Clara Nwachukwu
Development Bank of Nigeria (DBN), has developed an Environmental and Social Risk Management (ESRM) Policy, to shield it from associated risks by introducing a systematic approach to the management of relevant social and environmental issues in its business processes and operations.
The policy, which was obtained by Sustainable Economy, outlines the Bank’s overall approach and parameters for the provision of responsible financing in line with the Central Bank of Nigeria (CBN) Sustainable Banking Principles.
Responsible financing involves actively removing or choosing investments based on specific ethical guidelines along environmental, social, and governance (ESG) practices for sustainable long term goals.
Worldwide, development finance institutions (DFIs) domesticate the Environmental and Social Risk Management framework, a set of six principles developed by the United Nations Environment Programme Finance Initiative (UNEP FI) to help them manage associated risks.
Under the CBN Sustainable Banking Principles for instance, are a set of nine guidelines for managing environmental and social risk, footprint, and governance, as well as improving human rights, women’s economic empowerment, financial inclusion, capacity building, collaborative partnerships, and reporting in the financial services sector.
DBN therefore believes that integrating environmental and social (E&S) considerations into decision-making processes relating to its business activities will help “to avoid, minimize or reduce, or compensate for/offset risks and negative impacts.”
This, it noted, is in recognition that in the delivery of its lending and investment, it may be exposed − through the Participating Financial Institutions (PFIs) to the E&S risks associated with the business activities of the sub-borrowers and sub-projects they finance.
The United States Forum for Sustainable and Responsible Investment (US SIF), notes that some investors embrace sustainable investing strategies to manage risk and fulfil fiduciary duties. “They review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges,” it added.
Against this backdrop, DBN demands that the PFIs must develop and maintain adequate systems, procedures, and capacity for identifying, managing, and monitoring risks and impacts of sub-borrowers, and sub-projects commensurate with the types, scope, and nature of financing provided.
Integrating environmental and social considerations into decision-making processes relating to business activities will help to avoid, minimize or reduce, or compensate for/offset risks and negative impacts.
To ensure a seamless process the DFI said it “supports the capacity development of the PFIs to manage environmental and social risks. This is achieved primarily through the development and implementation of an Environmental and Social Management System (ESMS).
ESMS objectives
The ESRM Policy posted on the DBN’s website: https://www.devbankng.com/policies, listed four specific objectives from the ESMS. These include:
- Integrate ESRM considerations into the DBN’s credit and investment decision-making processes.
- Fully implement and comply with national requirements for E&S risk management in Nigeria, as well as DBN’s bilateral and multilateral lenders and/or shareholders requirements.
- Set out requirements for the PFIs for assessment and management of environmental and social risks and impacts associated with sub-borrowers and subprojects they finance.
- Promote greater transparency and accountability on E&S issues internally and externally through disclosure and reporting.
E&S requirements
The ESRM policy also specifies applicable E&S requirements and standards, such as procedures (record keeping, disclosure, and reporting) for screening, identification, assessment, mitigation, and monitoring reporting of risks, and reporting to internal and external stakeholders on implementation.
The policy equally specifies the roles and responsibilities within the organizational structure for managing and monitoring E&S risks as well as resources for implementation such as organizational capacity, budget, and training.
