Applying the Equator Principles
As a leading provider of project finance in SA, we carefully align with international best practice, including the Equator Principles, and International Finance Corporation (IFC) Performance Standards and Principles for Sustainable Banking when considering all prospective project finance transactions, project-related corporate loans, project finance advisory services and specific bridge loans. Nedbank has integrated the fourth version of the Equator Principles (EP4) in its social and environmental assessment for transactions where the EPs are applied. All affected transactions continue to be evaluated on both physical and transitional risk. EP and the IFC Performance Standards are applied within the lifecycle of CIB’s lending transactions even if they fall outside the scope of EP, ie regardless of the quantum. This process is operational in the CIB team. The steps in the CIB SEMS review process are as follows:
- Screening and categorisation: considers the operations/projects in high impact industries (eg mining, manufacturing, construction, oil and gas, public infrastructure), the product type (eg term loan facility, revolving credit facility, general banking facility, letter of guarantee) as well as climate physical and transition risk.
- Risk evaluation: the following is considered when completing an Environmental and Social Risk Assessment:
- Understanding the deal structure, evaluating the transaction against EP4.
- IFC Performance Standards and the host country's laws and regulations.
- Obtaining an independent environmental and social report for project-related deals.
- Reputational risk scan.
- Climate Change Risk Assessment (transition risk and physical risk).
- Consideration: mitigation of identified risks, including clients’ responsibility to develop Environmental and Social Action Plans, where applicable, and the inclusion of specific environmental and social clauses or covenants in the facility agreements.
- Monitoring: Annual SEMS review of existing transactions which involves evaluating the independent environmental and social monitoring reports received for project-related deals. For corporate related deals, the review process involves evaluating the clients’ environmental and social risk disclosures as well as reputation scans on environmental and social risk.
- Reporting: EP deals are disclosed in the Nedbank Climate Report, on the Nedbank website, the Integrated Report and to the EP Association. SEMS evaluated deals are disclosed in the Nedbank Climate Risk Report and the Integrated Report.
In the 2023 financial year, 10 Equator Principles deals (compared to five deals in 2022) to the value of US$910m had their first drawdown. Of the 10 deals, 3 were category A, and 7 were category B.