Taken into account the environmental policy of the Bank it plays a key role to perform risk assessment for projects in order to review their environmental and social risks. Therefore it cannot support a transaction (referred to as the project) which has – according to the international standards and legislation – negative environmental impacts, as well as which demonstrably violates basic human rights standards or the implementation of the transaction results significant greenhouse gas emissions. In order to filter out these projects in an early stage of the financing process, the Bank applies environmental and social risk assessment.

Process of environmental and social evaluation:

Pre-screening – screening and assessment of project whether the transaction falls within the scope of the procedure. Pre-screening is to be implemented in the early phase of the financing. During requesting information from the exporter some basic information should be obtained according to the questions below:

 Transactions outside the scope of the procedure – i.e. project period does not exceed 2 years, and exports of goods / services relate to basic agricultural products and military assets (livestock, cereals, etc.) and where risk is not on the exporter – are not classified but indicated with “K” and are exempted from further steps during the environmental and social process.

Screening – all the information provided by the exporter is reviewed during the screening. If the project falls within the scope of the procedure according to the result of the pre-screening, further filtering is required. The tool of screening is a list of filter criteria.

Screening can be only applied to projects with a risk-taking period of more than 2 years and if the value of the transaction exceeds 10 million SDRs or if the project is on or near sensitive area or sector , or if based on the results of the screening it can be assumed that the implementation of the project involves potential environmental risk.

Classification – the project is classified into two main categories (new project or existing facility) and three environmental and social risk categories (A - sensitive, B - moderate, C - neutral). Further information can be obtained from the exporter if it is required.

The classification is based on the result of the project screening (basic questions and grading questions), as well as the result of the environmental and social questionnaire (hereinafter referred to as questionnaire).

Three categories of environmental and social classification:

• Category A: a project is classified as Category A if it has the potential to have significant adverse environmental and/or social impacts, which are diverse, irreversible and/or unprecedented. These impacts may affect an area broader than the sites or facilities subject to physical works. Category A includes projects in sensitive sectors or located in or near sensitive areas.
• Category B: a project is classified as Category B if its potential environmental and/or social impacts are less adverse than those of Category A projects. Typically, these impacts are few in number, site-specific, irreversible, and mitigation measures are more readily available.
• Category C: a project is classified as Category C if it has minimal or no potentially adverse environmental and/or social impacts.

The transaction should be classified if at least one of the following conditions is met:

• the project falls into a sensitive area and sector thus it might have potential environmental hazard;
• where the bank has a risk exposure of SDR 10 million or more;
• there is a high probability that the project might have serious human rights impact.

Result of the classification may vary flexibly (reclassification) on a case by case basis depending on the scope, depth and timing of the necessary information.

Information required for environmental and social risk categories:

• Category A: Environmental and Social Questionnaire, Environmental and Social Impact Assessment (hereinafter referred to as ESIA) and if it is necessary Human Rights Impact Assessment (hereinafter referred to as HRIA)
• Category B: Environmental and Social Survey Questionnaire (on a case-by-case basis ESIA)
• Category C: no further information is needed (on a case-by-case basis ESQ)

Assessment – The assessment of the environmental and social impact of the transaction is based on the Questionnaire and all the relevant information and documentation that had been provided previously. In order to be able to perform the appropriate evaluation of projects different kind of information should be obtained depending on the environmental and social category of the project.

In order to evaluate the financing of category A client must provide the ESIA on environmental impacts and documents on mitigating compensatory measures. ESIA may be requested on a case-by-case basis for assessing category B projects which has a moderate impact on the environment, but the classification and evaluation of the project will be implemented based on the outcome of the Questionnaire and the consideration of the relevant environmental impacts. For category C projects, only the result of the evaluation of the Questionnaire and the evaluation of the documents provided will be taken into account as the environmental and social risks of the transaction are negligible. However after evaluating the Questionnaire additional documents can be requested.

Decision – the Bank mainly take into consideration the information for which the customer is responsible in order to assess the environmental and social impacts of the projects. It is the responsibility of the client to be able to provide the necessary documentation, basic and additional information to the bank. In addition information which is independent from the customer can be requested for further consideration if it is required (e.g. from a funder, other insurer, green organization, etc.). Based on the outcome of the due diligence, the transaction will be accepted, conditionally accepted or rejected.

The decision is based on a complex evaluation process in which the bank accepts (unconditionally or in a conditional manner) the transaction if it meets the pre-defined criteria. According to the OECD common approaches, the Bank cannot support the financing if its implementation does not meet the technical standards or specifications of the host country or does not fulfil the requirements of the relevant international standards (which is more stringent) or its implementation might result a serious environmental and social impact and the restorative, compensatory measures do not offset the adverse environmental impact.

Monitoring – in case of all project classified as category A, the Bank requires regular ex post reports and related information to be provided during the involvement in the project to ensure that relevant potential environmental and/or social impacts are addressed according to the information provided by applicants during the environmental and social review. If project monitoring is stated as a condition in the contract client should periodically provide a monitoring report on the environmental and social impact as long as the Bank is in risk.

[1] The SDR/ EUR and SDR/USD market-rates are available on the IMF web-site.

[2] IFI (International Financial Institution)

[3] ECA (Export Credit Agency)