The purpose of this paper is to examine the legitimacy of the Equator Principles as a form of private governance of the investment banking industry.
The project finance industry is first described, followed by a consideration of the theories of private governance and legitimacy. The governance of project finance by the Equator Principles is then examined against the backdrop of private governance and legitimacy theory. Cases regarding project finance and the Equator Principles are discussed.
The moral legitimacy of the governance of the Equator Principles is highly questionable, a serious issue for private governance schemes. There are large gaps in the governance structure, and the processes and content of much of the Principles are left to each bank, with little mandated transparency or accountability, particularly at the level of individual deals.
The Equator Principles have legitimacy problems arising from their governance structure. These issues are examined at some length, and specific suggestions are offered for repairing certain of the flaws in the system.
Private governance is increasingly important in international arenas, attempting to enforce standards that individual governments often leave to the private sector. This paper examines the legitimacy and governance issues in one system, and makes recommendations to increase the value and structure of the Equator Principles.
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