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A financial institution’s transaction with a client/investee can represent a financial, legal and/or reputational risk to the financial institution. Because environmental and social issues are inherent in client/investee operations, almost all transactions are exposed to some degree of environmental and social risk.

E&S Impacts of Client/Investee Operations and Risk to Financial Institution
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The environmental and social risks inherent in a transaction depend on several factors such as the specific issues associated with a client’s/investee’s operations, the industry sector and the geographic context. E&S issues typically include environmental pollution, hazards to human health, safety and security, impacts on communities and threats to a region’s biodiversity and cultural heritage. In most cases, a client/investee has control over the E&S issues associated with the operation and can take the necessary steps to mitigate these risks.

By implementing a Environmental and Social Management System, a financial institution can enhance its understanding of E&S risks associated with each transaction, which can be included in the decision-making process for proceeding with a transaction.

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