The Standard Bank Group (SBG) believes in creating shared value for stakeholders by carefully managing the potential environmental and social risks to our business or our stakeholders. This is an important strategic imperative that enhances our viability, now and in the future.
We have developed policies and procedures to manage and mitigate environmental and social risks both for SBG and for our clients. Through our membership of the Banking Association of South Africa (BASA), we have adopted a Code of Conduct for Managing Environmental and Social Risk which codifies the role of financial institutions in protecting, promoting and fulfilling social, economic and environmental rights in South Africa. The code covers our operations, procurement, lending practices, products and services and sets a benchmark for effective management of these risks.
We are signatories of the Equator Principles, a set of standards for managing social and environmental risk in our Corporate Investment Bank (CIB). This ensures that the clients to whom we lend or provide advisory services evaluate and actively avoid, manage or mitigate the social and environmental impacts associated with their projects. SBG was appointed the new chair of the Equator Principles Association in June 2015, thus becoming the first African bank to be elected to this position.
We are committed to upholding the principles of the Constitution of the Republic of South Africa, the associated Bill of Rights and labour legislation in our South African operations. Outside South Africa, we operate to similarly high standards. Our values, code of ethics and human rights policy apply across all bank operations and guide us in doing the right business, the right way.
Below are the monitoring mechanisms that underpin the group’s approach to sustainability governance. Liberty also has its own environmental and social risk management frameworks.
We also subscribe to a number of memberships and strategic partnerships to ensure we remain abreast of sustainability issues and progress across the global community, including:
Infrastructure development holds inherent environmental and social risks. As our objective is to play a leading role in this area on the African continent, we carefully evaluate the potential risks of transactions to the environment and society, and the impact of these risks on their area of influence.
In CIB, the Environmental and Social Advisory team is responsible for the technical review, advice and consultation on these types of transactions. All CIB transactions are vetted by the Pre-credit Committee, which is responsible for ensuring that environmental and social risks are correctly identified in the application phase. The diagram below shows the key steps in the transaction process and where the environmental and social tools apply.
As part of our pre-credit application process, we apply our environmental and social risk appraisal tool to all debt transactions in CIB, including project finance, corporate term loans, bridge facilities, acquisitions, property finance, structured trade, commodity finance and structured commodity solutions. The tool mitigates lender liability by providing a risk management approach to limit potential environmental, financial, credit, reputational, regulatory and operational risks. It identifies the risks associated with clients’ ability to manage environmental and social issues, as well as those of the transaction itself, such as the nature and value of the loan, the industry sector involved and the actual environmental impacts.
We use our local knowledge and experience and, more broadly, the World Bank classifications to determine sectors and regions with potentially high social and environmental impacts. As the mining and metals, oil and gas, and power and infrastructure sectors have the greatest potential for large-scale higher-risk impacts, these projects are considered on a case-by-case basis.
The upfront screening outcome determines whether to proceed with transactions, or whether further assessment is required. Due diligence highlights any aspects requiring more work, such as further baseline studies, and provides us with implementation recommendations to ensure transactions comply with applicable international and national standards. The level of due diligence depends on the financial product type, level of environmental and social risk and the industry sector.
A detailed due diligence process, using internal or independent external consultants, is undertaken for all category A (high risk), and where appropriate, category B (medium risk) transactions. During 2015, no deals were declined at the final credit assessment stage, as transactions that did not meet our requirements were either screened out during the pre-credit stage or the client implemented the actions required for funding to be granted.
Consistency in applying our environmental and social appraisal procedures across all our operations is a challenge. Accordingly, we train transaction and project originators, as well as Pre-credit Committee members across Africa, on how to effectively identify environmental and social risks and use the appraisal tool.
The transaction tracking dashboard assists us to identify transactions in the investment banking portfolio that pose high environmental and social risks, ensuring they are escalated for more detailed scrutiny.
The Equator Principles represent the integration of environmental and social considerations into business, thereby promoting responsible investing, and providing a framework for upholding consistent international standards. Against this backdrop, the main motivation for action on global environmental, social and climate change comes from the 83 Equator Principles Financial Institutions in 36 countries who have officially adopted the Principles. These financial institutions cover the majority of international project finance debt within developed and emerging markets.
