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First Peoples Worldwide delivered expert feedback on proposed revisions to the Equator Principles, EP4, at the Equator Principles Association’s (EPA) public consultation in London on July 16. Three banks representing over 90 financial institutions of the EPA were in attendance, as well as about a dozen individuals representing civil society, consultants and academics with deep concerns about how human rights and the environment are addressed in EP4. The meeting followed a consultation in Tokyo, with the final in-person consultation set to take place in Toronto on July 30.

Adopted by , the Equator Principles (EPs) framework is the only global benchmark to screen social and environmental risk during project finance. This framework offers considerable promise to elevate and to protect the rights of Indigenous Peoples at the very beginning of development projects. In the reverse, this screen is one of the few mechanisms to prevent human rights abuses before they have occurred.

The London consultation was particularly relevant to address profound human rights inadequacies of EP4, given that ten European banks led the charge for these latest revisions. In May 2017, following the months-long social uprising against the Dakota Access Pipeline (DAPL), those European banks wrote a letter that officially called for comprehensive changes to the EPs. It was clear from the controversy and resulting financial loss surrounding DAPL that the EPs no longer adequately assessed risk and left banks vulnerable to material losses, as well as deep and lingering reputational damage.

There were three main calls to action in the letter. In terms of the free, prior and informed consent (EPIC) of the impacted Indigenous Peoples, the letter implied that local laws applied in DAPL were “lacking compared to best practice for FPIC…” This meant banks had no leverage as there was contractual breach in the standards being applied, which ultimately damaged the gold standard brand of the EPs.

The letter also asked for the removal of the “Designated” versus “Non-Designated” country distinction, which would rectify conflicts where local laws are not as fully encompassing of human rights concerns as international standards, and called for amendments to facilitate resolutions where there are breaches of applicable Environment & Social Standards.

Just over two years after the letter was submitted, the EPA released their revisions, which fell desperately short of letter’s requests, and ignored several recommendations First Peoples Worldwide made when invited by the EPA to consult on the revisions in 2018.

During the London consultation, it became clear that there have been differing opinions among banks about the new revisions to the EPs. This is one reason for the problematic inclusion of two options for FPIC. The “Designated” versus “Non-Designated” country distinction was also still in the draft. During the consultation, however, the EPA seemed open to feedback on both issues.

Through much discussion around reliance on national frameworks concerning social and environmental risk, it became clear that some banks consider national law versus international standards an “either/or” option. However, there is no dichotomy between local legal compliance and alignment with international standards. In fact, a fuller implementation of international standards actually reaps a better risk assessment process for banks.

As currently drafted, revisions to the Equator Principles do not reflect the world of 2019 and do not adequately consider today's challenges or a vision for 2020 and beyond that properly protects people and the planet. If EP4 is not improved before it is ratified later this year, the Equator Principles may be headed towards irrelevance.

The EPA has asked that all stakeholders and potentially affected communities submit feedback about EP4 at .

Below are excerpts of the comments made by First Peoples Worldwide at the London EP4 consultation, edited for length.

Main Strengths and Weaknesses of EP4 from a Human Rights Perspective

We were encouraged that in the aftermath of the Dakota Access Pipeline situation ten European banks called for revisions to the EP framework. Their leadership reflected the reality that neither Equator Principle Financial Institutions (EPFIs) nor Indigenous Peoples were sufficiently protected under EP3. Banks were left exposed to financial and reputational damage because they could not address the clear violations that were occurring since the environmental assessments used by the United States were deemed sufficient. Both EPFIs and Indigenous Peoples deserve greater protections and we stood with European Banks in hopes that after DAPL the Equator Principles could begin a new era of sustainable finance linked directly with respect for human rights.

However, the promise of a revised Equator Principles with a clear focus to forward human rights has not been realized in EP4.

As a general comment on the language in the EP4 draft, human rights violations cannot be “offset” or mitigated. Once abuses occur, they cannot be undone. The very language of the draft minimizes the impacts of finance and reveals an approach by EPFIs more closely aligned with a mere compliance procedure rather than taking on the hard work of implementing the In this way, EP4 falls short of EPFIs internal commitment to actualize the Guiding Principles’ ‘Protect, Respect and Remedy’ framework.

Similarly, even though this review grew out of a failure to respect the human rights of the Standing Rock Sioux Tribe and other Sioux tribes, there is no reference in EP4 to the United Nations Declaration on the Rights of Indigenous Peoples. Again, this obvious omission reveals a failure to do the hard work of operationalizing respect for Indigenous Peoples’ human rights.

In fact, the United Nations Declaration on the Rights of Indigenous Peoples represents a global consensus and establishes a minimum standard for the survival, dignity and well-being of Indigenous Peoples around the world. We recommend that any provision on FPIC, or on human rights and social risks, tracks with this and other international standards.

The failure to integrate the norms presented by international human rights instruments into EP4 leaves Indigenous Peoples and financial institutions as exposed to risks as they were during DAPL. There is no significant change. Similarly, while EP4 references the 2015 Paris Agreement, without fully integrating the TCFD recommendations and requiring thorough reporting from clients and from EPFIs, there is little incentive in EP4 to address climate chaos.

We recommend the removal of the distinction between "Designated" and "Non-Designated" Countries and for implementation of FPIC via Option 2 as presented in EP4. We also recommend that the entire draft be revised to align with international standards.

