Environmental and Social Responsibility for Large-scale Development Projects
Background
Large-scale development projects may have significant impacts on society and the environment; therefore, international civil society requires financial institutions to assess the environmental and social impacts of projects when providing financial support. Financial institutions often encounter environmental and social issues that are both complex and challenging, with respect to projects in both emerging countries and developed countries.
SMBC, as a member of SMBC Group, assigns a high management priority to environmental issues. Our Group Environmental Policy sets out SMBC Group's basic action guidelines. As the policy's basic concept recognizes the importance of realizing a sustainable society, SMBC Group is making continuous efforts to harmonize environmental preservation and corporate activities, in order to support the economy and contribute to the general well-being of society as a whole.
In line with this policy, SMBC supports the ideals behind the Equator Principles, and considers the principles as part of its environmental and social risk management framework, in order to not only ensure that the projects we finance are developed in a manner that is socially and environmentally responsible but to also fulfill SMBC's corporate social responsibility (CSR) and provide high quality financial services across the globe.
We are confident that furthering our sustainability objectives in this manner will provide significant benefits to ourselves and various stakeholders such as our borrowers and local communities.
SMBC's approach (SMBC)
Establishment of Internal Procedures
SMBC has established its own internal environmental and social risk framework and the Procedures for Environmental and Social Risk Assessment (the “Procedures”). The Procedures set the internal policy and procedures for environmental and social risk assessment in consideration of the Equator Principles, and they have been implemented since June 2006 , and amended from time to time.
Environmental and Social Risk Assessment and Management System of Projects
SMBC is responsible for SMBC's overall operations in relation to environmental and social risk assessment for transactions all over the world and the assessment is taken into account in the credit approval process. SMBC encourages clients to adopt appropriate environmental and social considerations and continuously monitors their implementation.
- ●Environmental and Social Risk Assessment
Based on the level of the potential environmental and social risks and impacts of the project, SMBC categorizes the project as one of the followings
| Category | Definition | |
|---|---|---|
| Category A | Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented | |
| Category B | Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures | |
| Category C | Projects with minimal or no adverse environmental and social risks and/or impacts | |
- 1. Environmental Screening
The lending branch will identify the scale of risk of projects based on evaluation criteria and initially categorize projects into one of the defined categories. - 2. Environmental Review
Sustainability Planning Department (SPD) will finalize the classification of the project, assess the environmental and social considerations of projects and confirm the project compliance with international guidelines. If needed, the lending office and SPD conduct site visits.
The results of the environmental and social risk assessments are shared with the Credit Department and this information becomes an important factor in the credit approval process.
- ●Environmental Monitoring
Based on the result of environmental screening and environmental review, covenants to be observed by the client with respect to the environmental and social considerations are included in the financing documents. The lending branch and SPD monitor the client’s compliance with these covenants to ensure ongoing consideration of environmental and social issues.
Training and Dissemination of Information
Internal training such as group training in our overseas offices, online training and seminars by external consultants have been conducted to help related officers understand the established environmental and social procedures. Officers and employees including senior management, employees from front, credit, and audit have attended the training. In addition, to improve our capability on an ongoing basis, CSD issues reports sharing the latest trends on the global environment and noteworthy environmental and social risks.
What we have done till now (SMBC)
| Activities | What we have done till now |
|---|---|
| Establishment of internal environmental and social risk assessment process |
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Implementation of environmental and social risk assessment |
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| Internal training and ongoing improvement |
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Future Perspective and Focus (SMBC)
- ●To keep updating our environmental and social risk assessment operation by incorporating international best practices
- ●To enhance awareness of environmental and social risk assessment with continued training for all related officers and employees
- ●To enhance awareness of environmental and social considerations among project stakeholders including financial institutions and borrowers by working together with other financial institutions.
SMBC will endeavor to realize a sustainable society through its environmental and social considerations of the projects it takes part in.
Glossary of Terms
- ●The Equator Principles
The Equator Principles are a set of guidelines developed by private financial institutions for managing environmental and social risks related to financing large-scale development projects. The Equator Principles are based on the environmental and social policies and guidelines of International Finance Corporation (IFC), the private sector arm of the World Bank. These policies and guidelines cover a variety of issues such as the environmental and social impact assessment process, pollution prevention, consideration of local communities and natural resources. - ●Project Finance
Project Finance is a method of funding in which the lender looks primarily to the cashflows generated by a project as the source of repayment, and it is different from corporate finance in which the lender looks mainly to the creditability or collateral of the borrower. - ●Project Finance Advisory Services
Project Finance Advisory Services is the provision of advice on the potential financing of a development where one of the options may be Project Finance. - ●Environmental and Social Policies and Guidelines of International Finance Corporation (IFC)
- 1.IFC Performance Standard (PS)
IFC PS define IFC clients' responsibilities for managing their environmental and social risks. IFC PS consists of the following 8 standards:
PS1 – Assessment and Management of Environmental and Social Risks and Impacts
PS2 – Labor and Working Conditions
PS3 – Resource Efficiency and Pollution Prevention
PS4 – Community Health, Safety and Security
PS5 – Land Acquisition and Involuntary Resettlement
PS6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
PS7 – Indigenous Peoples
PS8 – Cultural Heritage
Please refer to IFC's website for more details:
IFC's website
- 2.The World Bank Group Environmental, Health and Safety (EHS) Guidelines
The World Bank Group EHS Guidelines are technical reference documents containing examples of Good International Industry Practice (GIIP) as described in the IFC Performance Standards. They contain the performance levels and measures that are normally considered acceptable for Projects in Non ¬Designated Countries, as well as being achievable in new facilities at reasonable costs by existing technology. Two sets of guidelines are used: The General Environmental, Health and Safety Guidelines and The Industry Sector Guidelines.
Please refer to the IFC’s website for the details of the EHS Guidelines:
IFC's website
- 1.IFC Performance Standard (PS)