Glossary for the Equator Principles
– IFC Performance Standards (PS)
IFC Performance Standards (January 2012) summarize the standards for pollution prevention, conservation of the natural environment and the protection of human rights of local inhabitants and workers and consist of the following eight items:
PS1 – Assessment and Management of Environmental and Social Risks and Impacts
PS2 – Labor and Working Conditions
PS3 – Resource Efficiency and Pollution Prevention
PS4 – Community Health, Safety and Security
PS5 – Land Acquisition and Involuntary Resettlement
PS6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
PS7 – Indigenous Peoples
PS8 – Cultural Heritage
These Standards are published on IFC official website.
– Action Plan*
The Action Plan (defined as "Equator Principles Action Plan" in Exhibit I of The Equator Principles (July 2020)) is prepared, as a result of the EPFI's due diligence process, to describe and prioritize the actions needed to address any gaps in the assessment documentation, ESMPs, the ESMS, or Stakeholder Engagement process documentation to bring the project in line with applicable standards as defined in the Equator Principles. The Action Plan is typically tabular in form and lists distinct actions, mitigation measures, follow–up studies or plans that complement the assessment.
* Source:The Equator Principles Association, The Equator Principles (July 2020), Exhibit I.
– Information Memorandum
Materials distributed to potential lenders in syndication. It is prepared by the lead arranger to provide the potential lenders with information on project specifics, such as loan conditions, summary of the project, and significance of the project.
– Environmental and Social Impact Assessment
The Environmental and Social Impact Assessment refers to the procedure of forecasting and assessing the environmental and social impacts of a proposed project in its area of influence through preliminary investigations. Used mainly for large–scale development projects.
– Environmental and social review
To confirm the potential adverse environmental and social impacts of the project
– Syndicate
A group of financial institutions that finance a project.
– IFC (International Finance Corporation)
One of members in the World Bank Group that implements investment and lending to private projects, especially in developing countries.
– Lead Arranger
Lead financial institution that plays a leading role in arranging the syndication for project finance.
– Syndication
The process by which several different lenders provides various portions of the loan to finance the same project.
– Stakeholders
The stakeholders represent interested parties who have direct or indirect stakes in the interests and actions of corporations, public administration and/or NGOs. As for a large–scale development project, the stakeholders include not only the client and the project–affected communities, which are directly involved in the development project, but also third parties such as citizen–based NGOs because of the potential environmental and/or social impact of the proposed project.
– World Bank
The World Bank is made up of the IBRD (International Bank for Reconstruction and Development) and IDA (International Development Association). Its original purpose was to provide for the reconstruction of countries destroyed by World War II. Its current purpose is to provide for international development. IBRD, IDA, IFC (International Finance Corporation), MIGA (Multilateral Investment Guarantee Agency), and ICSID (International Centre for Settlement of Investment Disputes) collectively make up the World Bank Group.
– World Bank Group EHS (Environmental, Health, and Safety) Guidelines
The EHS Guidelines are technical reference documents that describe the performance levels and measures that are deemed achievable with existing technologies at reasonable costs in managing relevant issues in the environment, health and safety fields. The World Bank Group applies EHS Guidelines to its environmental and social assessments of projects. Industry sector guidelines for 62 sectors, such as offshore oil and gas development, thermal power, mining and more, are designed to be used together with the General EHS Guidelines, which provide guidance on common EHS issues potentially applicable to all industry sectors. These Guidelines are published on IFC official website.
– Documentation
Preparation of the loan agreement.
– Basel II Accord
The Basel II Accord, which defined new rules on capital adequacy requirements for banks, was made public by the Basel Committee on Banking Supervision and came into effect at the end of 2006. Therefore, banks are required to appropriately assess risk–exposed assets, monitor and manage various risks and disclose relevant information. Banks operating internationally need to maintain a capital adequacy ratio of 8% or more.
– Acquisition Finance*
Acquisition Finance is provision of financing for the acquisition of a Project or a Project company which exclusively owns, or has a majority shareholding in a Project, and over which the client has Effective Operational Control.
* Source: The Equator Principles Association, The Equator Principles (July 2020), Exhibit I.
– Financial Advisor
Person or company that advises on financial issues including methods of financing.
– Project Finance Advisory Services (FA)
Provision of advice on the potential financing of a development where one of the options may be project finance.
– Bridge Loan*
An interim loan given to a business until the longer term stage of financing can be obtained.
* Source:The Equator Principles Association, The Equator Principles (July 2020), Exhibit I.
– Project Finance (PF)
A method of financing in which cash flows generated by the project are expected to be the source of repayment. Project finance differs from corporate finance, in which financing is made by drawing on the corporate credibility of the borrower. PF is often used for large–scale projects including power plant and oil and gas development. Also, it often involves a loan to a new entity formed specifically to own the project. The Equator Principles are applied to project finance as defined in the Basel II Accord.
Project finance is "a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. In such transactions, the lender is usually paid solely or almost exclusively out of the money by funds generated by the contracts for the facility's output, such as the electricity sold by a power plant. The borrower is usually an SPE (Special Purpose Entity) that is not permitted to perform any function other than developing, owning, and operating the installation. The consequence is that repayment depends primarily on the project's cash flow and on the collateral value of the project's assets." Source: Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards ("Basel II"), November 2005.
– Project–Related Corporate Loans (PRCL)*
Corporate loans, made to business entities (either privately, publicly, or state–owned or controlled) related to a project, either a new development or expansion (e.g. where there is an expanded footprint), where the Known Use of Proceeds is related to a project in one of the following ways:
- The lender looks primarily to the revenues generated by the project as the source of repayment (as in Project Finance) and where security exists in the form of a corporate or parent company guarantee;
- Documentation for the loan indicates that the majority of the proceeds of the total loan are directed to the project. Such documentation may include the term sheet, information memorandum, credit agreement, or other representations provided by the client into its intended use of proceeds for the loan.
It includes loans to government–owned corporations and other legal entities created by a government to undertake commercial activities on behalf of the government, For all Category A and, as appropriate, Category B Projects, Project–Related Corporate Loans shall include loans to national, regional or local governments, governmental ministries and agencies.
* Source:The Equator Principles Association, The Equator Principles (July 2020), Exhibit I.
– Export Credit Agency
A national institution that promotes private international business by investment, financing, guarantees, and insurance. Such an agency is often called an export–and–import bank or an ECA (Export Credit Agency). Well known ECAs include NEXI (Nippon Export and Investment Insurance), JBIC (Japan Bank for International Cooperation), and US–EXIM (Export–Import Bank of the United States).
– Refinance*
Refinance is the process of replacing an existing loan with a new loan, where the new loan will be used to pay out (retire) an existing loan, and that loan is not near or in default.
* Source: The Equator Principles Association, The Equator Principles (July 2020), Exhibit I.