SUSTAINABILITY RISK MANAGEMENT POLICY

Transcription

1 SUSTAINABILITY RISK MANAGEMENT POLICY DATE 1 February

2 CONTENTS PAGE 1. INTRODUCTION General Effective date 3 2. RISK-BASED APPROACH Financing, advisory and investments in Corporate Banking Treasury, investors and indirect investments Record-keeping Sustainability Reviews Timing 6 3. ROLES & RESPONSIBILITIES Roles and responsibilities 7 APPENDIX I: GOVERNANCE FRAMEWORK 8 APPENDIX II: CLIENT- AND TRANSACTION APPROVAL PROCESS 9 APPENDIX III: SUSTAINABILITY RISK ASSESSMENT 11 2

3 1. INTRODUCTION 1.1. General NIBC Holding N.V. ( NIBC ) believes that companies that take their social & environmental responsibilities seriously are the companies of the future. Within our transaction process Environmental and Social (E&S) risks are assessed and managed. NIBC s Sustainability framework comprises of: - Sustainability Policies; - Sustainability Risk Management Policy; - Sustainability Toolkit. Sustainability Policy There is a general Sustainability Policy in place, underlying sector policies for the different sectors in which NIBC is active and an indirect investment policy. The policies define NIBC s expectations about responsible E&S risk management by our clients. In following these principles, NIBC ensures that we engage with responsible clients and in transactions that will have good performance outcomes. Sustainability Risk Management Policy This Sustainability Risk Management Policy describes how our Sustainability Policies are implemented; the approach, roles and responsibilities applicable during the sustainability (E&S) risk assessment of our clients. Sustainability Toolkit The online Sustainability Toolkit contains guidelines to assess the sustainability issues with clients and projects and is used to assess every new transaction and client. The Sustainability Framework applies to all financial services provided by NIBC, with the exception of our consumer banking activities. All Business Units (BU s) within NIBC s SBU s Corporate Banking and Treasury that enter into a relationship with a client will have to adhere to this policy. For different business activities a different approach applies. The Sustainability Framework falls within the existing risk management and client acceptance framework of NIBC. See Appendix I for sustainability within NIBC s Governance Framework Effective date NIBC s Sustainability Policies and Sustainability Risk Management Policy came into effect on July 1, In February 2013, the latest updated version came into effect. From time to time the policies may be amended if circumstances make this necessary. 3

4 2. RISK-BASED APPROACH As part of our risk management approach, NIBC takes into account the Environmental and Social (E&S) risks associated with a client or transactions and how these risks are mitigated or managed, so that we make fully informed decisions on all clients and transactions NIBC s Sustainability Policy applies to all our clients and transactions. NIBC does not want to engage with activities as defined on the exclusion list in the Sustainability Policy, and NIBC will refrain from doing business/ not engage with clients who have consistently demonstrated to violate the sustainability standards mentioned in our policies and do not provide any level of commitment to improve. We assess our client s commitment, capacity and track-record to manage environmental and social risks. NIBC recognizes that not all engagements require the same level of due diligence or management attention, and the time and resources dedicated to each business engagement should be commensurate with the E&S risk profile. Thus, each engagement is categorised according to the relationship with the client or counterparty and its potential E&S risks at an early stage in the engagement approval process. Based on this categorisation, decisions are made relating to the level of E&S due diligence required, the allocation of staff resource and the level of approval authority required Financing, advisory and investments in Corporate Banking Sustainability risk assessment for corporate banking clients is part of the risk assessment process (see Appendix II). The level of due diligence is dependent of the E&S risk profile of the client Initial risk assessment: Rapid Risk Screen The Rapid Risk Screen in NIBC s online sustainability toolkit is used for the initial risk assessment. This tool consists of a set of questions that enables NIBC to satisfy itself that the engagement does not involve any activities on the exclusion list and help to determine the potential level of E&S risk associated with each client or transaction engagement. The Rapid Risk Screen results in a red, amber, or green light similar to a traffic light system, which indicates the level of E&S due diligence required: Where the Rapid Risk Screen gives a green light, no further E&S due diligence is required. Engagement approval should continue under the regular approval process. Where the Rapid Risk Screen gives an amber light, detailed sustainability risk assessment (E&S due diligence) is required. Where the Rapid Risk Screen gives a red light, the client or transaction must be declined Sustainability risk assessment Further E&S due diligence in the form of a sustainability risk assessment is required where the Rapid Risk Screen results in an amber light. The E&S due diligence required, which would involve a 4

