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Managing risk

In 2003, 10 of the largest commercial banks in the world agreed to the so-called Equator Principles: a set of policies for financial institutions to determine, assess and manage environmental and social risks in project finance. By 2005 end, 37 of the world's largest private financial institutions signed it. The principles' overall framework is based on environmental and social safeguard policies, pollution standards and environmental and social risk categorisation system.

The framework requires companies to carry out environmental assessment. Projects are classified as Category A, B or C (high, medium or low environmental or social risk). For Category A and Category B projects, a borrower must carry out an environmental impact assessment (EIA), which addresses the environmental and social issues identified in the categorisation process. EIA must demonstrate that the project complies with host country laws, regulations applicable to the project, and World Bank Group Pollution Guidelines for the relevant industry sector. For all Category A and some Category B projects, the borrower or a third party expert must prepare an environmental mana-gement plan which addresses mitigation and monitoring of environmental and social impacts. For these projects, the bank must be satisfied that the borrower has carried out a public consultation process among groups affected by the project.

The equator banks include global names like ABN AMRO, Barclays, Citigroup, Cr

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