The evaluation and management of social and environmental risks is fundamental in the case of loans for large industrial and infrastructural projects.
The Equator Principles (EPs or Principles) are international guidelines for banks that adopt them on a voluntary basis in managing risks arising from project financing. Applying these Principles in a structured, integrated manner in a bank’s operations also allows emerging risks to be managed in countries that are vulnerable from a social and environmental viewpoint and in sensitive sectors.
The Principles, based on criteria of the World Bank’s International Finance Corporation (Performance Standards) concern: assessing social and environmental impact in projects to finance; protecting workers' rights; preventing pollution and promoting energy efficiency; risks to the health and safety of communities in countries where activities are carried out; consulting populations concerned and protecting their rights; safeguarding biodiversity and the sustainable management of natural resources; preserving cultural heritage.
The EPs envisage the assignment of a risk category to projects to finance (A indicates a high level of risk, B medium, C low), based on variables such as the socio-environmental characteristics of the country, the industrial sector and characteristics of the project in question.
The scope of the Principles includes the technical form of Project Finance and business loans, if earmarked for the development of a specific project; the EPs apply to the two forms of loans, if above the threshold of 10 and 100 million USD respectively.
The social and environmental risk assessment process according to the Equator Principles
Intesa Sanpaolo's “Operating Guidelines for implementing the Equator Principles” are included in the Group's credit policies, in order to identify, from the application stage, all loans covered by the scope of the EPs.
The Guidelines require higher-risk projects, and medium-risk projects if necessary, to be assessed by an independent advisor who identifies the main social and environmental impacts. The independent assessment (due diligence) provides suggestions and recommendations in the event that the work performed has to be integrated with in-depth studies or mitigation measures to ensure that the project meets the requirements of international standards.
Mitigation actions requested are included in contract requirements and monitored with a frequency based on the level of risk identified.
Customers are required to submit regular reports demonstrating implementation of the mitigation measures required by the Bank and which may also be verified by on-site inspections. In the event of non-compliance with the agreed conditions, the Bank may take appropriate measures, to be evaluated on a case-by-case basis.
Part of the assessment process also envisages the involvement of local communities, in order to understand possible social impact and identify further mitigation measures. In fact, the Equator Principles imply an ongoing relationship with stakeholders, from the design phase and throughout the entire project, via stakeholder engagement and a process to manage complaints (grievance mechanisms).
Participation in the international debate
Adoption of the Equator Principles also means participation in the association activities and the international debate conducted by the EP Association. Once again, in 2016 Intesa Sanpaolo participated in annual events dedicated to members and in conferences with other member banks, and also meetings with our stakeholders – mainly the IFC, NGOs and the industry business associations. Lastly, the Bank continued to make its contribution to discussions on the issue of biodiversity, as part of the specific Work Group created in 2013 (Cross Sector Biodiversity Initiative).
Projects completed in 2016
Since 2007, 315 loans have been screened based on the Equator Principles with financial closure, of which 14 in 2016.
In 2016, the amount agreed for projects following the Equator Principles assessment process, totalled 2.04 billion euro, equal to approximately 10% of the total amount agreed for loans in the scope of the Principles1. This scope includes all Intesa Sanpaolo entities involved in project finance to which the Principles are applicable, in Italy and abroad, and three international banks: VÚB Banka, Privredna Banka Zagreb and Alexbank.
The table below shows the number of projects that were financially closed in 2016, with breakdown by category.
|Total.||Category A||Category B||Category C|
|Business loans associated with projects||3||2||1||-|
1 The percentage only refers to project finance transactions, excluding project related corporate loans.