Environmental & Social Risk Management

Environmental and Social Risk Management 

According to the World Economic Forum’s Global Risks Report 2024, environmental and social (E&S) risks are at the forefront of the global risks predicted in the medium term, and half of the risks predicted to have the greatest impact over the next 10 years are E&S risks; therefore, the need for institutions to effectively mitigate E&S impacts is growing by the day.

Banks, may face risks related to financing activities that could have negative consequences on the environment and society. Failure to take timely and appropriate precautions against these risks of financed projects may lead to damage to the reputation of banks, loss of investor support, and client loyalty.

In 2012, Garanti BBVA established the Environmental and Social Impact Assessment Process (ESIAP) based on international best practices. The aim of this process is to conduct an effective E&S risk assessment in loan portfolios and to ensure proactive risk management.
As part of the ESIAP, which we have continuously improved since 2012, we identify the E&S risks associated with financial transactions. We determine the necessary actions to mitigate risks and impacts before the financing occurs and monitor the management of these actions. Thus, we ensure compliance with the E&S standards required by the legislation and the Bank's policies in loan portfolios. If necessary, we conduct an impact assessment, implement sector-based good practices, establish adequate control mechanisms, and take prescribed measures.

Our 2024 targets within the scope of ESIAP:

  • Successfully implement the updated Environmental and Social Loan Standard of 2024,
  • Continuing to closely monitor the E&S performance of the loan portfolio and projects,
  • To support our clients proactively in taking concrete corrective and preventive actions on E&S issues in projects financed by Garanti BBVA,
  • To improve Environmental and Social Risk Management processes, refer to BBVA standards and international best practices.

Visit Environmental and Social Risk Governance for more details.

Environmental and Social Risk Management Scope

In addition to advanced E&S risk criteria, we also monitor compliance with the Environmental and Social Loant Standard (ESLS) for transactions that fall outside the scope of the Environmental and Social Impact Assessment Model (ESIAM) through questionnaires completed prior to the financial transaction.

We provide environmental and social risk management in the following client segments.

  Compliance with Our Core Policies1 and Legislation Advanced E&S Criteria Description
Project Finance %100 %100 Advanced E&S criteria are applied to all project finance loans, regardless of financial limits or criteria, in addition to compliance with the Bank's policies and legislation.
Corporate Loans %100 Partially The Banking Service Agreement and General Credit Agreements include information on complying with our core policies and legislation. ESLS compliance is checked through a questionnaire. Loans that fall under2 ESIAM are subject to advanced E&S criteria. The Green Loan structure allows for the introduction of transaction-specific additional criteria.
SME Loans %100 Partially The Banking Service Agreement and General Credit Agreements include information on complying with our core policies and legislation. ESLS compliance is checked through a questionnaire. More detailed E&S criteria specific to each transaction may be applied within the scope of various borrowing agreements.
Mortgage Loans %100 Partially The Banking Service Agreement include information on complying with our core policies and legislation. Additional environmental criteria apply for the Green Mortgage loans.
Personal Loans %100 Not Applicable The Banking Service Agreement include information on complying with our core policies and legislation. Advanced E&S criteria are not applicable for this segment. In addition, there are several practices aimed at the financial health of our clients as part of the bank's transparent and responsible banking practices.

1Environmental and Social Loan Standard, one of our core policies, includes a list of general exclusions. 
2Corporate Loans that involve the construction of a new project or the capacity increase of an existing project and meet the determined amount/transaction thresholds are subject to ESIAM. Criterion controls are carried out by the relevant team according to the ESIAM process.

Environmental and Social Impact Assessment Model (ESIAM)

Garanti BBVA considers the proactive management of E&S risks to be crucial for achieving success in risk management and fulfilling our fundamental mission towards stakeholders. To minimize the potential negative impacts of our projects and expand our reach, we conduct ESIAM. These assessment are conducted to systematically evaluate projects based on their nature, scale, sensitivity, and location. The Environmental and Social Impact Assessment team within the Investment Banking and Finance Department is responsible for carrying out this process.

Garanti BBVA monitors high-risk projects within the scope of ESIAM for E&S impacts. The bank’s E&S experts review routine monitoring reports and participate in site visits.

