Risk assessment

Social and environmental risk assessments are an integral part of our credit risk management process. We automatically review any project finance application for more than US$10m, as stipulated by the Equator Principles, but we also review applications below this threshold on a case by case basis. Other types of transactions that involve sensitive regions or sectors are also referred for further assessment and advice where this is appropriate. The Environmental and Social Risk team reports its findings back to the Credit Risk team, which feeds into the final decision-making process.

The Equator Principles – project finance

The Equator Principles (EP) is an internationally recognised framework for assessing the social and environmental risks of project finance transactions. It is based on the International Finance Corporation Performance Standards. Barclays was one of four banks that helped establish the Principles in 2003 and we are still playing a leading role in their ongoing development. We are on the Steering Committee and participated in the update of the EPs which will be issued in 2012. We also retain leading roles on the working groups on Climate Change and Social Risks.

Our project finance lending for 2011 is detailed below. The non-project finance numbers represent those transactions where the Environmental Risk Management team have reviewed transaction documentation and provided specific advice during 2011. This includes transactions that commenced in 2010 but where review and engagement was ongoing in 2011. Transactions that required relatively minor inputs are not included.

Project finance transactions by geography	2011

Project finance transactions by risk category	2011

In 2011, a total of 219 transactions were referred to the central Environmental and Social Risk Management team, of which 26 were project finance transactions. In general, project finance represents a relatively modest proportion of total transactions across our lending book, and transaction numbers overall have decreased due to the economic climate.

Transactions screened in 2011

Other areas of transactional risk

Environmental screening

Barclays also has an Environmental Risk Management team in Corporate Banking, with policies in place to assess transactional environmental risks, for example, those associated with any commercial land and property offered as security for a loan. Our panel of property and land valuers use our bespoke environmental screening tool, Barclays SiteGuard, to assess the commercial history of a piece of land and its potential for environmental contamination, as well as the implications of a site’s current or intended commercial use. Where appropriate, cases are then referred to Environmental Risk Management for review. Last year, 3,913 commercial properties were screened using this tool, of which 1,167 were referred to the Environmental Risk Management team. An additional 463 cases were referred by colleagues in other parts of the organisation.

Commodities trading

Barclays conducts a variety of markets-related activities globally to support its clients. These include commodities trading, where we act as an intermediary. Our clients in agricultural commodities include investment companies, food producers and consumers who, among other things, seek our help to manage risks.

An active futures¹ market in agricultural commodities ensures that producers and consumers can gain access to risk management products, enabling them to manage sudden upwards or downwards movements in their prices. Consequently, by using futures they can plan for more predictable cash flows and better manage rapid price movements, thereby reducing unexpected costs, which may otherwise be passed on to the end consumer. Broad participation in these markets increases liquidity² and contributes to a more transparent pricing environment, which benefits both producers and consumers.

We recognise that there is a perception held by some stakeholders that participation in agricultural futures markets by some participants can unduly influence the prices of commodities. As a result, we continue to carefully monitor market trends and any research produced on this subject. To date, a variety of independent official studies conducted by the World Bank and other leading organisations indicate that potential factors influencing food prices are complex and multiple, ranging from weather conditions, political action (such as export bans) and enormous rising demand from emerging markets as living standards rise.