Environmental and social impact assessment and risk management through the Equator Principles
The Bank, as a financier and/or a financial advisor, works in partnership with its clients to determine, assess and manage environmental and social risks and impacts related to the projects.
The Bank adopted the Equator Principles in 2005 to ensure that the projects it finances and advises on are developed in a socially responsible manner and establish good environmental management practices to minimize, mitigate, and/or offset environmental and social risks and impacts.
The Bank supports its clients' environmental and social risk management and contributes toward a sustainable world through implementation of the Equator Principles, a risk management framework for determining, assessing and managing environmental and social risks and impacts for large-scale projects.
There are 124 EPFIs globally as of September 30th, 2021.
The most recent (fourth ) version of Equator Principle was adopted officially in November 2019, and the Bank will start applying the fourth version of the Equator Principles to transactions which are mandated on or after July 1, 2020. The scope includes Project Finance, Project Finance Advisory Services, Project-related Corporate Loans, Bridge Loans, Project-Related Refinance and Project-Related Acquisition Finance.
EPFIs commit to implementing the Equator Principles in their internal environmental and social policies, procedures, and standards for financing projects. EPFIs will not provide loans to projects where the client will not, or is unable to, comply with the Equator Principles.
MUFG Bank confirms that environmental and social considerations have been taken into account by clients according to “Implementation Guidelines for the Equator Principles”.
Confirmation of Environmental and Social Considerations by Sustainable Business Division
At MUFG Bank, Sustainable Business Division is responsible for review and approval of project environmental and social considerations and other relevant activities.
Process for Confirmation of Environmental and Social Considerations
|Principle 1||Definition of the Categories|
|Category A||Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented|
|Category 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|
|Category C||Projects with minimal or no adverse environmental and social risks and/or impacts|
|e.g. Requirements for Category A projects|
|Principle 2（*1）||Conduct an Environmental and Social Assessment, as appropriate, which includes assessments of potential adverse Human Rights impacts and climate change risks|
|Principle 3（*2）||Confirmation of the compliance status of applicable environmental and social standards|
|Principle 4||Develop or maintain an Environmental and Social Management System(ESMS)|
|Prepare an Environmental and Social Management Plan (ESMP) and, where necessary, an Equator Principles Action Plan(EPAP)|
|Principle 5（*3）||Demonstrate effective stakeholder engagement with affected communities, workers and, where relevant, other stakeholders|
|Principle 6||Establish a grievance mechanism designed to receive and facilitate resolution of concerns and grievances from Affected Communities|
|Principle 7||Engage an Independent Environmental and Social Consultant to carry out an independent review of the Assessment Documentation|
|Principle 8||Incorporate covenants linked to compliance with the Equator Principles|
|Principle 9||Engage an Independent Environmental and Social Consultant to verify monitoring information to ensure ongoing monitoring and reporting after Financial Close and over the life of the loan|
|Principle 10||Disclose online, at a minimum, a summary of the ESIA that includes a summary of human rights and climate change risks and impacts when relevant|
|Publicly report GHG emission levels (combined Scope 1 and Scope 2 Emissions, and, if appropriate, the GHG efficiency ratio) during the operational phase for projects emitting over 100,000 tonnes of CO2 equivalent annually
Encourage clients to share commercially non-sensitive project-specific biodiversity data with the Global Biodiversity Information Facility (GBIF) and other relevant national and global data repositories
Principle 2 of the Equator Principles requires that a client refer to the United Nations Guiding Principles on Business and Human Rights (UNGPs) when assessing human rights risks and impacts. Also, the Climate Change Risk Assessment is aligned with Climate Physical Risk and Climate Transition Risk categories of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD).
- For all Category A and, as appropriate, Category B Projects4, and will include consideration of relevant physical risks.
- For all Projects, when combined Scope 1 and Scope 2 Emissions are expected to be more than 100,000 tonnes of CO2 equivalent annually. Consideration must be given to relevant Climate Transition Risks and an alternatives analysis completed which evaluates lower Greenhouse Gas (GHG) intensive alternatives.
- For Designated Countries, the assessment process evaluates compliance with relevant host country laws, regulations, and permits that pertain to environmental and social issues. In addition to the host country laws, EPFIs may evaluate the specific risks of the project to determine whether one or more of the IFC Performance Standards on Environmental and Social Sustainability (Performance Standards) could be used as guidance to address those risks.
- For Non-Designated Countries, besides evaluation of compliance with relevant host country laws, regulations, and permits that pertain to environmental and social issues, the assessment process evaluates compliance with the then applicable IFC Performance Standards and the World Bank Group Environmental, Health, and Safety Guidelines (EHS Guidelines).
Principle 5 of the Equator Principles requires projects with the special circumstances defined in IFC Performance Standard 7 paragraphs 13-17 to engage a qualified independent consultant to evaluate the consultation process with Indigenous Peoples, and the outcomes of that process, against the requirements of host country laws and IFC Performance Standard 7.
- Projects with impacts on lands and natural resources subject to traditional ownership or under the customary use of Indigenous Peoples,
- Projects requiring the relocation of Indigenous Peoples from lands and natural resources subject to traditional ownership or under customary use,
- Projects with significant impacts on critical cultural heritage essential to the identity of Indigenous Peoples, or
- Projects using their cultural heritage for commercial purposes.
1. IFC Performance Standards
The IFC Performance Standards are applied by IFC to all of its investment and advisory clients whose projects go through IFC's initial credit review process. The Performance Standards provide guidance on how to identify environmental and social risks and impacts.