The Equator Principles process is applied to all new project finance loans of USD10 million or more, across all industry sectors. In terms of project‑related corporate and bridge loans, the Equator Principles process is applied where the total aggregate loan amount is at least USD100 million, our individual commitment is at least USD50 million and the loan tenure is at least two years.
We look forward to working with all Equator Principles Financial Institutions to ensure we remain focused on lending responsibly, enhancing business opportunities and supporting the way in which we conduct our business with our customers across emerging and established markets.
Nigel Beck: Environmental and social executive head
|*||Transactions that did not meet the Equator Principles III project-related corporate loan financial thresholds, however, treated as project-related corporate loans in terms of best practice.|
A transaction-specific environmental and social risk management process is used to assess transactions with no track record and where the loan is not required to physically develop or expand a project. Where the loan is required for a high-risk transaction or is in a high-risk sector, a detailed due diligence may be undertaken depending on the level and scale of environmental and social risk identified. This is advised by the Environmental Business unit on a case-by-case basis.
All category A and, where relevant, category B projects financed, are monitored to ensure adherence to the social and environmental commitments set as part of the loan agreement. If required, independent external professionals monitor the implementation and progress of remedial actions on a semi-annual or annual basis for the tenure of the loan. In addition, our Environmental and Social Advisory team undertakes site visits to ensure appropriate management of environmental and social issues. The frequency and duration of monitoring and site visits depends on the type of project being financed and the level of perceived risk.
In cases where borrowers do not comply with environmental and social requirements, we work with them over a period of time to achieve the necessary standards. Should there be no progress towards meeting requirements, we would consider a number of avenues including re-evaluation of the loan. During 2015, no deals were terminated due to non-compliance.
Biodiversity considerations are included as part of our environmental and social appraisal process and are also addressed in the detailed due diligence. The appraisal considerations are in line with the International Finance Corporation’s (IFC’s) Performance Standards, including aspects such as ecosystems, critical habitats, legally protected areas and invasive alien species. Where applicable with projects we finance, rehabilitation is monitored and assessed in accordance with the rehabilitation and restoration requirements set out in the legally binding action plan. Remediation of the land may be addressed concurrently with project development. Where rehabilitation and restoration are part of the corrective action, external specialists are brought in to verify the adequacy of the restoration.
The revised version of the Equator Principles applied to all new project finance transactions requires assessment of indirect emissions stemming from lending activities. Where combined Scope 1 and Scope 2 emissions are expected to be more than 100 000 tons of carbon dioxide (CO2) equivalent annually for a specific project financed, an analysis to evaluate less greenhouse gas (GHG)-intensive alternatives must be undertaken. The alternatives analysis requires the evaluation of technically and financially feasible and cost‑effective options to reduce project‑related GHG emissions during the design, construction and operation of the project.
Community health, safety, and security are also assessed as part of the due diligence process. Community engagement and impact assessments take place on all projects involving large-scale physical development or expansion, especially greenfields projects. Most power, infrastructure and mining projects have actual and potential negative effects, particularly in terms of increased pollution levels. In such projects, the environmental consultant or client publicly discloses the results of the impact assessment during the public consultation processes. Where a community has a grievance, it is able to engage with the appointed community representative, chief leader or community liaison officer through an agreed grievance mechanism. The client is obliged to report material grievances to the bank. The number and type of grievances raised are also assessed and reported on by the independent consultants if the project is subject to ongoing monitoring.
Human rights issues, including discrimination, child labour, forced or compulsory labour and the rights of indigenous people are included in the environmental and social appraisal tool. Compliance with the IFC’s Performance Standards is included in project financing contracts, which cover labour and working conditions with reference to human rights. Where human rights have been identified as a high-risk issue, this is specifically included in the loan contract. No incidents of discrimination or violations of human or indigenous rights were reported during 2015.
We engage with all our project finance clients on environmental and social issues associated with their projects, as well as with clients requiring project-related corporate loans or loans for transactions that are considered high risk.
CIB’s approach to environmental and social risks has proved valuable in Personal & Business Banking’s (PBB’s) business analysis. Home loans and property investments are screened for environmental risks during site inspection to mitigate lender liability. This screening process identifies any risks, such as pollution or other negative impacts, on the environment. Enhanced due diligence and transaction screening is undertaken for lending in sectors with a higher environmental and social risk, such as petrol stations, mining and waste management.