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Loans (debt) can be used by the commercial operation to finance a specific aspect of the operation, such as the purchase of equipment, or for renovation/expansion of the operation. Equity investments in a commercial operation provide operating capital for an operation in exchange for shares (equity) in the company/project.

The environmental and social risks associated with a corporate transaction will vary greatly and can be significant as a function of the operation’s industry sector, size, location, and company commitment and capacity to managing environmental and social risks. Environmental and social risks will be more significant for medium and high-risk industry sectors and large-scale operations such as mining, oil and gas, and heavy manufacturing, which may result in loss of life, health impacts, and water contamination, among others, if not managed properly. For low-risk industry sectors such as retail operations and other services, the environmental and social risks will usually be low and mainly related to labor standards and life and fire safety, which can readily be addressed. Regardless of the industry sector, there may also be environmental and social risks, especially related to labor and working conditions, in the supply chain of raw materials and goods.

Environmental and social issues may threaten the financial and operational viability of a commercial operation. For a commercial operation, the source of repayment of a loan or payment of dividends on an investment is from the operation itself, backed by its entire balance sheet, rather than a specific asset. A corporate transaction exposes a financial institution to the entire commercial operation of the investee company, which presents a liability, reputational, and credit risk. When a loan is backed by a specific asset as collateral, the liability risk for the financial institution may be increased if there are associated environmental and social issues.


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