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Once a transaction has been approved, the financial institution needs to monitor the client’s/investee’s ongoing compliance with the environmental and social clauses stipulated in the legal agreement. Environmental and social risks or compliance status may change from the time of transaction approval.

From the time of transaction approval, environmental and social regulations may become more stringent, the client/investee may modify its operations or production processes in a way that exacerbate previously identified risks or present new environmental and social risks. Managing emerging environmental and social risks at the transaction level ensures effective environmental and social risk management at the portfolio level.

A financial institution’s ESMS should explain the process for systematic monitoring on a periodic basis, such as by implementing procedures for verifying compliance with environmental and social requirements including implementation of any corrective action plans to resolve non-compliances. The frequency and extent of monitoring will depend on the complexity of environmental and social issues associated with a client’s/investee’s operations.

The monitoring process generally involves a review of periodic environmental and social performance reports submitted by the client/investee and regular site visits of the client’s/investee’s operations. Special attention should be paid to:

  • Assessing implementation of any mitigation measures specified in the corrective action plan
  • Monitoring for valid environmental and social permits or licenses
  • Any fines and penalties for non-compliance with environmental and social regulations
  • Recent reports from the relevant regulator or inspection authority confirming compliance with specified laws, including any emissions measurements proving that emissions are below the permitted limits
  • Environmental and social occurrences including major accidents or incidents associated with a client’s/investee’s operations such as worker injuries and spills
  • Media attention to environmental and social issues related to the client/investee
  • Any complaints submitted by stakeholders about a client/investee

If financial institution staff identify environmental and social issues, such as a client’s/investee’s non-compliance with the environmental and social clauses stipulated in the legal agreement, they should follow up with the client/investee to resolve these in a reasonable timeframe. Depending on the complexity of the environmental and social issues associated with a client’s/investee’s operations, financial institution staff should require a new corrective action plan and/or periodic reports on environmental and social performance throughout the duration of the transaction. The reporting frequency should be tailored to each individual transaction and should be based on self-monitoring by the client/investee or monitoring by independent third parties and/or regulatory authorities.


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