5 combination of client E&S due diligence and/ or transaction E&S due diligence, will depend on the type of product or financing products involved and the resulting exposure to E&S risks. (Corporate) Client relationships (lending, investments, advisory): NIBC assesses the client s commitment, capacity and track record to manage the E&S impacts of its activities. The Client Risk Assessment in NIBC s online sustainability toolkit can serve as guidance for the assessment. Project finance, project finance advisory or project-related corporate loans: NIBC will apply the Equator Principles as the E&S due diligence framework for all Project Finance transactions. This requires an assessment of the E&S risks associated with the project asset and the client s commitment, capacity and track record in managing E&S risk issues. The Sustainability Assessment in NIBC s online sustainability toolkit has to be completed. Asset finance and investments linked to a specific asset or asset pool or asset portfolio: NIBC will apply an assessment that is broadly consistent with the Equator Principles approach and that requires an assessment of both the transaction risk and the client s commitment, capacity and track record to managing those risks Risk level and approval The E&S due diligence will result in a category of low, medium, or high E&S risk. Depending on this outcome, different approval authorities and/or further E&S due diligence may be required as follows: Where the engagement E&S risk has been categorised as low E&S risk, no escalation is required and the client and/ or transaction can be approved by the regular approval authority. Where the engagement E&S risk is categorised as medium E&S risk, advice from the CSR team is required before the client and/ or can be approved. The client and/ or transaction can be approved by the regular approval authority. Where the risk category is high E&S risk, advice from the CSR team is required and the client and/or transaction may be referred back to the Engagement & Compliance Committee (ECC). After - and in case that - the ECC has approved, the client and/ or engagement can be approved by the regular approval authority. See appendix III for further guidance on the assessment and risk categorisation Asset management NIBC s asset management activities consist of debt investments or private equity investments. NIBC supports the UN Principles for Responsible Investments (PRI) as we believe that Environmental, Social and Governance (ESG) issues affect the performance of our investments. As described in sections NIBC s sustainability framework is applicable to all investments and ESG issues are part of our risk assessment-, investment analysis-, and decisionmaking process. In case we become shareholder, we take up an active role in Advisory or Supervisory Boards at the company. We work together with our portfolio companies, put ESG issues on the agenda, and encourage transparency. 5

