Yes. For non-project-related transactions we conduct an environmental and social risk review, where we look at factors such as country, track record, sector and environmental and social management capacity of the client, to provide an overall assessment of environmental and social risk. For these reviews we use information sources such as subscription databases, public information and corporate environmental reporting. The outcome of the environmental and social risk review is a risk rating (such as high, medium or low) which helps guide the decision-making process for the transaction.

Early in the project review process, we categorize projects based on their potential for adverse environmental and social effects, which then determines the nature and scope of the environmental and social review and the documentation required.

Categorization can depend on many factors, including the scale and nature of the project and its potential impact. Factors include whether the project: is greenfield (built on land that has never been used before) or an expansion of existing facilities; is encroaching on environmentally sensitive areas; could result in the loss of a natural habitat; will affect vulnerable or Indigenous groups or involve land acquisition and involuntary resettlement; or will affect a cultural heritage site. During the initial stages of the review, we may change the original categorization if new information becomes available; however, this is not common. We follow common international practice and categorize projects as follows:

• Category A: Likely to have significant adverse environmental effects that are sensitive, diverse or unprecedented. Effects may extend beyond the project site and may be irreversible, or the project may be planned to be carried out in a sensitive location.
  
• Category B: Environmental effects are less adverse than the potential effects of Category A. Effects are usually site-specific. Few, if any, are irreversible and in most cases mitigation measures can be designed more readily than for Category A.
• Category C: Likely to have minimal or no adverse environmental effects and an environmental review beyond categorization is not required.

Our environmental and social risk management department benchmarks projects to international standards. They review the potential environmental and social impacts of a project and determine whether the impact is at acceptable levels based on their judgment and in accordance with international standards. We refer to the World Bank Group's standards and guidelines to conduct project reviews. Project finance transactions are benchmarked against the IFC Performance Standards as referenced in the Equator Principles and the OECD Common Approaches. If other international financial institutions are involved in a project we are reviewing, we may also use the standards of these institutions as benchmarks. If a transaction meets international standards, it can be supported by EDC.

Yes. If a transaction poses an unacceptable environmental and/or social (including human rights) risk, we will decline support. These transactions are most often screened out early in the business development cycle.

Yes. Our Environmental and Social Review Directive spells out what we expect in terms of public consultations. For Category A projects, we require that culturally appropriate consultations are conducted with communities that might be affected by a project, and that the results of these consultations are taken into account during the environmental and social assessment of the project. We then evaluate the documentation of these public consultations to ensure our expectations and international standards are met.

Recommended covenants that establish the project’s environmental and social commitments vary on a case-by-case basis, depending on the nature of the project and the outcome of the environmental and social risk review. We normally confirm that a project is in compliance with the host country laws and regulations through warranties and representations. Examples of other project requirements include conformance to international standards, timely reporting of environmental incidents and accidents, and submission of annual monitoring reports. Generally, environmental monitoring requirements are expected for Category A projects but may also be recommended for Category B.

The sponsor (borrower) is responsible for providing project reporting. To ensure projects are constructed and operated as designed, project monitoring generally involves reviewing the sponsor’s annual monitoring reports and relevant project environmental and social documentation such as quarterly project reporting and any updated environmental and social management/action plans. We, or an independent consultant, may also perform a site visit. After reviewing these reports, our environmental and social risk management department provides its opinion on the project’s environmental and social compliance or identifies potential environmental and social issues that may have arisen.

Where non-compliance with a reporting requirement occurs, or where we are made aware of environmental and/or social non-compliance issues, we first seek to resolve the issues through the borrower/client by having them undertake corrective actions.

Our overarching ESRM Policy sets out our commitments and approaches when considering transactions. The accompanying Environmental and Social Risk Management Guideline supports the policy’s application and details the due diligence processes we undertake.

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This directive is a requirement of the Export Development Act, and is one of the processes through which we manage environmental and social risks for project-related reviews. It requires us to: 

• determine whether a project is likely to have adverse environmental and/or social effects, despite mitigation measures
• categorize the project in alignment with OECD and Equator Principles
• carry out our due diligence process based on the category of the project

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EDC supports the 2015 Paris Climate Change Agreement and has committed to net zero emissions by 2050. Our Climate Change Policy provides the strategic foundation of our commitments to address climate-related risks and opportunities through measurement, engagement, green financing, risk management systems and reporting. 

Details about how we’ve integrated climate change into our environmental and social review processes are found in our Due Diligence Guideline: Climate Change document. The framework establishes clear parameters for transactions involving thermal coal power, mining or dedicated thermal coal-related infrastructure, as well as approaches for identifying climate-related risks in both project and non-project transactions. 

Our assessment of a company’s climate-related credit risk is influenced by actions it has taken or intends to take to minimize its contribution to climate change, as well as its industry sector, geography and vulnerability to transition risks for non-projects and transition and physical risks for projects.

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Our Human Rights Policy provides the principles and commitments that guide our human rights approach and internal decision-making process regarding the transactions we support.

The policy commits us to build and use our leverage to prevent and manage human rights impacts that we might be connected to through our customer relationships, and to enable remedy when impacts nevertheless occur. We developed the Principles on Leverage and Remedy to put these commitments into practice across our business.

The Due Diligence Guideline: Human Rights provides additional details as to how EDC has integrated human rights into our approach to environmental and social due diligence.

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