Environmental and Social Risk
Banks, in particular, face risks associated with financing activities that could be associated with adverse impacts on the environment and society such as flashpoint issues capable of generating significant negative publicity, such as an oil spill. Failure to address these risks in a timely and appropriate manner may result in reputational damage and consequently a loss of investor support and customer loyalty, among other challenges.
Garanti BBVA sees its proactive management of these risks, such as the ones arising from climate change, not only as critical to its success but also as one of its most essential duties to its stakeholders. Through its effective sustainability approach embedded throughout its organization, Garanti BBVA monitors its resource consumption, takes steps to reduce it, raises the awareness of employees and collaborates with suppliers. Moreover, to extend its work to a larger scale, Garanti BBVA also developed an Environmental and Social Impact Assessment Process (ESIAP) including Environmental and Social Impact Assessment Model (ESIAM) within the scope of Environmental and Social Loan Policies (ESLP) to help drive similar improvement across its loan portfolios.
Garanti BBVA ensures that the projects it finances meet the social and environmental standards required by legislation and the Bank’s policies that an impact assessment is undertaken by the project owner(s), if necessary, that prescribed measures are taken by the project owner(s) and that project owners have effective internal audit systems. In 2015, 2016, 2017 and 2018, Garanti BBVA conducted 26, 22, 28 and 37 site visits respectively to ensure the environmental and social action plans are being implemented by customers.
For ESIAP, our 2019 targets are:
- Minimum 20 site visits and
- Expanding the scope of Risk Assessment System to include all portfolio (Pilot phase).
Garanti BBVA contributes to raising awareness regarding non-financial risks in the finance and other sectors by explaining its ESLP to its external stakeholders via a variety of platforms. Some examples are as follows:
- In 2013, Garanti BBVA has started a series of sustainability workshops aimed at building capacity among its customers and the Turkish banking sector. The first workshop was held on March, 2013 in which Garanti BBVA presented its environmental and social risk management process in detail to Turkish banks and real sector companies.
- In May, 2015, Garanti BBVA organized the 2nd workshop together with Boğaziçi University on environmental and social risk management to its corporate customers and presented the bank’s approach and best practices. In the workshop, besides Garanti BBVA, a specialist from the EBRD, a responsible investment specialist and two international independent advisor companies presented their knowledge and experiences.
- In December 2016, Garanti BBVA hosted 3rd Sustainability and Risk Management Workshop during which the Ministry of Environment and Urbanization, CDP and international consultancy companies presented their experiences in environmental and social risk management systems.
- In September 2017, Garanti BBVAhosted the 4th Sustainability and Risk Management Workshop, where corporate customers from energy and infrastructure industries were informed on cutting edge sustainable business topics such as TCFD (Financial Stability Board’s Task Force on Climate-related Financial Disclosures) recommendations, carbon pricing and disruptive technologies.
- In April 2018, Garanti BBVA delivered a ‘Sustainability in Finance’ course within the curriculum of Corporate Sustainability Certificate Program by REC Turkey in collaboration with Boğaziçi University Lifelong Learning Center.
In 2015, EBRD selected Garanti BBVA as one of the best practices for its trainings for financial institutions on strong sustainability policy and implementation on Environmental and Social Risk Assessment among the financial institutions.
Garanti BBVA was also selected by the UN for one of the best cases for policies on mitigating water risks and financial sustainability. Garanti BBVA was the only company from Turkey and one of the two banks mentioned in the report called “The Business Case for Responsible Corporate Adaptation: Strengthening Private Sector and Community Resilience” published by UNGC, UNFCCC and UNEP on climate change adaptation.
Environmental and Social Loan Policies
Garanti Bank initially set up its Environmental and Social Loan Policies (ESLP) in order to minimize the indirect impacts of loans granted by the Bank and put them into practice in 2011. These policies constitute the environmental and social principles governing the extension of loans at Garanti Bank through which the Bank runs the “Environmental and Social Impact Assessment Process” (ESIAP). Within the scope of ESIAP, Garanti Bank ensures that the projects financed by the Bank satisfy the social and environmental standards required by legislation and the Bank’s policies. If necessary, the Bank also ensures that the project owners undertake an impact assessment, take prescribed measures for potential risks observed and establish effective monitoring and control mechanisms.
