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The purpose of the environmental and social due diligence is to review any potential environmental and social risks associated with the business activities of a potential client/investee (not non-commercial/individual borrower) ensure that the transaction does not carry environmental and social risks, which could present a potential liability/risk to the financial institution.

Environmental and social due diligence involves the systematic identification, quantification and assessment/evaluation of environmental and social risks associated with a proposed transaction. This process also helps identify the mitigation measures that are necessary to reduce any environmental and social risks that are identified. The extent of the environmental and social due diligence and level of detail is based on the transaction’s environmental and social risk category and will vary by transaction type:

The environmental and social due diligence can involve a simple desktop review or require a site visit with the use of technical experts, if necessary, to understand potential environmental and social risks associated with business activities and review a client’s/investee’s compliance with the financial institution’s environmental and social requirements.

E&S Due Diligence
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The financial institution will need to develop the necessary guidance documents and checklists for use by financial institution staff in conducting the environmental and social due diligence. This should reflect the social and environmental issues that will be reviewed and other factors that will be considered to review compliance with the financial institution’s environmental and social requirements. A good starting point is a review of the environmental and social issues associated with those industry sectors that the financial institution is the most exposed to and the environmental and social laws as well as the specific context of the country in which clients/investees are located.


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