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Governance

As a bank, the biggest impact we have on society and our environment is through supporting the business activities of our clients. Our decisions regarding who and what we finance enable us to make our strongest contribution to sustainable development.

In 1997 we introduced an environmental and social risk policy that took into account the environmental and social impacts of lending decisions in our Wholesale Banking business. We have been a signatory to the Equator Principles since 2003 and apply them to all project finance and project advisory transactions irrespective of value.

To ensure that we have a consistent and cohesive approach to managing environmental and social risks across our business and financing activities, we implemented a series of 13 position statements this year that provide guidance to all staff, including relationship managers, credit officers and portfolio managers.

Effective risk management is fundamental to generating profits consistently and sustainably. Clients may have operational risks associated with how their business could potentially impact the environment and/or society. This presents a credit risk to us should the counterpart in a financial transaction fail to fulfil an obligation, leading to financial loss, and also a risk to our reputation because we would have failed to meet the standards we demand of ourselves and that are expected by our stakeholders.

To ensure effective risk management and to embed our commitment to sustainable finance, we have adopted an approach of constructive engagement to manage social, environmental and governance risks associated with the projects and clients we finance. We work with our clients to encourage progress towards international standards. We manage environmental and social risks by:

  • informing our clients of the minimum standards we expect them to meet before we will establish a new relationship or provide financial services
  • talking to our clients and understanding the impact that their operations may have on the environment and society
  • measuring the potential risks on the environment and society in a consistent and objective manner
  • ensuring that the higher the level of potential risk, the more senior the decision makers. This is done through an escalation process identical to other risk management processes within the Bank. Our Wholesale Banking Responsibility and Reputational Risk Committee (WBRRRC) is the most senior risk management escalation point. The Committee, which includes representation from senior management of Wholesale Banking and Group Sustainability, makes decisions on whether to proceed with a relationship and/or deal that is identified as having high environmental, social, reputational and/or political risks
  • supporting our clients by helping them identify and mitigate environmental and social risks adequately

It is a Group policy that, at all times, the protection of our reputation takes priority over all other activities, including revenue generation.

All employees are responsible for the day to day identification and management of reputational risk. In addition to this, they can, and are expected to, take guidance and advice from our specialised sustainability division on environmental and social risk management.

Our approach to environmental and social risk management incorporates the Equator Principles, our environmental and social risk policy and our 13 position statements. All project finance transactions must comply with the Equator Principles, irrespective of the $10 million threshold.

Our approach to sustainable finance starts from the moment we establish contact with a client and continues throughout the duration of our relationship.

The following flow chart illustrates our lending process and how it incorporates an assessment of enviornmental and social risks. There are four stages:

Green your flights

  • Preliminary screening: Assessing the deal against the applicable position statement, including completing the Environmental and Social Risk Assessment Tool (ESRAT). Project Finance deals are assessed against the requirements of the Equator Principles
  • Due diligence: Once the potential reputational, social and/or environmental risks are identified, the deal is escalated to our Credit division and in some instances, the deal will be escaled to our WBRRRC. For Project Finance, an external consultant performs due diligence to identify the impact of the project and an action plan for mitigating associated risks
  • Approval: All transactions require approval from our credit department and, depending on the level of risk, the WBRRRC. Approval from the Committee must be sought for all high risk (category A) projects
  • Monitoring: Social, environmental and governance conditions are included in the loan documentation if necessary and clients are required to comply with a time-bound action plan to meet these commitments. For Project Finance, our portfolio monitoring team supervises the client's compliance with agreed action plans. Any material deviation against the action plan is referred back to the WBRRRC.

Report tools

Annual Report and Accounts 2009