6 2.2. Treasury, investors and indirect investments Next to our Corporate Banking activities as defined in section 2.1, NIBC is involved in transactions where the relationship with the client is of a different nature (and the influence we have or risks we are exposed to are significantly less). This includes asset & liability management activities of our Treasury department, investors in NIBC products or indirect investments. In these cases we still want to ensure our activities meet the standards as defined in NIBC s general Sustainability Policy and the exclusion list. Teams have to complete a high-level sustainability risk assessment of their clients, counterparties or transactions and record a statement in the risk assessment documentation to indicate that the sustainability performance is sufficient. In case of transactions with financial institutions by our Treasury department the Financial Institutions Policy applies. With regard to our indirect investments, we intend to act in line with our general Sustainability Policy and the exclusion list. The approach depends on the structure of the transaction. In case the indirect investment is managed by a third party or asset manager, we will assess whether the sustainability framework of this third party or asset manager meets NIBC s standards. In case the sustainability framework of the third party or asset manager does not meet NIBC s standards or is not available, we assess the underlying assets of the indirect investment (when possible and when given access to underlying names). In case of non-compliance with our general Sustainability Policy, we will refrain from investing in the fund or asset. If during periodic review, we become aware of conflicting issues or noncompliance with our Sustainability Policy, we will review our commitments Record-keeping A statement with regard to the sustainability risk assessment and the outcome have to be added to the KYC file and, if applicable, to the risk assessment documentation Sustainability Reviews It is the responsibility of the teams that manage a specific client file to include sustainability risk assessment in their periodic client KYC reviews or when issues arise. If any questions arise, the CSR team can be contacted for guidance. Depending on the issues that arise, they may be reverted back to the Transaction/ Investment Committee or Engagement and Compliance Committee for approval Timing As a principle the sustainability risk assessment should be conducted prior to closing a transaction or an agreement. Throughout the transaction process, the sustainability risk assessment should be made after initial contacts with the client and prior to sending a transaction or investment proposal to the Transaction or Investment Committee. Prior to closing a transaction or signing an agreement, the final sustainability risk assessment should be in place. 6

7 3. ROLES & RESPONSIBILITIES 3.1. Roles and responsibilities Prior to the formalisation of the engagement with a client, it is mandatory to ascertain whether the client meets the standards defined in the Sustainability Policies and by making an assessment of the E&S risks related to the client and the transaction. It is the responsibility of the commercial teams to ensure that the applicable checks are carried out as part of the client risk assessment process. The required checks depend on the type of client relation as well as the potential environmental and social risks related to the client and/ or transaction. Actions to be taken by relevant persons and responsibilities have to be embedded into the business processes. In case of sustainability risks, the CSR team should be consulted. The CSR team will give advice or recommend certain conditions. The sustainability risks and mitigating factors that are found as a result of the assessment should be presented to the relevant risk committee (TC/ IC/ ECC, depending on product or service offered by NIBC), who will include these issues in their risk assessment and decision-making. 7

8 APPENDIX I: GOVERNANCE FRAMEWORK NIBC Code of Conduct KYC Policy Sustainability Policies 8

9 APPENDIX II: CLIENT- AND TRANSACTION APPROVAL PROCESS In our client interaction and supply chain processes we consider sustainability issues and our impact on stakeholders. This is embedded through tools and processes at various levels. Our client risk assessment process includes 'Know-Your-Customer' checks which must be completed for all new clients and transactions to ensure they meet NIBC's standards on Customer Due Diligence and Sustainability. This includes: - Customer Due Diligence checks - Sustainability risk assessment and - Duty of Care Assessment Responsibility for these checks lies with the various commercial teams. Checks and balances are part of the transaction process to ensure compliance. Risk Management, Legal, Compliance, CSR and Internal Audit play a role to assess compliance with NIBC s different standards and risk assessment processes. Process and Responsibilities Before NIBC engages with a new client the business team is responsible for completing the following steps: 1. ECC approval All new clients and transactions are presented to the Engagement and Compliance Committee (ECC). The ECC assesses conflicts of interest and screens for compliance and sustainability-related issues for all new clients. The ECC decides whether the business teams can proceed with a specific client or project. The ECC comprises of all Managing Board members, Legal Counsel, Head of Compliance and Head of CSR. 2. Sustainability risk assessment After ECC approval, NIBC s online sustainability toolkit has to be completed to verify whether the new client meets the sustainability standards environmental & social issues such as human rights and labour standards which NIBC expects all clients to meet. Sustainability risks are part of the due diligence check on every new client and transaction. Outcome of the sustainability risk assessment will be discussed in the credit approval committee. The CSR team will be asked for advice in case of increased sustainability risks. 9

