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This includes verifying compliance of the business activities of a proposed client/investee against the relevant environmental and social regulations as well as international standards, as necessary.

The purpose of conducting a environmental and social desktop review is to obtain an understanding of the risks that are potentially associated with the business activities of a proposed client/investee. To help collect this information, the financial institution staff should develop a questionnaire on environmental and social issues, which a proposed client/investee completes as part of the transaction process.

The environmental and social risks vary by industry sector but typically the following issues should be considered and evaluated:

  • Geographic location: surrounding land use and proximity to natural habitats and rivers and lakes.
  • Site condition: condition of facilities and potential ground contamination.
  • Access to utilities such as electrical power, natural gas and water.
  • Social issues on: labor, occupational health and safety, community health and safety, community engagement, land acquisition and resettlement, indigenous and vulnerable people and cultural/archaeological heritage.
  • Environmental issues on: water use and quality, wastewater, material use (hazardous and nonhazardous), wastes (hazardous and nonhazardous), land use, biodiversity, energy use and air emissions and quality.
  • Performance and reputation of client/investee on environmental and social issues, including any fines and penalties as well as severe accidents related to environmental and social issues.

Depending on the nature of the activities and the industry sector of the client/investee of a financial institution, the environmental and social laws that may apply regulate issues such as:

Compliance with some regulations can be verified by checking for the presence or absence of valid permits and licenses. In other cases, compliance must be verified by reviewing the most recent inspection report by a government authority or the Environmental Impact Assessment required under national regulation to understand what environmental and social issues, if any, need to be addressed by the client/investee to ensure compliance.

Other documentation that can provide useful insight into a client’s/investee’s environmental and social performance and reputation include:

  • Monitoring reports on air emissions and water discharges.
  • Waste management plans.
  • Environmental management policies and plans.
  • Stakeholder engagement activities.
  • Health and safety policies.
  • Land acquisition proposals.
  • National, local or trade press relevant to industry sector or geographic area with potential references to the client/investee.
  • Government reports such as Environmental Impact Assessment.

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