As the trade environment grows ever more complex, we know that strong risk management is key to business success and is a critical element of how we are living up to our ESG commitments.
Conducting business in a responsible manner is integral to EDC, and something we take seriously. We look for opportunities to enable sustainable and responsible business practices. Our due diligence process allows us to identify risk, work with companies to help mitigate that risk, and then actively monitor progress.
Our due diligence processes are aligned with international best practices and consider financial risks as well as risks related to business ethics, financial crime, the environment, human rights and other social factors. If we are uncomfortable with the risk profile of the transaction or if it does not meet our requirements, we do not proceed with providing support.
If we identify specific issues during due diligence—whether at the start of the process or after the transaction is signed—we take steps to understand the issue and take appropriate action.
Consideration and assessment of environmental, human rights and other social factors are core to our review process. The Q&A below is designed to provide more information about our process
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:
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.
Trade involves environmental and social risk, making it critical that we have strong procedures to identify and manage them. Our Environmental and Social Risk Management (ESRM) framework guides our approach and is aligned to international agreements and standards, including the OECD Common Approaches, the UN Guiding Principles on Business and Human Rights, and the Equator Principles. It consists of:
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.
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:
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 Framework: 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.
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 Framework: Human Rights provides additional details as to how EDC has integrated human rights into our approach to environmental and social due diligence.
Every three years, we invite our stakeholders to offer input and constructive feedback on the framework’s policies. The review process enables us to identify opportunities to better align the policies with our ESG practices, business activities, customer needs, and emerging environmental and social risk management best practices.
Business integrity is strongly linked to our risk management practices. With a mandate to help Canadian companies do business in some of the most challenging markets in the world, it’s critical for EDC to have strong policies, guidelines and controls related to business integrity and to live up to them in every instance.
Some of the ways we support business integrity include:
Explore our policies, reports and other reference materials related to ESG risk management at EDC.
EDC’s overarching policy that sets out our commitments and approaches for environmental and social risk management.
Supports the application of the ESRM Policy.
Outlines the environmental and social review processes we undertake for project financing transactions.
Provides the strategic foundation of our commitments to address climate-related risks and opportunities through measurement, engagement, green financing, risk management systems and reporting.
Outlines how our climate commitments are integrated into our risk assessment processes.
Drives our approach to human rights, including decision-making for the transactions we support and the actions we take.
Outlines how our human rights commitments are integrated into our risk assessment processes.