10 3. Credit Approval NIBC s Transaction Committee (or relevant other approval authority) will consider all relevant risks including commercial, legal, compliance and sustainability risks, before approving or rejecting a transaction. The Committee can also decide to approve a transaction under specific conditions. 4. Complete transaction process After the transaction has been approved, the business team in cooperation with other functions will complete the transaction, including completion of all internal processes and documentation. 5. Monitoring After a transaction has been closed, a review of the sustainability file will take place whenever a specific issue arises or as part of the periodic review process based on the risk level. 10

11 APPENDIX III: SUSTAINABILITY RISK ASSESSMENT Sustainability risk assessment Depending on outcome of RRS an increased sustainability risk assessment is required to: Identify key Environmental & Social risks related to client or transaction Assess the client s commitment, capacity and track-record to manage these risks; consider: What E&S issues and risks does the client consider? What policies or management systems does client have in place to manage these potential risks? Who is responsible for managing E&S/ CSR? Does client apply any of the industry standards or best practices? Is client transparent about activities? Has there been negative media attention, campaigns, etc. related to client? Conclusion: identify whether this client classifies as Low, Medium or High risk Guidance See NIBC s sustainability policies for different sectors for an overview of potential risks per sector and existing industry standards or best practices for managing sustainability risks. Use Client Risk Assessment in Sustainability Toolkit as guidance for the assessment of client s commitment, capacity and track-record to manage E&S risks. Use Sustainability Assessment in Sustainability Toolkit as guidance for the assessment of potential risks related to an asset or project and for the assessment of client s commitment, capacity and track-record to manage E&S risks. When not sure, contact CSR team for input, discussion or advice. Conclusion of sustainability risk assessment Motivate the overall outcome of the increased sustainability risk assessment and indicate the risk weighting of the client s commitment, capacity and track-record to manage relevant E&S risks: LOW risk Client has best practice policies and E&S risk management systems in place/or adheres to industry best practices; is transparent about its sustainability practices, providing formal/informal reports and information; engages with stakeholders; and has not been subject to negative campaigns or media attention in the last 3 years. MEDIUM risk Client does not have formal E&S risk management policies and system but shows awareness of E&S issues; has assigned responsibilities as evidence of commitment; is transparent, providing information on its website and as needed; engages with stakeholders; and has not been subject to negative campaigns or media attention in the last 3 years [or has shown ability to manage negative publicity and willingness to take corrective measures in response. HIGH risk Client operates in an environmentally and socially sensitive sector; does not recognize E&S risks; has no formal E&S risk management policies or systems in place; but indicates willingness to adopt E&S risk management measures. 11

12 MAXIMUM risk Client does not have E&S risk management policies & systems in place/does not act in accordance with existing policies and systems; has been subject to negative campaigns and media attention in the last 3 years; does not demonstrate transparency or willingness to take corrective measures in response. Possible outcomes and next steps LOW risk Add main findings of sustainability risk assessment and conclusion to TC/ IC proposal MEDIUM risk Consult CSR team for advice Add main findings of sustainability risk assessment, conclusion, and motivation + CSR advice to TC/ IC proposal HIGH risk Consult CSR team for advice CSR team may revert back to Engagement & Compliance Committee or may advice conditions to the transaction or further engagement with client. Add main findings of sustainability risk assessment, conclusion, and motivation + CSR advice to TC/ IC proposal MAXIMUM risk Consult CSR team for advice CSR team may revert back to Engagement & Compliance Committee NIBC does not want to engage with clients that have consistently demonstrated not to act in compliance with sustainability standards and do not demonstrate commitment to improve. Disclaimer Neither this position paper nor any of its contents may be used without the prior written consent of NIBC Bank N.V.. The information in this statement reflects prevailing market situations and our judgment as of this date, all of which may be subject to change. The information and opinions contained in this position paper have been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made as to their accuracy, completeness or correctness. No rights may be derived from any potential offers, transactions, commercial ideas et cetera contained in this position paper. This paper does not constitute an offer or invitation. This information shall not form the basis of or be relied upon in connection with any contract or commitment whatsoever. 12