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The environmental and social risks associated with housing finance may include inappropriate development location, poor building design (including inability to withstand natural disasters) and inadequate construction as well as unresolved land tenure issues.

The procedures and tools for conducting environmental and social due diligence for a housing transaction are described in a financial institution’s Environmental and Social Management System and should include the following steps as part of a desktop review and a site visit:

  • Review of national environmental and social regulations including construction codes that apply to a real estate development project;
  • Review of the developer’s/construction company’s track record on environmental and social issues in particular worker safety and legal issues surrounding land tenure, in terms of potential non-compliance with national regulations or negative publicity;
  • Review of the developer’s/construction company’s performance against international standards or industry best practice regarding environmental and social issues; and
  • Review of the developer’s/construction company’s actions (if any) to mitigate potential environmental and social issues associated with operations.

The financial institution should document all findings from the due diligence, which will be considered during the decision-making process before proceeding with a transaction. In the event that environmental and social issues are identified and should be mitigated through corrective actions, the financial institution can stipulate these in the legal agreement with the developer/construction company and monitor on-going progress toward completion.


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