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
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 July 2022, 134 financial institutions in 38 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 Institutions 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:
|
| 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:
|
Background of the adoption
Shinsei Bank believes that the sustainable growth of our corporate value can be achieved only by solving customers' sustainability issues through business activities and ultimately by transforming our society into a sustainable society.
Therefore, in our Group Sustainability Management Policy, we consider it as management risks to invest and lend to customers and businesses that do not appropriately respond to negative impacts on environment such as climate and ecosystems, as well as on society such as human rights, health and safety, etc.
Also, Shinsei Bank specifies one of the priority management issues (material sustainability issues) as "Offer financial functions toward the resolution of environment and social challenges", 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.
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 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
Application of the Equator Principles
Projects that fell within the Equator Principles scope in FY2021 (1 April 2021 to 31 March 2022) are shown in the PDF below.
Staff Training
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. Since the adoption, we have annually conducted training sessions mainly for new people involved in project finance in business units and credit risk management divisions. These videos are archived so that they can access and review the content at any time.
Shinsei Bank will continue to increase staffs' awareness of environmental and social considerations through initiatives such as regular staff training described above.