Eco‐Initiatives and Commitment to the Equator Principles

ABSTRACT The Equator Principles (EP) score is a performance code for financial institutions (FIs) based on their commitment to managing environmental issues in project financing. This study examines the impact of environmental initiatives on the adoption of the EP by 204 US financial firms (including banks, insurance companies, investment banks, asset managers, private equity firms, and other FIs) from 2005 to 2024. The study findings show that FIs engaging in various eco‐initiatives, such as biodiversity impact reduction, ecological restoration, supply chain management, and environmental partnerships, exhibit higher EP, suggesting that proactive environmental engagement facilitates a formal commitment to sustainability standards. Using environmental project financing and peer FIs' environmental and ecological initiatives as instrumental variables, the study provides robust evidence that specific initiatives, particularly those focused on reducing biodiversity impact and improving supply chain management practices, have a more substantial influence on environmental project adoption than others. The study further documents that the positive relationship between eco‐initiatives and EP adoption is more pronounced in larger FIs and with higher ESG performance. This study's findings highlight the strategic and risk‐management benefits of environmental initiatives, showing that they serve as an effective mechanism for FIs to align with internationally recognised social and ecological standards.