Environmental and social risk in lending

These risks can be complex and depend on a range of factors which include the sector and geographical location of the borrower and the type of transaction. They can be categorised as:

• Direct – circumstances in which we could be held liable for the polluting activities of our borrower
• Indirect – the inability of a client to make payments due to unforeseen social and environmental costs or liabilities
• Reputational – arising through our perceived association with environmentally and/or socially sensitive activities.

Our approach and governance

Barclays approach to environmental and social risk management is based on a combination of policy and guidance. This enables us to adopt a robust approach, while maintaining the flexibility to consider potential clients and transactions on their respective merits. Our focus on risk means that environmental and social issues are incorporated into our core credit decision-making process.

We have a dedicated Environmental and Social Risk Management team who advise on transactions where there are potential environmental or social sensitivities. The team is part of our Risk function and is supported by a network of specialists at local and regional level.

Watch a short film about how we manage social and environmental risk

Policy and guidance

Our Environmental and Social Impact Assessment Policy (ESIA) applies to project finance proposals, or where funds are being raised for a specific asset which may give rise to environmental or social risks. It is also the mechanism through which we apply the Equator Principles (see risk assessment).

The policy is supported by a ‘risk tool kit’ which consists of a range of internal guidance documents to assist with implementation. These include a detailed ‘ESIA process’ document, an Equator Principles categorisation screening tool, sample contractual terms of reference to ensure impact assessments are compliant with the Equator Principles and sample clauses for loan documentation.

We have also developed detailed guidance notes for sectors where environmental and social risks are common. These guidance notes have also been adopted by the UN Environment Programme Finance Initiative (UNEP FI) and are available to all UNEP FI signatories. The notes cover:

• Agriculture and fisheries
• Chemicals and pharmaceuticals
• Forestry and logging
• Manufacturing
• Infrastructure
• Mining and metals
• Oil and gas
• Power generation
• Service industries, including healthcare and telecommunications
• Utilities and waste management.

We review all our policies and guidance notes every year to ensure we are taking account of emerging issues and trends. For example, in 2011, we updated our oil and gas guidance note to take account of growing concerns about the potential impacts of ‘fracking’ (using hydraulic fracturing to extract oil or gas from shale rock formations) and the power generation and supply briefing note was amended to include the potential impacts of the Fukushima nuclear incident in Japan.

We also incorporated more detailed human rights criteria into our existing risk management process during 2011, as a result of the updates made to the UNEP FI human rights tool kit. These changes took into account the ‘Protect, respect and remedy’ framework issued by the UN Special Representative on Business and Human Rights, John Ruggie, in 2011. There’s more on our approach to this area in Respecting human rights.

We also have a specific policy in relation to lending to operators in the nuclear power industry. The policy has been in place since 1996 and recognises the particular issues and sensitivities associated with this sector, setting minimum criteria for any loans we might make. It covers all transactions involving companies where radioactive materials are a key component of their operations or power supply.

For more information on our ESIA Policy and approach visit our website or email citizenship@barclays.com to request copies of our guidance notes.