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Management of Social and Environmental Risks

Currently, there is evidence showing that sustainable financing has considerably increased worldwide, and that it is growing persistently. The number of companies managing assets and that are now including social, environmental and governance factors in their investment selection process has increased from approximately 100 in 2006 to more than 1,000 in 2013, which represents nearly USD $ 35 billion in assets (United Nations Principles on Responsible Investment – UNPRI). A similar pattern has been observed regarding international project financing. Throughout the last decade, 78 large banks have adopted the Ecuador Principles for defining, assessing and managing environmental and social risks in project financing. These banks account for 70% of international project financing in emerging markets. Furthermore, the financial sector has achieved to create financial instruments for sustainable development, such as macro finances, carbon financing, impact investments and green investments.

With an adequate management of its environmental and social risks, a bank may substantially improve the general quality of its credit portfolio. Currently, the majority of international financial institutions (IFI), as well as bilateral and multilateral development agencies (e.g., IDB), follow appropriate environmental and social guidelines. Local FIs with an access to financial resources from IFIs are frequently required to apply environmental and social regulations of the latter to their own operations. Some IFIs, among them the International Financial Corporation (IFC) and the IDB promote the use of ESMS (environmental and social management systems) on a worldwide basis. Besides from bilateral and multilateral development agencies, several international funds for the environment have applied ESMS criteria for deciding about financial eligibility matters.

For example, among the financing mechanisms regarding climate change there are: the Global Environmental Facility (GEF), the Adaptation Fund and the Green Climate Fund. Design and implementation of an ESMS must consider:

  1. Guaranteeing the permanent support and back-up from the top management, for achieving personnel participation.  
  2. Integrating the ESMS into the operational procedures and the bank’s documentation, instead of creating an independent system.
  3. Planning the implementation process with other changes in operational procedures.
  4. Ensuring not to over load personnel and clients, maintaining nonetheless the practical and concrete nature of the system and its procedures.

 

How can we help you?

Bogotá - Colombia
Calle 26 No. 69D 91 / Of 303/306 / 702A 
Centro Empresarial Arrecife Torre Peatonal
Tel: +57 (1) 410 4122 | +57 (1) 295 8669 | +57 (1) 410 8988 | +57 (1) 704 8722 | +57 (1) 300 3355 | 

RSM Tax & Legal:  +57 (1) 7034060 
carrera 16 # 93A - 36 Oficina 204
Edificio Bussines Center 93

Aseguramiento financiero:
+57 (1) 742 8721

BPO
+57 (1) 7039815

Medellín - Colombia
PBX + 57 (4) 266 64 74
Calle 16 # 41 - 210
Oficina 901
Edificio La Compañia 

Cali - Colombia
Tel: +57 (2) 6608900 
Calle 19N No. 2N - 19 Oficina 3401-B
Edificio la Torre de Cali

Bucaramanga - Colombia
Tel: +57 (7) 6577704
Tel: + 57-310 6098108
Carrera 27 36-14 Oficina 325
Centro Empresarial Sura

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