We understand that feasibility of achieving the commitments in the Equator Principles is a concern. There are tools to take steps towards the types of robust due diligence required to implement the Equator Principles. First Peoples Worldwide has produced just such a due diligence questionnaire as to working on and near Indigenous territories.

Finally, these consultations take place in formalized sessions in banking districts of major cities, where financial decisions are made. Lets not forget that the impacts of these decisions do not occur in this place; but rather influence the livelihoods and lifeways of already marginalized peoples far from here. First Peoples Worldwide encourages everyone to begin and end this process with a commitment to their human rights.

Applicable Standards in Designated vs. Non-Designated Countries

We admire the leadership of the 10 European banks in their original call to remove the distinctions between "Designated" and "Non-Designated" countries. As those banks noted, there are considerable issues when local laws are not as stringent as international standards and yet those laws are allowed to stand in for the EPs. Removing the distinction both increases leverage for financial institutions who wish to proactively address social risks and increases protections for Indigenous Peoples worldwide.

The legal and political processes in most countries do not adequately integrate international standards to respect the rights of Indigenous Peoples. High-income OECD countries, namely the United States, Canada and Australia, resisted the final language of the in 2007 and were the last to endorse it. Their resistance is mirrored in the superficial attention paid to Indigenous Peoples in their national environmental and social screening processes. Reliance on these frameworks in any capacity is entirely misplaced.

First, relying on national frameworks cabins assessment of social risks to a narrow set of considerations as proffered by that country. This does not allow financial institutions to accurately assess, manage and address all of the social risks that could result from a failure to respect human rights. First Peoples Worldwide conducted a study resulting in a case study, Social Cost and Material Loss: The Dakota Access Pipeline, to understand the financial impacts that occurred. During DAPL, banks and financial institutions lost upwards of $4.4 billion in account closures - not counting reputational damage or losses occasioned by those banks that divested from the loans. Furthermore, all entities - banks, companies and the government - lost more than $12 billion; losses caused by poor social risk management.

Because social risks can result in significant material losses, bank managers have a fiduciary duty to create the most robust due diligence framework possible to capture all risks that arise from finance on and near indigenous territories.

Second, Indigenous Peoples globally currently have little political, legal, social and economic power through which to protect their resources. There is little distinction between Indigenous communities in “Designated” and “Non-Designated” countries, making EP4’s continued distinction artificial as applied to Indigenous Peoples.

In sum, the next draft of EP4 should completely remove the distinction in favor of presenting a single global benchmark on social and environmental risk assessment, at the very least to be applied where Indigenous Peoples may be impacted.

Human Rights and Social Risk

Concerning EP4’s proffered options to operationalize free, prior and informed consent (FPIC) we understand that this has been a fraught process of negotiation, out of which two options have emerged. To put it plainly, Option 1 is wholly insufficient. It is a superficial attempt to placate Indigenous Peoples with a mere pro forma process without reference to their rights.

Option 2 is the better option as it requires the client to demonstrate to the EPFI the affirmative consent of the affected Indigenous Peoples. Yes, consent must be affirmative. It must also be iterative, inclusive and - importantly - integrated into project design and implementation.

FPIC must recognize in process and implementation that the ability to give or to withdraw consent is the core value encompassed by the right to FPIC. This right ensures that Indigenous Peoples are afforded their right to direct the development priorities of their lands, territories and resources. The process of soliciting FPIC is therefore driven by the need to provide a mechanism for discussion and negotiation in an open, fair and inclusive manner.

In terms of assessing social risks, financial institutions and clients alike would benefit from planning for an iterative process with multiple decision-making nodes where negotiations with Indigenous leadership could reveal project changes. I will reiterate that the Standing Rock Sioux Tribe’s position as to the pipeline was not that they were anti-pipeline, but rather they asked for the pipeline to be re-routed away from their single water source and sensitive wetland areas. Had their requests been meaningfully heard and incorporated early in the design phase, the controversy would likely have ended very differently.

As written, EP4 does not incentivize a robust approach to operationalizing FPIC in routine business operations for clients or for EPFIs. Option 2 is the better option and all stakeholders would benefit from a stronger approach to operationalizing FPIC as a right and not solely a process.

Grievance Mechanisms must be Integrated into ALL Projects that may Impact Indigenous Communities

[In the current EP4 draft,] Principle 6 retains the narrow requirement for clients to establish effective grievance mechanisms, and only as to particular projects. There is no stated remedy for EPFIs should the client’s representation of a grievance mechanism not come to fruition or not be up to the standard set forth in the UN Guiding Principles for operational-level grievance mechanisms.

Further, EP4 does not address the issue raised by European banks to facilitate the resolution of issues resulting from a breach of the framework that leads to environmental or community harms. EP4 must acknowledge with specificity the mechanisms necessary not only to resolve issues internally, but also to provide banks with the leverage they need to proactively and meaningfully address social risks as they arise. Banks have a responsibility to respect human rights, as set forth in the UN Guiding Principles, and a stronger EP4 is imperative to actualize that commitment.  

We hope that this feedback is meaningfully considered and integrated into a next draft. We would like to see how the recommendations offered today are presented to EPFIs. We understand a report is being prepared and we ask that the full report be made public rather than just a summary of the report. We also ask that details concerning the upcoming consultations be placed in a publicly available location online.