To identify financial transactions subject to advanced E&S evaluations, we conduct controls under 5 headings. If a financial transaction meets all items under any of these headings, we prepare an Environmental and Social Impact Assessment Model (ESIAM) to identify potential risks and create risk management mechanisms to mitigate them to the lowest possible level. As of 2024, ESIAM will be applied to the following financial transactions:

Project Finance Project-Related Corporate Loans3 Bridge Loans4 Advisory Services5 Project-Related Refinance and Project-Related Acquisition Finance
All project finance loans Corporate loans (Working Capital Loans) that include the construction of a new project or the capacity increase of an existing project and meet all of the following criteria
i. The majority of the loan must be linked with the project on which the debtor has effective operational control (directly or indirectly)6.
ii.The total amount of the loan and the participation of Garanti BBVA (before syndication sales) is USD 50 million or more.
iii.The term of the loan is two years at minimum.
iv.The lender anticipates that the primary funds for repayment of the loan are derived from the project.
v.The scope also includes export financing7 to be granted as buyer credit to private sector or public enterprises. On the other hand; it does not apply to other financial instruments that are not linked to any project, such as asset finance, acquisition financing, hedging, leasing, letter of credits, general purpose corporate loans and general working capital expenditure loans (for a company to continue its operations).
Bridge loans with maturity less than two years, which are intended to be refinanced via Project Finance or Corporate Loans in relation to a Project satisfying the criteria defined in the articles under the first two headings Consultancy Services regarding Project Finance transactions defined in the article under the first heading. Where all of the following criteria are met
i.The related Project has been financed in accordance with the Equator Principles framework.
ii.There has been no significant change in the scale or scope of the Project.
iii.Project Completion has not yet occurred at the time of the signing of the loan agreement.

3As defined in Equator Principles 4, July 2020 
4Compliance with Equator Principles is not required due to the nature of the bridge loans. On the other hand, a commitment clause is inserted in the Bridge Loan Agreement for compliance of the Project with Equator Principles.  
5Due to the nature of consultancy services, compliance with Equator Principles is not required. However, a commitment clause stating that the Project will comply with the Equator Principles is included. 
6Effective Operational Control refers to the customer’s power to intervene directly in the main elements of the project. This definition does not cover financing requests from subcontractors/suppliers of the main project (unless they are the main operator). Financing requests that do not meet this criteria include financing requests from subcontractors that supply equipment, perform construction, contracting or electricity works, etc. for the project.

Example of Direct Effective Operational Control: If the customer is the main shareholder (>50%) or operator of the relevant project, then the customer is considered to have a direct Effective Operational Control on the relevant Project.

Example of Indirect Effective Operational Control: If a subsidiary of the customer runs the entire operation, then this indicates that the customer has an indirect Effective Control on the Project.

7Export financing (or export loans) involves supporting an exporter and/or a buyer to whom the exporter will ship goods, by means of financing and/or insurance during pre-shipment and/or post-shipment periods. Export financing is classified in various categories such as short, medium or long term according to its duration, buyer or seller credits according to the party whose risk is taken and pre-shipment or post-shipment financing depending on place and purpose of utilization. Such support may be in the form of financial support, pure cover, etc.

According to ESIAM results, where relevant:

  • Environmental and Social Due Diligence (ESDD) Report and/or Environmental and Social Action Plan (ESAP) are prepared,
  • Independent consultants are appointed based on the criteria and processes defined in the Garanti BBVA - Independent Consultancy Service Requirements and Consultant Firm Determination Criteria Guide,
  • E&S monitoring carried out periodically to maintain project’s E&S performance high by the appointed independent consultants,
  • Close monitoring is carried out with a proactive approach by participating in field monitoring studies.

As Garanti BBVA, we have conducted 209 site visits on environmental and social issues since 2015, 27 of which were conducted in 2023.

The E&S monitoring process is conducted by an independent project consultant in accordance with the agreed scope of work. Reports prepared by the consultants are used by all lenders to monitor E&S activities. Throughout this process, communication between the lender/consortium of lenders and the consultant is facilitated by the project's lender representative. At Garanti BBVA, we ensure that the projects we finance meet the required legal laws/standards and adhere to our core policies. We also require project owner(s) to conduct risk assessments, take necessary precautions, and implement effective internal audit systems. Within the scope of ESIAM, projects that apply for financing and comply with the Environmental and Social Loan Standard (ESLS) are first evaluated based on different criteria specific to each sector. The evaluation process categorizes, classifies and grades the projects, and determines the appropriate action based on the risk score result of the model. The ESIAM process consists of three stages, which determine and evaluate the environmental and social impacts of the projects.

