeyr