The ESMS includes the financial institution’s environmental and social policy and designated roles and responsibilities of its staff.
It is implemented through a set of procedures for:
- Screening transactions,
- Categorizing transactions based on their environmental and social risk,
- Conducting environmental and social due diligence,
- Decision-making process,
- Monitoring the client’s/investee’s environmental and social performance, and
- Managing a client’s/investee’s non-compliance with the financial institution’s environmental and social standards.
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The procedures outlined in the ESMS should be applied to each transaction as part of a financial institution’s overall risk management framework. For each transaction, this also requires a financial institution to formally document its environmental and social review as part of its record-keeping process, consider environmental and social findings during the decision-making process, and incorporate environmental and social requirements such as a corrective action plan as clauses in legal agreements with clients/investee.
To ensure the effective implementation of the ESMS across operations, the financial institution needs to allocate the necessary resources for internal communication and training.
As part of its commitment to good corporate practices, a financial institution can periodically report on the environmental and social performance of transactions and measures taken to reduce overall exposure to environmental and social risk.
