The Equator Principles represent a voluntary, unilateral commitment to perform a detailed analysis of environmental and social aspects of each new project financing and to link financings to compliance with a number of requirements. Specifically, the projects financed must comply with the environmental and social standards of the International Financial Company (IFC), an institution of the World Bank Group that is responsible for transactions with the private sector.

The principles especially encourage:

• evaluation of impacts and setting up systems for managing these impacts 
• conservation of biodiversity and sustainable management of natural resources, 
• consultation with affected populations, creating a process for managing forced relocations, protection of vulnerable indigenous communities, preservation of cultural heritage and grievance management, 
• pollution prevention and control, 
• fundamental principles and rights of employment, health, safety and security of local communities.

Negative effects on ecosystems and communities affected by the project should be avoided or at least limited to the extent possible, reduced and/or offset appropriately.

The Equator Principles (EP) were launched in June 2003 then revised and re-named Equator Principles 2 (EP2) in July 2006. The revisions broadened the field of application:

• to all projects involving an investment of at least USD 10 million (compared with USD 50 million in the earlier version), 
• to financial advisory mandates under which project financing is sought.

The Equator Principles apply to Calyon’s entire project finance business line, including for projects that do not reach the USD 10 million threshold. Every project is classified in one of the three categories defined by the IFC, based on its location and its potential impact on the environment and the local social fabric:

• A for projects with maximum potential negative impact, 
• B when the impact is significant but more limited, and can be corrected by remediation measures, 
• C when the impact is minimal or nonexistent.

A project that may displace a population, affect a vulnerable ethnic minority or have irreversible consequences for a natural habitat will thus be rated A.

An evaluation of the context is also carried out, covering the country, promoters and any problems encountered in similar projects. The goal is to assess the promoters’ ability to manage the identified potential impacts. If there is a need for increased vigilance, the deal is classified for monitoring as sensitive.

The project’s rating and possible classification for monitoring as sensitive are used to determine specific requirements with regard to the borrowers. These specifics may include consultants’ analyses and additional studies, mandated actions and including environmental and social imperatives as contractual obligations in loan agreements.

Analysis of social and environmental aspects is integrated into traditional procedures for dealing with funding requests, and is part of the discussion between salespeople and the risk department. Compliance with commitments is monitored during the structuring phase, and then at least yearly for the life of the credits.

However, final validation of these analyses (EP rating and classification for monitoring as sensitive) is made by the EP Committee. It renders an opinion in advance of any credit being extended for projects classified A, or in the event of disagreement among those involved in analyzing a file. Moreover, files classified A must be approved at the next level of credit authority up from that normally required in order to strengthen control of the associated environmental and social risks.

Implementation procedures and statistics were audited in 2006 and 2007 by the Group auditors in accordance with Crédit Agricole S.A.’s reference document.

In 2007, Calyon evaluated 123 projects: six were classified A, 103 as B and 14 as C. At the end of 2007, all projects in Calyon’s portfolio had been evaluated by the account managers and the Risk department, and except for a few for which more information was needed, had been reviewed and validated by the Equator Principles Committee. In all, 433 projects were classified, 27 as A, 358 B, and 48 C.

Calyon has developed a true sustainable development culture by making operational project finance teams more accountable. A number of teams and controlling bodies thus participate in project analysis and follow-up.

Project finance teams have primary responsibility for day-to-day compliance analyses (establishing rating matrices, contact with promoters and outside consultants, negotiating lending terms, etc.).

A network of local correspondents, made up of project finance operational staff, helps the account managers with complex files. Linking the sales force and control and validation bodies, this network ensures a first level of consistency in the application of the Equator Principles.

Crédit Agricole S.A.’s industry and sector research is carried out by consulting engineers who specialize in industrial sectors, contributing skills and understanding of complex technical and environmental problems. They give impartial, professional opinions, which are especially important for A files and those monitored as sensitive.

The Equator Principles Committee is responsible for overseeing implementation of and compliance with the Equator Principles. Inaugurated in 2005, it validates EP ratings after auditing industry and sector studies. It issues recommendations for A files prior to credit decisions. The EP Committee also keeps abreast of in the progress of A files and those monitored as sensitive.

A Coordination unit, based in Paris, manages practical implementation of this organization (tools, training, procedures, etc.) with the assistance of the head of Sustainable Development, and provides support to the local correspondent network.

The head of sustainable development provides assistance in the most complex cases, ensures that methodologies and tools are used consistently and represents Calyon, in liaison with the Coordination Unit, in dealing with the Equator Banks, the IFC and civil society.

Calyon is a founding bank of the Equator Principles (June 2003). In less than five years, these principles have become a market standard, a benchmark of the best social and environmental practices in project finance. Over 60 financial institutions now subscribe to these principles, and compliance with them has become a prerequisite for success in international syndications of the most sizeable deals.

Calyon has noticed steady improvement in the quality of the projects it has studied, showing that project promoters have been integrating the Principles right from the idea stage. The Equator Principles have materially improved analysis and management of environmental and social impacts of projects at the global level, yet without leading to an increase in the number of deals turned down by the Equator Banks.

However, Calyon is aware of the progress that still can and must be achieved. It participated actively in developing rules for governance in cooperation with the Equator Banks and in setting up various working groups. In particular, in 2007 Calyon led the working group for interchange with civil society. This group organized a meeting of 18 EP banks and 15 non-governmental organizations on December 4, 2007 in Amsterdam. The agenda, set jointly with Banktrack, addressed questions of governance, transparency and grievance procedures at the individual project level.