  • Category determination: The project is classified into one of three categories: A, B, or C.
  • Determination of project risk rating: Project risks are evaluated through our risk rating model, which has different question sets specific to each sector and is based on an algorithm created based on international standards.
  • Determination of the final grade according to category and risk rating: As a result of the implementation of ESIAM, the final grade note is given and certain actions are requested on environmental and social issues according to the final grade note

The table below presents the risk assessment breakdown of the projects evaluated within the scope of ESIAM for the years 2015-2023.


  Loan Amount (USD, million)    Number of Projects Assessed
2015-2022 2023 2015-2023   2015-2022 2023 2015-2023
Category Category A 8288 134 8422   27 4 31
Category B 1332 0 1332   15 0 15
Category C 7 0 7   2 0 2
Risk Rating R1 8164 38 8202   14 1 15
R2 573 60 633   13 1 14
R3 890 36 926   17 2 19
R4 0 0 0   0 0 0
Final Grade 1 8575 98 8673   22 2 24
2 823 36 859   13 2 15
3 229 0 229   9 0 9

Project evaluations and project compliance are reported to the Bank's Senior Management. The results of E&S impact assessments are shared with the Credit Committee and Responsible Banking and Sustainability Committee. If deemed necessary by the Responsible Banking and Sustainability Committee, the ESIAM investment limit, policies and evaluation process are reviewed or updated.

Deforestation Impact Management Process

For the projects with a high E&S risk potential according to ESIAM, especially in the case of those involving large swaths of land, a detailed due diligence is conducted to identify the deforestation impact of the project, and if such impact is identified, all necessary measures are made mandatory. These measures include the following:

  • The sponsors are expected to use all their reasonable and necessary efforts to minimize the deforestation (rerouting, moving the trees, etc.).
  • If such impact cannot be prevented, the debtor is required to give a Commitment of Reforestation for planting trees based on the environmental and social risk score of the project, unless approved otherwise by Garanti BBVA.
  • This commitment includes both total area in hectares (ha) and total number of trees.
  • Estimation methodology for number of trees/area (ha) must be defined in detail in the Commitment and approved by the Bank. The number of trees and reforestation area are determined in accordance with the risk level of the project. The Commitment must entail planting trees at least 4 or 5 times the number of trees impacted by the project and its auxiliary units, even if the relevant area is not considered a forest land under national and international definitions.
  • As an alternative, the debtor may propose to offset carbon emission via conservation of biodiversity or buying carbon credit. Such proposals are evaluated by the Environmental and Social Impact Assessment Team and may replace the commitments mentioned above if the Bank deems appropriate.

Raising Awareness on Environmental and Social Risks

In addition to our responsible financing efforts, we collaborate with others to achieve sustainable development goals through common efforts. Thanks to our partnerships with various stakeholders and memberships in international platforms, we can share information and experiences, allowing us to closely monitor current developments. We then take the necessary steps to apply these developments within our Bank and assume the role of thought leadership to mainstream similar good practices in our country. Our non-financial risk assessment mechanisms lead the way in the Turkish banking sector. We reinforce our pioneering position in responsible finance by sharing our E&S impact assessment approach and system on various platforms. Thus, we contribute to improving of sustainability parameters in the banking sector, increasing knowledge and awareness, and building the capacity of external stakeholders in the finance sector and private sectors.

Some examples are as follows:

  • In 2013, Garanti BBVA has started a series of sustainability workshops aimed at building capacity among its clients and the Turkish banking sector. The first workshop was held in March 2013, during 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 held its 2nd workshop with Boğaziçi University on E&S risk management for its corporate clients. During the workshops, the bank presented its approach and best practices. The workshop included presentations from 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 BBVA hosted the 4th Sustainability and Risk Management Workshop, where corporate clients 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 and carbon pricing.
  • In April 2018, Garanti BBVA provided 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 December 2018, Garanti BBVA hosted the 5th Sustainability and Risk Management Workshop. The workshop was focused on the Responsible Banking Principles of the United Nations which were established by the a gathering of 28 banks worldwide, including Garanti BBVA. The agenda covered a range of topics including the impact of Responsible Banking Principles on the real sector, digital risks, trends in reporting non-financial issues, innovative environmental, social and governance practices, and green financing alternatives in Turkey, and innovative practices and risk perception in the insurance sector regarding sustainability.
  • In October 2019, Garanti BBVA, together with the Business World Sustainable Development Association (SKD), of which it is a corporate member and Chairman of the Board, took part as a speaker at the 6th Sustainable Finance Forum, on new generation finance tools that support growth with social and environmental goals.
  • In 2024, we contributed to the improvement of the sector's E&S risk management approach by publishing the Environmental and Social Loan Standard (ESLS), which we updated by taking BBVA group standards as a reference.