Reporting to the Sustainability Committee chaired by a Board Member, the Team’s responsibilities on environmental and social risk management is to:
- Verify environmental and social risk management policies, strategy and implementation principles,
- Ensure that risk management principles are widely embraced throughout Garanti and its subsidiaries; through hard and soft controls and
- Provide technical and implementation support on E&S risk related measures to other departments as well as customers.
Garanti Bank’s Corporate and Commercial Loans Risk Management Unit is also responsible for ensuring the effective implementation of ESIAP. ESIAP, designed with the support of an independent consulting firm, also includes the “Environmental and Social Impact Assessment Model” (ESIAM).
Garanti Bank has an in-house ESG experts in its Sustainability Team, which resides under the Project Finance Department. Therefore Garanti can monitor the projects that are included in ESIAM, review and approve the routine monitoring reports and attend the site visits of projects that are classified as high risk in terms of potential environmental and social impacts. The environmental and social due diligence is carried out by the independent project consultant on the agreed scope of work. The due diligence period is followed by all lenders through the reports produced by consultants. The communication between lender/lenders’ consortium and consultant is provided by the green agent of the project.
Environmental and Social Impact Assessment Model
Garanti Bank subjects loan requests for investments, which it defines as new projects with an investment total of more than USD 10 million, to the Bank’s ESIAM. With this internal model, projects are categorized and graded according to their characteristics, size, sensitivity, location and their possible social and environmental impacts. ESIAM is the main tool that the Bank uses for E&S risk management and it is mandatory to be utilized by all relevant employees. The Bank’s decisions are based on the risk rating calculated in accordance with Model. This risk rating enables Garanti to:
- Determine and evaluate all environmental and social impacts of projects in a systematic way in accordance with ESIAM methods;
- Ensure projects are sustainable from an environmental and social perspective;
- Ensure that financed projects and all associated processes and policies pursued by the Bank comply fully with national legislation and regulations;
- Ensure project owners reduce identified impacts to an acceptable level;
- Effectively monitor the Environmental and Social Action Plan (ESAP) prepared by customers (project owners) in order to help monitor and improve their compliance with the Bank’s ESLP. The environmental and social action plan of the project is annexed to the facility agreement.
- Ensure that the project is fully in line with the Bank’s Human Rights Commitment.
ESAP, which contains actions to be completed to provide project compliance according to the Bank’s ESLP and standards of International Financial Institutions (IFI), is prepared by independent external experts. The independent external experts, who prepared ESAP, are approved by Garanti’s in-house ESG experts based on their technical expertise and their experiences in similar projects. Site inspection and routine monitoring reports are reviewed and approved by in-house experts based on the ESAP, which is annexed to the facility agreement.
We disclose the number of mitigation sites, where environmental and social impact assessment, health and safety risk assessment and mitigation plans are implemented, in our annual integrated report. These indicators are verified by an independent consultant each year.
Garanti also contributes to 10 out of 17 United Nations Sustainable Development Goals through the actions taken by customers in accordance with Garanti’s ESLP under each environmental, social, health and safety issue as well as human rights.
In 2015 and 2016, the following updates were made in the previously implemented ESLP:
- The monetary limit for projects subject to ESIAP was reduced to US Dollar 10 million.
- ESIAP was agreed to be applied to projects financed outside Turkey as well. If the country is a “designated” country within the scope of Equator Principles, its own environmental and social standards are also applied. If the country is listed as “non-designated”, international best IFI practices are applied as well as Garanti’s ESIAP.
- If the GHG emissions of the Project are expected to exceed the 100,000 ton/year CO2 equivalent GHG emissions limit, it will be reported to Garanti and published on the website of the Project.
- Garanti will ask its customers to conduct forestation programs within the framework of its Climate Change Action Plan.
- Projects that receive financial advisory were also included in the scope of the ESIAP.
- Sectoral principles have been updated.
As a member of the BBVA Group, Garanti also adopts the Sector Norms for environmental and social due diligence released by BBVA in 2018.
Management of Indirect Water Footprint
In order to manage the Bank’s indirect water footprint from financed projects, the Bank ensures, requests and monitors that appropriate measures are taken to minimize environmental impacts, reduce the consumption of water and other resources, ensure recycling is undertaken and that negative impacts on water quality are minimized.
Based on the ESLP, Garanti does not finance projects and activities on RAMSAR sites under any circumstances. In addition, following the ESLP, Garanti pays regard to the environmental and social impact of the projects it finances and the maximization of their positive impact. Accordingly, the Bank considers the projects’ impact on water sources in its loan processes and requests various measures towards the minimization of water use and impact on water quality, efficiency in water resource consumption and re-use/recycling, all of which are customized based on the sectors in question. Furthermore, projects where energy and water conservation is taken into consideration are prioritized.
