Approaches for Environmental and Social Risks

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We believe it is important to consider the environmental and social risks when conducting credit assessment. Therefore, in the Credit Policy of SMBC, which contains our overall financing policy, guidelines and rules, we declare that we will cease to provide financial support to borrowers engaged in businesses contrary to public responsibility, or which may have a significant negative impact on the global environment.

For large-scale projects, which may potentially exert a major impact on the environment and society, we will continue to comply with Equator Principles, a set of guidelines developed by private-sector financial institutions for managing environmental and social risks related to financing large-scale projects, and conduct appropriate environmental and social risk assessments through our Environment Analysis Department. Set out below are our approaches for specific sectors, considering the impact to the environment and the society.

To fulfill our social responsibilities as a member of a global financial group, we will contribute to the development of a sustainable society by taking environmental and social risks into consideration.

Working with the Equator Principles

Cluster munitions and other slaughter weapons manufacturing

In light of the massive loss of life cause by cluster bombs, we prohibit financial support for manufacturers of cluster munitions. For other slaughter weapons, we confirm that the respective loans are not being utilized for the purpose of those manufacturing.

Palm oil plantation developments

As part of our efforts towards conservation of forest resources and biodiversity as well as prevention of human rights violations, we will not provide financial support to Palm Oil plantation companies that are involved in illegal logging and/or human rights violations such as child labor. We will check that internationally accepted external certifications such as RSPO (Roundtable on Sustainable Palm Oil), or other equivalent standards are obtained or expected to be obtained to support sustainable palm oil development. For clients who are not certified yet, we will recommend and support their effort in obtaining such certification.

Deforestation

We will not provide financial support to projects which are involved in illegal logging and/or land clearing activities that do not safeguard environmental protection or which are against local laws and regulations.

For large-scale development projects, we will continue to review and evaluate the environmental risks, including if they entail clearing of primary forests and/or the destruction of local ecosystems in accordance with the Equator Principles.

Coal-fired power plants

p>As part of our efforts to combat climate change, we have established a policy for financing coal-fired power plant projects. According to IEA’s report, in some Asian countries, new constructions of coal-fired power plants are still recognized, since in such regions, coal is still positioned as an important energy source to their economy for reliable electricity access. However, in advanced countries, the transition to no carbon society is progressing and the Japanese Government has announced the 80% reduction of GHG emission target by 2050.

To ensure a smooth transition to a low carbon society, our policy for new financing will be limiting financial support to only coal-fired power plants that use USC (*) or more advanced technologies which are considered highly efficient.

For projects which we have already committed support; from the perspective of energy shortage solution in emerging countries, or when the Japanese government or Multilateral Development Banks support are confirmed will be considered prudently as exceptions.

  • (*1)Ultra-supercritical (i.e., with a steam pressure > 240 bar and ≥ 593℃ steam temperature) or Emissions < 750 g CO2/kWh

Simultaneously, we will continue supporting our client’s improvement of existing facilities and introduction of advanced clean technologies such as generation plants equipped with CCS (Carbon Capture and Storage), etc., as part of our efforts toward the reduction of GHG emission. We will continue to pay attention to government policies and efforts toward climate change, and review our policy on a regular basis.

Soil contamination and asbestos

To mitigate the risk of soil contamination at real estate collateral, we require soil contamination risk assessment to be performed on real estate collateral that meets certain conditions. For collateral for which the risk is determined to be high, an amount equivalent to the level of risk is deducted from the valuation. The same approach is used for asbestos risk. For concerns about asbestos risk at collateral properties, an amount equivalent to the risk is deducted from the valuation based on conditions stipulated by SMBC, and we recommend our clients to conduct an investigation. We perform investigations related to asbestos risk for our own branch properties, and once asbestos is found, appropriate removal work is conducted.