The evaluation and management of social and environmental risks also concern loans for large industrial and infrastructural projects. In this area, the Bank also operates in countries where human rights are often not guaranteed and local communities do not have suitable means to protect their rights, and where the use and consumption of natural resources call for careful, forward-looking assessment.
Monitoring these risks also means guaranteeing that the Bank’s operations and its reputation are protected.
To monitor this risk, Intesa Sanpaolo has adopted the Equator Principles (EP or Principles), a set of voluntary international guidelines to support financial institutions adopting them in managing the risks resulting from the financing of such projects. 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. This unquestionably offers a competitive advantage, including in the long term.
The Principles, based on criteria of the World Bank’s International Finance Corporation - the Performance Standards, refer to the protection of natural resources, health, human and labour rights, cultural heritage and biodiversity as well as the fight against climate change and specifically refer also to respect for local communities and indigenous rights. They envisage the assignment of a risk category (A, B, or C, where C indicates a low risk level) to projects to be financed, based on variables such as the socio-environmental characteristics of the country, the industrial sector and the characteristics of the project in question.
Members of the EP Association, also with the drive of the civil society and non-governmental organizations that closely monitor the actions of financial institutions in terms of environmental protection and human rights, have decided to expand the scope of application of the Principles beyond the original scope of Project Finance. As a result, today the Principles also cover loans to businesses, if these are intended for the development of an infrastructure project with a total amount equal to or greater than 100 million USD.
The current version of the Principles (Equator Principles III), launched in 2013 and entered into force in 2014 for all the Members of the Association, is based on the Performance Standard version published in 2012.
The integration of the Equator Principles in the credit granting process
The "Operating Guidelines for implementation of the Equator Principles" currently in force at Intesa Sanpaolo were issued in 2014, integrating and replacing the one published in 2010, in order to meet the new requirements of the third version of the EPs, which asks the members of the Association for a greater effort than in the past.
Compared to the previous version, the Operating Guidelines are more integrated into the Group’s credit policies. In fact, given the expansion of the scope of application of the Principles, reference to the new Guidelines is now present in all other lending procedures in order to detect, right from the application phase, all loans included in the scope of application of the Equator Principles.
This integration ensures that the assessment process adopted by the Credit Department evaluates the loan based on financial as well as social and environmental considerations. In addition, a business committee - the Engagement Committee - assesses consistency between certain “Significant” transactions and the business strategy defined for Corporate and Investment Banking Division customers. The committee, which does not replace the normal lending process, preliminarily ensures that - in addition to legal aspects, compliance and risk management - for the transaction in question, aspects relating to the assessment of reputational risk and the Equator Principles are also covered.
Social and environmental risk assessment
The "Operating Guidelines for implementation of the Equator Principles" is an instrument which, through a process that integrates the Principles' requirements, provides support to the Bank in identifying environmental and social risks associated with the customer’s ability to manage them and with the sector related to the project, in addition to the characteristics of the project itself.
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 results of this independent due diligence provide 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.
Information emerging from the due diligence is integrated into the contractual obligations 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 be verified also via on-site inspections. In the event of non-compliance with the agreed conditions, the Bank reserves the right to exercise the appropriate measures for assessment on a case-by-case basis.
Part of the assessment process also envisages involvement of the local communities, in order to understand the possible social impacts 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 a structured and culturally suitable stakeholder engagement and grievance mechanisms.
In 2015, the amount agreed for projects following the Equator Principles assessment process, as outlined in the Operating Guidelines, was of 1.7 billion euro, equal to approximately 14.9% of the total amount agreed for loans in the reference scope.
In order to ensure accessibility of the Guidelines and all support documentation to all the Bank’s departments, in Italy and abroad, the full set of documents is available in Italian and English.
The training programme
The entry into force of the new obligations of the Equator Principles III made it necessary to schedule a new training plan, this time much more extensive and structured than that completed in 2012. The mixed composition of classrooms, in terms of business function and geographical origin, was decisive in that the discussion fuelled by the topics involved facilitated the understanding of social and environmental risk management in its broader sense. As regards the contents of the training sessions, these focused on the application of the new Operating Guidelines in force at the Parent Company to finance real projects.
While in 2014 the first two days of the training package were held, in 2015 the project was completed with the other three scheduled sessions. The 2015 training plan consisted in 630 hours of teaching and involved a group of 42 employees.
At the same time, the Corporate Social Responsibility Unit created, with the help of the Training Department, a webinar held in Italian and English on the same content of the classroom course, but with a less technical language, intended for the employees that are not involved in the first place in applying the Principles. The webinar lasts approximately one hour and is aimed to disseminate the knowledge of the new Operating Guidelines for the implementation of the Equator Principles and its annexes. The webinar was launched at the end of 2015 and involved approximately 1,500 persons both in Italy and abroad.
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 2015 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 2015
There have been 301 loan applications since 2007, which also underwent the Equator Principles screening. The reference area regards all Intesa Sanpaolo departments involved in project finance covered by the scope of application of the Principles, in Italy and abroad, and two International Subsidiary Banks: VÚB Banka and Alexbank.
The table below shows the number of projects that were financially closed in 2015, with breakdown by category:
|TOTAL||CATEGORY A||CATEGORY B||CATEGORY C|
|BUSINESS LOANS ASSOCIATED WITH PROJECTS||2||2|