Environmental and Social Risk Management in Lending Activities
In the banking sector, credits constitute the area where the leverage effect is felt most intensively, and which has an extensive impact on sustainability. Yapı Kredi is committed to developing products and services that are both environmentally friendly and create sustainable value for the community. Projects to be financed by Yapı Kredi are to comply with not only the relevant legal requirements and the requirements of our credit policies, but also with certain environmental and social standards. The Environmental and Social Risk Assessment (ESRA) System was put into service in 2017 to evaluate credit applications from such a perspective.
Within the scope of the Bank's current business processes, all credit requests, regardless of limit, are evaluated in line with the Environmental and Social Policy, which forms a part of the Sustainability Management System (SMS), in addition to the Bank’s Credit Policies. All credit requests are evaluated against the Exclusion List, which is included in the Environmental and Social Policy. Under no circumstances shall Yapı Kredi grant loans for activities included in the Exclusion List.
In addition to these policies, within the framework of the “Assessment of Environmental and Social Risks in Lending Activities” procedure which was developed as part of the Sustainability Management System, all new investment and project financing loans and project finance advisory services with an investment amount greater than or equal to USD 10 million are subject to environmental and social assessment.
This assessment is one of the steps leading up to the Credit Committee, as part of the Bank’s regular credit assessment process. The procedure of Assessment of Environmental and Social Risks in Lending Activities involves determining the risk category of the project in question, and developing action and monitoring plans accordingly. The assessment follows the Yapı Kredi Environmental and Social Risk Assessment (ESRA) Model. The model has been developed based on the relevant domestic regulations as well as the Environmental and Social Performance Standards of the International Finance Corporation (IFC). Corporate and Commercial Credit Management is the main responsible party in risk assessment and categorization efforts.
The Environmental and Social Risk Assessment Model categorizes projects/risks under three groups: high, moderate, and low risk.
Category A:Business activities that pose an environmental or social risk and/or have impacts that are diverse, irreversible, or unforeseen, and of significant severity. These constitute projects that pose a high environmental risk according to the Yapı Kredi Environmental and Social Risk Assessment Model.
Category B:Business activities which have limited negative environmental or social risks and/or have impacts that are few in number, usually specific to the project area, mostly reversible, and currently subject to mitigation measures. These constitute projects that pose a moderate environmental risk according to the Yapı Kredi Environmental and Social Risk Assessment Model.
Category C:Business activities that have minimal or no environmental or social risk and/or impact. These constitute projects that pose a low environmental risk according to the Yapı Kredi Environmental and Social Risk Assessment Model.
The actions and follow-up activities to be taken regarding high- and moderate-risk1 projects are as follows:
- The investor must provide complete project documentation as part of the Environmental Impact Assessment (EIA) Regulation (EIA Report, Project Presentation File, opinion letters, rulings, etc.) and must have obtained all temporary environmental and social permits.
- Throughout the investment process, the investor is required to ensure successful implementation of environmental and social measures as defined and approved in the EIA Report and the Project Presentation File, and prove consistent implementation of such measures through supporting documents.
- An external and independent Environmental and Social Consultant/Expert shall prepare an Environmental and Social Status Assessment/Action Plan and a Monitoring Plan that comply with the International Finance Corporation (IFC) Environmental and Social Sustainability Performance Standards to ensure that all environmental and social aspects of the investment are monitored and reported regularly.
- The investment shall be monitored via field visits to be carried out at least once a year by an external and independent Environmental and Social Consultant/Expert. Upon completion, the investment shall be monitored in the operating phase via one field visit and followed up. The loan contract shall include a provision that obligates the investor to comply with the Action and Monitoring plans.
For projects in the low-risk category, the investor’s environmental and social permits are checked and temporary permits are followed up. Environmental and social findings (if any) concerning the customer and the facility subject to the loan are followed up in credit review meetings at least once a year.
Results from the implementation of the Environmental and Social Risk Assessment Model are reported on an annual basis. The reporting results are disclosed within the first month following the completion of the relevant operating year. Implementation results are presented to the Sustainability Committee at the annual Sustainability Management System Evaluation Meeting.
The following are reported as part of the annual implementation results:
- The number of projects that are rejected directly without being evaluated in line with the Environmental and Social Risk Assessment Model due to non-compliance with the Environmental and Social Policy and the Exclusion List,
- The number of projects evaluated within the scope of the system and the total limit of loans granted, and,
- The risk evaluation distribution of the projects evaluated within the scope of the system.
The results of the evaluation conducted in line with the Environmental and Social Risk Assessment Model can be found in the Integrated Annual Reports.
The Environmental and Social Policy and the Exclusion List provided in the annex of the Environmental and Social Policy can be found here.
Yapı Kredi closely monitors the effectiveness of the Environmental and Social Risk Assessment Model through the regular training provided particularly to portfolio managers and to all teams responsible for the implementation of the model, and through internal audits. The portfolio managers and other relevant teams in all branches are provided with training on the Environmental and Social Risk Assessment Model.
The training was designed in order to ensure that the working mechanism of the ESRA Model is adopted by the relevant teams and to ensure capacity development in the integration of environmental-social impacts into credit risk assessment processes. The first internal audit for the implementation of the ESRA Model was carried out in 2021, and the ESRA Model is planned to be subject to internal audit every three years. Within the scope of the relevant audit processes, the operability of the system is examined in terms of appropriateness and sufficiency and suggestions of possible improvements are determined and followed up.
Yapı Kredi takes responsibility along with its customers to promote sustainable business and enable economic activities that create added value for the benefit of future generations. In this context, Yapı Kredi actively engages with its customers in order to support them in improving their environmental, social, and governance (ESG) performance.
Yapı Kredi engages with its customers through various communication channels, including webinars, podcast series, interviews and news in the press, and published reports to provide information. Yapı Kredi has reached out to more than 6 million customers through these channels and informed them about ESG issues.
1 For moderate-risk projects, the Environmental and Social Sustainability Risk Specialist from the Corporate and Commercial Credits Management team determines whether the project necessitates an Action and Monitoring Plan. If the services of an external Environmental and Social Consultant/Expert are not sought, environmental and social monitoring activities during the investment and operation stages are carried out by the Environmental and Social Sustainability Risk Specialist. The monitoring process involves field visits, which are held at least once a year throughout the investment process, and once after the investment is completed.
You can find more information about Sustainability at Yapı Kredi here.