Our businesses screen general credit applications to determine if specific environmental credit policies should be applied. They are applied if the lending has the potential to involve environmental risks due to:
- the nature of the industry in which the borrower is involved
- the location or nature of the property owned by the borrower, for example, environmentally sensitive sites, and
- an adverse comment made by a valuer in regard to an environmental risk.
Where screening criteria triggers the need for environmental credit policies to be applied, bankers are required to undertake an environmental risk assessment as part of due diligence for a transaction.
Key elements of our environmental risk assessment include understanding the:
- customer's current operations
- environmental sensitivity1 and historical uses of a customer's site
- customer's environmental practices, management systems and compliance records
- risk of liability transfer in regard to environmental issues
- nature of any licences, permissions or consents held by a customer
- outcomes of any previous site investigations, environmental surveys or audits, and
- community concerns in relation to the customer's operations.
1. Sensitive industries or activities include those that: (1) have capacity to contaminate land, water, air or other natural resources; (2) require a licence or permit to use natural resources, without which they cannot operate; (3) require a licence for emissions and discharges, without which they cannot operate; (4) may incur penalties for environmental reasons; (5) may need to remediate contaminated land or install equipment to treat waste.
Project-related Finance and the Equator Principles
We signed the Equator Principles in 2007. This committed the Group to a voluntary set of standards for determining, assessing and managing environmental and social risk in project finance, project finance advisory and project-related corporate loans and bridge loans.
A revised version (EPs III) came into full effect on 1 January 2014. This included additional requirements in relation to human rights, ‘Free Prior Informed Consent’ and new reporting requirements for both clients and signatories.
The Equator Principles is a set of globally recognised, voluntary guidelines to assess and manage environmental and social risk related to projects.
Equator Principles Reports
You can also find our key EPs statistics on the EPs website.
Project-related finance assessment
When we assess opportunities for project-related finance within designated countries, we evaluate them for compliance with the relevant domestic regulatory requirements. Designated countries are those deemed to have robust environmental social and governance regulatory systems and institutional capacity designed to protect their people and the natural environment.
For projects in all other countries (non-designated countries), we apply International Finance Corporation (IFC) and World Bank safeguard policies.
We apply these policies, regardless of the monetary value of the project, if there are concerns that the project may present a risk to areas such as environmental habitats, indigenous peoples or community rights. Our internal standards require an environmental impact assessment for all projects we finance. In FY16, 96.6% of our project finance portfolio was in designated countries.
Assessing project-related finance risk
We apply our Equator Principles credit risk policy to all relevant transactions. Our assessment and management of risk in project-related financing is based on independent expert due diligence, active risk management and the continual review of policies that are specifically applicable to project-related finance.
Each year, we review the performance of our project finance portfolios' assets, assessing actual environmental and social performance of the financed asset against the contractually required baseline performance.
We also require our project finance clients to consider environmental and social compliance risks and, where applicable, encourage them to consider broader environmental and social risks, and to seek and follow relevant expert advice.