Shinsei Bank and the Equator Principles

In April 2020, Shinsei Bank adopted the Equator Principles. The Equator Principles are a common baseline and framework for financial institutions to identify, assess and manage environmental and social risks when financing projects with developments.

About the Equator Principles

equator principles

Large infrastructure and industrial projects can have adverse impacts on people, the local community, and the environment. As financiers, to avoid, mitigate and minimize those impacts, the Equator Principles were established in 2003. As of 31 December 2020, 114 financial institutions in 37 countries have adopted the Equator Principles, and they have been widely applied in both domestic and international projects. The Equator Principles are updated periodically. The latest iteration, EP4, was released in November 2019, which enhanced especially consideration of human rights and climate crisis.

The Equator Principles apply globally and to all industry sectors. They apply to project finance and other financial products described below when supporting new projects. The Equator Principles that consist of ten principles must be complied when Equator Principles Financial Institutions* finance those financial products. To review the confirmation that projects comply with the Equator Principles, the Equator Principles Financial Institutions shall establish an internal framework, specifically their internal environmental and social policies, procedures and standards for financing Projects.
The Equator Principles Financial Institutions will not provide finances to projects which do not comply with the relevant Equator Principles requirements.
*Financial instititions which adopted the Equator Principles.

Scope of the Equator Principles

Financial Product Scope
Project Finance Total Project capital costs of US$10 million or more.
Project Finance Advisory As above
Project-Related Corporate Loans

Corporate loan (*) where all of the following three criteria are met:

  1. The majority of the loan is related to a Project over which the client has Effective Operational Control (either direct or indirect).
  2. The total aggregate loan amount and the EPFI's individual commitment (before syndication or sell down) are each at least US$50 million.
  3. The loan tenor is at least two years.
  • (*) Project-Related Corporate Loans shall include Export Finance in the form of Buyer Credit, but exclude Export Finance in the form of Supplier Credit and Asset Finance, hedging, leasing, letters of credit, general corporate purposes loans, and general working capital expenditures loans used to maintain a company's operations.
Bridge Loans

A tenor of less than two years that are intended to be refinanced by Project Finance or a Project-Related Corporate Loan that is anticipated to meet the relevant criteria described above.

Project-Related Refinance
Project-Related Acquisition Finance

Finance where all of the following three criteria are met:

  1. The underlying Project was financed in accordance with the Equator Principles framework.
  2. There has been no material change in the scale or scope of the Project.
  3. Project Completion has not yet occurred at the time of the signing of the facility or loan agreement.

Background of the adoption

Shinsei Bank is aware that tackling environmental and social issues in a sincere manner will lead to the realization of our management principles, and we deem it to be a managerial risk to engage in business transactions with companies and projects that do not respond to environmental and societal issues in an appropriate manner.
Also, Shinsei Bank specifes one of the priority management issues (materiality) as "Address social and environmental issues", and we have actively provided financial solutions that facilitate the circulation of sustainable social capital. For example, Shinsei Bank has actively arranged project finances for renewable energy projects in Japan, such as solar, wind, and biomass power plants since 2012 and has been supporting the expansion of renewable energy.
In order to create positive social impacts through addressing our materiality, Shinsei Bank realizes our corporate social responsibility and our role as a fund provider to encourage clients to take environmental and social considerations into account. Shinsei Bank also considers it essential to strengthen our system for managing environmental and social risks when financing projects. Therefore, Shinsei Bank has adopted the Equator Principles.

Implementation system and processes

Implementation system

In adopting the Equator Principles, Shinsei Bank has established the internal rules, "Procedures for the Equator Principles", which is incorporated into the credit decision process. The Sustainable Impact Assessment Department in Sustainable Impact Development Division conducts environmental and social impact review including confirmation of compliance with the Equator Principles in accordance with the procedures. The implementation structure is indicated in the figure below.

work flow

Environmental and social impact review

Sustainable Impact Assessment Department conducts environmental and social impact review of projects to which the Equator Principles applied. The review includes confirmation of compliance with the Equator Principles, and are conducted in accordance with the internal rules "Procedures for the Equator Principles."

Categorisation

Business units in charge of financing large-scale development projects submit to Sustainable Impact Assessment Department the "Screening Form", etc. which is an initial checklist for assessing the magnitude of potential environmental and social risks and impacts. Sustainable Impact Assessment Department categorises the project in accordance with the Equator Principles 1: Review and Categorisation. The definition for each category is as follows. Categories are based on the magnitude of potential environmental and social risks and impacts including to human rights, climate change, and biodiversity.

Category Definition
A Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented.
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.
C Projects with minimal or no adverse environmental and social risks and/or impacts.

Environmental and social impacts review

Sustainable Impact Assessment Department conducts environmental and social impact review, including confirmation of compliance with the Equator Principles, by completing applicable internal formats such as the "Equator Principles Application Checklist "and the industrial sectoral checklist, the "Environmental Checklist". The requirement in the Equator Principles and the relevant review are commensurate with the nature, scale and stage of the project, and with the categorised level of environmental and social risks and impacts. Also, Business units agree with clients to incorporate covenants to comply with the Equator Principles into the loan agreements in accordance with the Equator Principle 8: Covenants.
Sustainable Impact Assessment Department provides the final environmental and social impact review, including the confirmation of compliance with the Equator Principles. The review is shared with the credit risk management divisions and taken into the consideration when they make credit decisions.

Example: Environmental and social considerations required for Category A projects

Principle Requirement
Principle 2 Conduct an appropriate environmental and social assessment
Principle 3 Comply with applicable environmental and social standards
Principle 4 Develop environmental and social management system and Equator Principles action plan
Principle 5 Demonstrate effective stakeholder engagement
Principle 6 Establish effective grievance mechanisms
Principle 7 Carry out an independent review of the assessment process and documentations by independent environmental and social consultant
Principle 8 Incorporate covenants linked to compliance with the Equator Principles
Principle 9 Monitor and report by independent environmental and social consultants over the life of the loan
Principle 10 Comply with reporting and transparency requirement

The IFC Performance Standards and the World Bank Group EHS Guidelines

The Equator Principles refer to the IFC Performance Standards and the World Bank Group Environmental, Health and Safety (EHS) Guidelines. These are utilized globally in the private sector as benchmarks for environmental and social risk management.

<The IFC Performance Standards>

The IFC Performance Standards are performance standards that consisted of the following eight environmental and social 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

<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 in environment, health and safety. It consists of the General EHS Guidelines that are potentially applicable to all industry sectors, and the Industry Sector Guidelines that contain information on industry-specific impacts and performance indicators.

Monitoring

Over the life of the loan, Shinsei Bank monitors that the applicable projects comply with the Equator Principles through regular reports on the Equator Principles and other information submitted by clients.

Data and Implementation Reporting

Internal preparation and staff training for the adoption

For the adoption of the Equator Principles in April 2020, Shinsei Bank has conducted online training for staffs in business units and credit risk management divisions. This presented an overview of the Equator Principles and the implementation systems and processes, after each staff realized the importance of environmental and social considerations by being explained through actual cases that the potential adverse risks and impacts that projects have. In addition, more practical training is also provided and recorded, which can be viewed whenever needed.
Shinsei Bank will continue to increase staffs' awareness of environmental and social considerations through holding regular staff training.