The “equator principles”: a success for voluntary codes?

The equator principles constitute an international voluntary code developed by banks to encourage consideration of environmental and social issues in project financing. Such codes can flexibly bridge the gap between individual companies' sustainability initiatives and mandatory, legal regulation. However, concerns continue to be expressed that the equator principles reporting of banks is not fully satisfactory, so the aim of this paper is to investigate both the nature of the success and the shortcomings of equator principles reporting.

The paper is based on academic literature on motivations for corporate social responsibility and various publications by non‐government organisations and professional accounting and legal organisations, together with analysis of the disclosures made by Barclays and HSBC. In addition, access was gained for semi‐structured interviews with some senior executives/consultants.

While the voluntary equator principles initiative has been remarkably successful in matching banks' strategic motivation, the environmental benefit may primarily be a by‐product of the risk management processes of banks, consistent with enlightened shareholder theory. This does not mean the environmental benefits may not be real but, without more detailed project‐level disclosure and a standardised performance evaluation system, it is difficult to measure the extent to which the equator principles have had a positive effect on the environment.

Further research is needed to gauge how the equator principles impact front‐line decision making. There could usefully be further standardisation of equator principles reporting formats, with more detail about project‐level implementation. With respect to reports of external assurers, it remains an open question as to whether these should be made compulsory, subject to further specification of the independence and competence standards.

The study helps to illuminate the effectiveness of a voluntary code such as the equator principles in the social construction of how enlightened shareholder theory is to be interpreted and implemented. It makes an initial response to recent calls by Bebbington et al. and Adams for further empirical corporate social responsibility research and more direct engagement with organisations.