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During monitoring, financial institution staff may identify environmental and social issues, such as a client’s/investee’s non-compliance with one or more of the clauses stipulated in the legal agreement.

In these cases, financial institution staff should follow up with the client/investee to resolve these issues in a reasonable timeframe. For transactions that involve complex environmental and social issues, a financial institution’s legal agreement with the client/investee may stipulate that the client/investee has a period of time, such as 30 days, during which the client/investee can resolve the issue after notification by the financial institution.

If the client/investee fails to undertake the necessary corrective action in a timely manner or fails to resolve the outstanding environmental and social issue of concern, the financial institution may be required to take legal action against the client/investee to reduce its exposure to the environmental and social risks associated with the transaction.

The financial institution’s Legal Department should determine if a environmental and social non-compliance constitutes an Event of Default under the terms of the legal agreement with the client/investee. An Event of Default entitles the financial institution to cancel a transaction and declare all amounts owed by the client/investee to become immediately due and payable. Further legal action against the client/investee may also be necessary.

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