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Implementing our position statements

Environmental and Social Risk Assessment Tool

We have developed sector specific risk assessment tools, comprising a series of questions related to a client's operations and their ability to manage environmental and social risks. These tools, known as environmental and social risk assessment tools (ESRAT), are designed to provide our relationship managers and credit offices across Wholesale Banking and Small and Medium enterprises (SME) Banking with an adaptable yet simple tool to assess their client's environmental, social and reputational risk performance. ESRAT helps to measure a client's performance against their industry peers, whilst also enabling us to build a long-term view of their ability and capacity to manage environmental, social and governance risks and their associated challenges.

Built around eight key areas, ESRAT considers the client's track record in complying with relevant laws and regulations; their environmental and social management systems; their membership of renowned industry bodies; their media and NGO profile in managing environmental and social risk; and their greenhouse gas emissions reduction plan and strategy.

This is an overview of the sector specific and general ESRAT.

General risks

  • Environmental and social (E&S) legal claims or actions
  • Negative media and/or NGO reports on environmental, social or governance risks
  • Transparency on E&S policies and performance, includes reporting

Environmental risks2

  • Company has an ESMS3
  • Company’s capacity to implement ESMS
  • ESMS required for third parties
  • E&S assessment, including mitigation measures (if appropriate)
  • Environmental performance inline with the relevant International Finance Corporation (IFC) standards4
  • GHG measurement, disclosure and target in place
  • Climate change risk and opportunity strategy in place

Social risks5

  • Evidence(s) or accusations of poor labour practices
  • Track record of health and safety, including injury and accident rates
  • Evidence of consultation of local affected communities and grievance mechanism
  • Impact on indigenous communities

Sector specific aspects

These are only examples of sector specific questions covered in the Bank’s ESRAT and are not an exhaustive list of all of the questions.

Areas assessed   Favourable Unfavourable
Oil and
Gas
  Participation in the Extractive Industries Transparency Initiative Use of single hull tankers for transportation and bunkering activities
Fossil
Fuel
Power
Generation
  Use of clean coal technology  
Mining and
Metals
  Diamonds mined or traded under the Kimberley Certification Scheme

Participation in the Extractive Industries Transparency Initiative
Tailings disposal impacts not mitigated
Forestry
and
Palm Oil
  Assessment of HCVF6 on all operations;

Adoption of voluntary principles – FSC and/or RSPO7
Land acquisition is not legal or limited consultation with affected communities (incl. small holders and contract growers)
Transporting
Hazardous
Materials
  Compliance with the Basel Convention on Control of Transboundary Movements of Hazardous Materials & their Disposal Use of single hull tankers for heavy grade oil
Tobacco   Adoption of the International Tobacco Growers Association Principles Illicit trade in tobacco products, incl. smuggling and sale of tobacco to minors
Ship Breaking   Green Passport or equivalent certification

Compliance with the Basel Convention on Control of Transboundary Movements of Hazardous Materials & their Disposal
Undocumented use of asbestos
Bio-fuels   Sustainable Plantation Management practices such as IVM8 or IPM9 Land acquisition is not legal or limited consultation with affected communities (including small holders and contract growers)
Nuclear Power
generation1
  Operations follow the IAEA10 safety standards Track record of incidents and accidents
Dams   Compliance with the World Commission on Dams Framework for decision making  
1
The ESRAT for Nuclear Power Generation is being developed. The client is still expected to comply with the position statement on Nuclear Power Generation and the generic use ESRAT of which this table is reflective.
2
Environmental assessment includes an analysis of the company’s (or the deal’s) compliance with the Bank’s position statement on climate change. There is no separate ESRAT for this position statement.
3
Environmental and Social Management System.
4
IFC standards refer to the Performance Standards, the General Health and Safety Guidelines and the Sector Industry guidelines. For those industries that have not corresponding Sector Industry Guidelines, the other IFC standards are still applicable.
5
Social assessment includes an analysis of the company’s (or the deal’s) compliance with the Bank’s position statement on child labour. There is no separate ESRAT for this position statement.
6
High Conservation Value Forests are forests containing or providing global, regional or local significance due to their biodiversity.
7
FSC is the Forest Stewardship Council (an international network promoting responsible forestry management) and RSPO is the Roundtable on Sustainable Palm Oil (international organisation promoting sustainable palm oil).
8
Integrated Vegetation Management.
9
Integrated Pest Management.
10
International Atomic Energy Association.

Integration into our processes and systems ensures compliance

Embedding our position statements into our business practices necessitated changes to be made to our internal policies.

New processes have been tailored to different Wholesale Banking product lines. For example, if we were to provide a 20 year project finance to a client, these processes mean that we can now monitor their progress towards achieving and continuing to comply with our environmental and social standards throughout the tenure of the facility. Alternatively, with a short-term facility (such as bridging finance) our process will require the client to take the necessary steps to prepare for compliance with our environmental and social standards.

Environmental and social screening of our clients is an integral part of our processes and has been embedded into our automated systems. Our customer relationship tool provides us with a profile and relationship history database of all our clients, including a record of their environmental and social performance, which allows us to follow their progress over the course of our relationship with them. Our credit application systems also keep an electronic record of reviews and approvals, ensuring that the client's credit worthiness is reviewed on a continual basis and senior managers are aware of, and agree to, the risks associated with the client and/or project.

Working with our clients rather than walking away is our business philosophy

As an organisation committed to sustainable finance, we have adopted an approach of constructive engagement with our clients to positively influence their environmental and social management practices.

Working closely with our clients, it has become apparent that some do not meet the voluntary standards immediately. This could be due to a limited understanding of how to manage social and environmental risk and a lack of resources to implement sound management practices. We have also identified clients with varying levels of performance. The level depends on the degree to which they have adopted environmental and social governance practices, whether these form part of their day to day management procedures or whether they are integrated into long-term business plans.

We need to have constructive dialogue with our clients and demonstrate how environmental and social governance play an integral role in generating sustainable economic and financial performance.

In order to ensure delivery against our commitments to providing sustainable finance, we provide training at three different levels:

Sustainable Lending eLearning: All credit officers, relationship managers, portfolio managers, country chief executives and senior managers in Wholesale Banking are required to undergo training on sustainable lending. This eLearning module focuses on raising awareness on environmental and social risks, and demonstrates how these can affect both our clients and our performance. A range of industry sectors and practical topics, from soil and water contamination to the phenomenon of rising sea level and climate change, are covered.

Core credit curriculum: All of our relationship managers and credit officers in Wholesale Banking are required to complete credit training. Environmental and social risk management is a component of this course, and enables them to identify related risks associated with our clients, how to incorporate these into their overall credit assessments and, subsequently, how to manage them. This course will become mandatory for our Corporate Finance staff in 2010.

Classroom based E&S training: training is being developed to tailor to specific product groups such as project finance, M&A advisory and equity capital markets business, such as underwriting.

Number of employees trained in Sustainable Finance1

  2005 2006 2007 2008 2009
Total number of employees 2995 1500 2122 2011 3302
Completion rate for OCC         92%
Completion rate for Risk         96%
Completion rate for country managers         52%
Completion rate for WB Management Group         100%
1
Please note that we are now in a position to provide further details in our reporting figures because of refinement of our reporting system
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Report tools

Annual Report and Accounts 2009