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Based on IFC’s review, a financial institution may be required to develop a Environmental and Social Management System (ESMS) to manage the risks and impacts associated with its financing activities in order to ensure that these comply with the IFC Exclusion List, applicable national environmental and social regulations and the IFC Performance Standards.

IFC’s financial institution clients are banking institutions, leasing institutions, microfinance institutions, Insurance/Guarantee Institutions, and Equity/Investment Funds. Typically, they are engaged in a diverse range of activities including corporate finance; project finance; lending to small and medium enterprises; microfinance; trade finance; and housing finance, each with its own environmental and social risk profile.

The scope of financing activities of different types of financial institutions varies greatly, and so do the associated environmental and social risks and impacts. The management of these risks and impacts should also be tailored to the individual institutional characteristics of each financial institution, which have different levels of exposure to E&S risk depending on their activities.

A financial institution is required to develop a Environmental and Social Management System (ESMS) that fits into specific institutional characteristics as well as adequately addresses the environmental and social risk profile associated with its financing activities. As a starting point, the financial institution should create an ESMS Working Group to understand and review IFC’s environmental and social risk management requirements as stipulated in the legal agreement with IFC. If needed, the financial institution can retain an external consultant to assist the Working Group in developing and implementing the ESMS.

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