The parties developing and operating projects are required to address various matters including conservation of the natural environment, protection of local communities, preservation of cultural heritage, and respect for human rights of project workers, affected communities and indigenous peoples.
The eight Performance Standards establish standards that the client is to meet throughout the life of an investment by IFC:
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
(Please refer to IFC's official website for more details on the Performance Standards.)
2.World Bank Environmental, Health, and Safety Guidelines
These General EHS Guidelines are designed to be used together with the relevant Industry Sector EHS Guidelines. The Industry Sector Guidelines provide guidance to users on EHS issues in specific industry sectors consisting of 62 industry sectors under eight industrial categories (Agribusiness/Food Production, Chemicals, General Manufacturing, Power, Mining, Forestry, Oil and Gas, and , Infrastructure).
Following the 2012 update of IFC's Policy and Performance Standards on Environmental and Social Sustainability, updates to the 2007 EHS Guidelines of both general and industry sectors are in process. As of now, eight new guideline documents in six industry sectors are available on IFC's website.
A) General EHS Guidelines
The General EHS Guidelines are organized as follows:
- Environmental (Air Emissions and Ambient Air Quality, Energy Conservation, Wastewater and Ambient Water Quality, Water Conservation, Hazardous Materials Management, Waste Management, Noise, Contaminated Land)
- Occupational Health and Safety(General Facility Design and Operation, Communication and Training, Physical Hazards, Chemical Hazards, Biological Hazards, Radiological Hazards, Personal Protective Equipment,Special Hazard Environments, Monitoring)
- Community Health and Safety (Water Quality and Availability, Structural Safety of Project Infrastructure, Life and Fire Safety, Traffic Safety, Transport of Hazardous Materials, Disease Prevention, Emergency Preparedness and Response)
- Construction and Decommissioning (Environment, Occupational Health & Safety, Community Health & Safety)
B) Industry Sector Guidelines
(Please refer to IFC's official website for more details on the EHS guidelines.)
Sustainable Business Division conducts site visits, as appropriate, to gain firsthand knowledge that informs our assessment of social and environmental aspects of projects located throughout the world.
Financial Advisory Service Support
When MUFG Bank provides financial advisory services to clients seeking project finance, Sustainable Business Division works with clients, as appropriate, on the application of EP requirements from an early stage of the deal.
Education and Training
MUFG Bank conducts training for its employees with the objective of deepening their understanding of environmental and social considerations and promoting the philosophy and practices of EP.
The training is primarily targeted at employees in charge of project finance and credit. The Bank also utilizes internal communication measures to promote better understanding of social and environmental considerations by all employees.
The Bank also provides training for customers at their request.
Environmental and Social Consideration and Categorization Report FY2020
MUFG Bank (the “Bank”) discloses the numbers of the project finance transactions and the project-related corporate loans that achieved financial close in FY2020 (from April 1, 2020 to March 31, 2021), and the number of the project finance advisory services where the Bank was mandated during the same period in “Environmental and social consideration and categorization report FY2020” in accordance with the Equator Principles and the Bank’s Implementation Guidelines for the Equator Principles.
The Bank categorizes the projects proposed for financing based on the magnitude of their potential environmental and social risks and impacts in accordance with the Bank’s Implementation Guidelines for the Equator Principles, referring to the International Finance Corporation (IFC)’s Performance Standards and World Bank Group Environmental, Health, and Safety Guidelines. Especially when assigning Category A to a project, the Bank categorizes the project in accordance with the definition of a Category A project in the Equator Principles referring as appropriate to other guidelines including OECD’s Common Approaches and relevant public institution’s guidelines.
Glossary of Terms)
- Acquisition Finance
- Bridge Loan
- Climate Physical Risks
- Climate Transition Risks
- Designated Countries
- Environmental and Social Assessment
- Environmental and Social Impact Assessment (ESIA)
- Environmental and Social Management Plan
- Environmental and Social Management System
- Equator Principles Action Plan
- Global Biodiversity Information Facility
- Independent Environmental and Social Consultant
- A Project
- Project Finance
Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards (“Basel II”)”, November 2005. Reserve-Based Financing in extractive sectors that is non-recourse and where the proceeds are used to develop one particular reserve (e.g. an oil field or a mine) is considered to be a Project Finance transaction covered under the Equator Principles.
- Project Finance Advisory Services
- Project-Related Corporate Loans
- The lender looks primarily to the revenues generated by the Project as the source of repayment (as in Project Finance) and where security exists in the form of a corporate or parent company guarantee;
- Documentation for the loan indicates that the majority of the proceeds of the total loan are directed to the Project. Such documentation may include the term sheet, information memorandum, credit agreement, or other representations provided by the client into its intended use of proceeds for the loan.
It includes loans to government-owned corporations and other legal entities created by a government to undertake commercial activities on behalf of the government. For all Category A and, as appropriate, Category B Projects, Project-Related Corporate Loans shall include loans to national, regional or local governments, governmental ministries and agencies.
Project-Related Corporate Loans shall include Export Finance in the form of Buyer Credit, but exclude Export Finance in the form of Supplier Credit (as the client has no Effective Operational Control). Furthermore, Project-Related Corporate Loans exclude other financial instruments that do not finance an underlying Project, such as Asset Finance, hedging, leasing, letters of credit, general corporate purposes loans, and general working capital expenditures loans used to maintain a company’s operations.
- TCFD Recommendations
- United Nations Guiding Principles on Business and Human Rights (UNGPs)