Who and where are the Equator Banks? - IILJ

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• no Environmental Claims (defined, if thought necessary, to include
social matters, such as claims of human rights abuse, or subject to
being in writing or an appropriate level of materiality) have been
commenced or threatened against it; and
• it has developed, constructed and (if applicable) operated and
maintained the project (or procured the same) in compliance with the
EMP and the following defined terms: (i) Environmental Laws; and (ii)
the Lenders’ Environmental and Social Policies and Guidelines. The
Lenders’ Environmental and Social Policies and Guidelines can be
defined as the underlying World Bank and IFC policies and guidelines,
with any derogation agreed by the Equator Banks.
There will usually be some tension between the borrower and the lender as
to the nature of the compliance warranty. Equator Banks should be wary of
diluting compliance warranties by the use of materiality thresholds
(particularly the use of Material Adverse Effect or Material Adverse
Change thresholds) as the more such warranties are qualified the greater the
risk of reputation damage and, as the IFC has suggested, the less
straightforward enforcement becomes. Nevertheless, the use of
environmental hair triggers is not to be encouraged if this will lead to
acceleration of the loan merely to protect the reputation of some of the
lenders.
The Equator Banks need also to bear in mind the potential risks of
exercising step-in rights or taking other action to enforce their security over
a project which is not environmentally compliant, given the greater
likelihood of exposure to environmental liabilities, whether directly through
lender liability or indirectly through contractual indemnities granted to stepin
vehicles or receivers. Banks may wish to have step-in rights, but no bank
enters into loan agreements with the expectation or hope that step-in rights
will be exercised.
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In addition to the general undertaking in the loan agreement to comply with
all laws, a separate undertaking should be drafted that obliges the borrower
to comply (or procure compliance) in all respects with (i) the EMP; (ii)
Environmental Laws; and (iii) the Lenders’ Environmental and Social
Policies and Guidelines.
Borrowers may resist an obligation to comply with the Principles on an
ongoing basis for the reasons explained above, but the same effect can be
achieved if the obligation is cast as an obligation to procure compliance
with the requirements of the EMP prepared (both for construction and
operational phases) for the project. Undertakings relating to the EMP
should also include obligations to prepare and deliver (in a satisfactory
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