One of the main consequences of climate change in Turkey will be its effect on the water cycle. For example, individual regions (those prone to flooding or that experience climate change-led severe weather) and sensitive sectors of the economy (those unable to transition to a low carbon business model or dependent on stable weather patterns, such as agriculture) could suffer significant loss of income.
In this context, the following criteria are taken into consideration during the financing of new projects:
- Choice of location and project area: Location of the Project with respect to protected areas under international or national regulations (e.g. RAMSAR sites), important water sources, shores and ground water operations. Projects located in RAMSAR sites are not financed by Garanti Bank. Furthermore, if the Project location is found to be in close proximity to residential areas, sensitive wetlands, protected areas and the like, re-locating the Project may be requested.
- Current water properties: Prior to commencement of construction works, studies to measure and assess the quality and properties of water in the project location are requested. Based on the findings of these studies, preventive and/or minimization measures regarding project impact are implemented.
- Impact on groundwater: Negative impacts of projects on ground water during the construction and operation phases are assessed. In the case of any negative impact, the use of alternative water sources would be considered.
- Impact on surface water: During the construction and operation phases of hydroelectric power plant projects, adverse changes to flow rate, drainage and flow are assessed. Preventive measures are requested for occurrences such as flow direction and flow rate changes, excavation in the water source, dredging and sediment accumulation due to possible adverse downstream effects.
- Water quality: Effluent water should be treated in treatment facilities. Furthermore, treatment systems should comply with discharge limits.
Each sector can have different effects on water sources in terms of consumption and quality. Accordingly, Garanti Bank has developed specific provisions in its Sectoral Principles and monitors and manages project impacts based on these principles. The following section gives some examples from the Sectoral Principles.
Hydroelectric Power Plant Projects
- Environmental flow water is regarded as one of the critical issues in hydroelectric power projects. Garanti Bank places emphasis on ensuring that basin water rights are observed and that environmental flow is sufficient to sustain the basin ecosystem and preserve river hydrology. It should be ensured that environmental water is calculated specific to project location considering Ecosystem Assessment Report by related technical experts besides meeting minimum standards set by official authorities. Furthermore, based on the results of these studies, the Bank may request that the project technical design be amended. Environmental water release data and impacts on river habitat are monitored periodically by Garanti Bank.
- Adverse changes to flow rate, drainage and flow are assessed. Preventive measures are requested for occurrences such as flow direction and flow rate changes, excavation in the water source, dredging and sediment accumulation due to possible adverse downstream effects.
Thermal Power Plant Projects
- Discharge of cooling and process water is one of the critical issues for projects of this type. Accordingly, Garanti Bank requests modelling and/or cumulative impact studies regarding thermal discharge, particularly with respect to projects in coastal areas.
- Furthermore, minimizing the impact on the ecosystem of water consumption during construction and operational phases is a material issue. Garanti Bank requests alternative methods to obtain water.
Geothermal Power Plant Projects
- In order to preserve groundwater equilibrium, 100% reinjection is required in geothermal projects.
- However, necessary precautions should be taken during the process to prevent contamination of groundwater in relation to reinjection.
Transportation/ infrastructure Projects:
- Impacts on aquatic / marine ecosystem should be assessed, and should be included in the mitigation and monitoring plan.
- Oceanographic/hydrographic reports should be prepared for ports/coastal facilities, filling/ dredging impacts should be assessed,
- Emergency Action Plans should be prepared for events like as accidents, collisions or leakages to the sea and systems to prevent dispersion of contaminants in the marine environment such as barriers, foams, etc. should be in place in case of any such event.
- Water management strategies are prioritized. Reduction measures regarding project water requirements as well as recycling and re-use strategies are assessed. Prevention of acid rock drainage needs to be assured through a water management plan.
- In industrial projects, management plans are necessary for industrial effluent water discharge. Best Available Technologies (BAT) should be preferred with respect to treatment facilities. Projects that enable efficient use, recycling and re-use are prioritized.
Please visit https://surdurulebilirlik.garantibbva.com.tr/garanti-bbva-sustainability-approach/material-issues/environmental-and-social-risk-management/ for the scope of implementation of environmental and social risk management system.