Environmental and Social Risk Management in Lending Activities
The leverage effect of the banking sector is intensively felt in the field of credits. Therefore, credits constitute the area with the most extensive sustainability impact. Yapı Kredi is committed to develop products and services that are both environmentally friendly while creating sustainable value for the community in which it operates. Projects to be financed by Yapı Kredi are obliged to comply with legal requirements as well as environmental and social standards beyond the requirements determined by the Bank’s policies. For this purpose, the Environmental and Social Risk Assessment System, which was configured in 2016, has been put into practice in 2017.
Within the scope of the Bank’s current business processes, all credit requests, regardless of limit, are subject to the Environmental and Social Policy that forms a part of the Sustainability Management System, in addition to being checked for compliance with the Bank’s Credit Policies. All credit requests are assessed against the Exclusion List included in the Environmental and Social Policy. Under no circumstances shall Yapı Kredi grant loans for activities included in the Exclusion List.
In addition to these policies, within the framework of the “Assessment of Environmental and Social Risks in Lending Activities” procedure developed as part of the Sustainability Management System, all new investment and project financing loans with a maturity of at least 3 years and a loan amount above USD 20 million are subjected to environmental and social assessment. This assessment is part of regular credit assessment, and is one of the steps leading towards the credit committee. The Assessment of Environmental and Social Risks in Lending Activities procedure involves determining the risk category of the project in question, and developing action and monitoring plans accordingly. The assessment follows the Yapı Kredi Environmental and Social Risk Assessment Model. The model has been established based on local legislation as well as the Environmental and Social Performance Standards of the International Finance Corporation (IFC). Corporate and Commercial Credits Management is the main responsible party in risk assessment and categorization efforts.
The Environmental and Social Risk Assessment Model categorizes risks under three groups: high, moderate, and low risk.
Category A: Business activities that have an environmental or social risk and/or impact that is diverse, irreversible or unforeseen, and of significant severity. In the context of the Yapı Kredi Environmental and Social Risk Assessment Model, these constitute projects that pose high environmental risk.
Category B: Business activities that have an environmental or social risk and/or impact that is limited, generally localized to the project area, largely reversible and already subject to mitigation measures. In the context of the Yapı Kredi Environmental and Social Risk Assessment Model, these constitute projects that pose moderate environmental risk.
Category C: Business activities that have minimal or no environmental or social risk and/or impact. In the context of the Yapı Kredi Environmental and Social Risk Assessment Model, these constitute projects that pose low environmental risk.
The actions to be taken and follow-up activities regarding high- and moderate-risk projects are as follows:
- The investor must complete project documentation as part of the Environmental Impact Assessment (EIA) Regulation (EIA Report, Project Presentation File, opinion letters, rulings, etc.) and must have obtained all temporary environmental and social permits.
- Throughout the investment, the investor is required to ensure successful implementation of environmental and social measures as defined and approved in the EIA Report and the Project Presentation File, and prove consistent implementation of such measures through supporting documents.
- An external and independent Environmental and Social Consultant/Expert shall prepare an Environmental and Social Status Assessment/Action Plan and Monitoring Plan that comply with the International Finance Corporation (IFC) Environmental and Social Sustainability Performance Standards to ensure that all environmental and social aspects of the investment are monitored and reported regularly.
- The investment shall be monitored via field visits to be carried out at least once a year by an external and independent Environmental and Social Consultant/Expert. After completion, the investment is monitored in the operating phase via 1 field visit. The loan contract shall include a provision that obligates the investor to comply with the Action and Monitoring plans.
For projects in the low-risk category, the investor’s environmental and social permits are checked and temporary permits are followed up. Environmental and social findings (if any) concerning the customer and the facility subject to the loan, are followed up in credit review meetings at least once a year.
Results from implementation of the Environmental and Social Risk Assessment Model are reported on an annual basis. Reporting results are disclosed one month following the end of the relevant year. Implementation results are presented to the Sustainability Committee at the annual Sustainability Management System Evaluation Meeting.
The scope of the annual implementation results report;
- The number of projects that are rejected directly without being put through the Environmental and Social Risk Assessment Model due to noncompliance with the Environmental and Social Policy or the Exclusion List,
- The number of projects evaluated by the system and the total limit of loans granted, and
- The risk category distribution of the projects evaluated within the scope of the system.
The Environmental and Social Policy and the Exclusion List provided in the annex of the Environmental and Social Policy may be found here.
1 For moderate-risk projects, the Environmental and Social Sustainability Risk Specialist from the Corporate and Commercial Credits Management determines whether the project necessitates an Action and Monitoring Plan. If the services of an external Environmental and Social Consultant/Expert are not required, environmental and social monitoring efforts during the investment and operation stages are carried out by the Environmental and Social Sustainability Risk Specialist. The monitoring process involves field visits, which are held at least once a year throughout the investment phase, and once after the investment is completed.