A Guide to Assessing and Implementing the Universal Standards for Social and Environmental Performance Management

Dimension 7 – Environmental Performance Management

In a context where climate change and environmental degradation are already affecting every region of our planet, and in particular the most vulnerable populations, it is clear that financial and social sustainability objectives will not be achieved without considering environmental issues. FSPs should seriously engage in improving their environmental performance, avoiding generating negative environmental impacts and contributing to foster climate change adaptation, environmental risk mitigation and regenerative solutions.

Dimension 7, which Cerise+SPTF co-developed with the e-MFP Green Inclusive and Climate Smart Finance Action Group (GICSF-AG), lays out the key practices that FSPs should implement to manage their environmental performance.*

This dimension has 3 standards:

*NB – The standards and essential practices of Dimension 7 are fully aligned with the Green Index 3.0 developed by the GICSF-AG of e-MFP. The Green Index 3.0 provides an in-depth analysis to providers willing to develop a detailed action plan; Dimension 7 provides a practical analysis for providers willing to develop an action plan consistent with their social performance management strategy, in the frame of the Universal Standards.

External Resources for Dimension 7

Standard 7A. The provider has an environmental strategy and systems in place to implement it.

In line with Dimension 1 and Standard 1A expecting the provider to have a strategy to achieve its social goals, having an environmental strategy and systems in place to implement it enables the provider to manage environmental performance in a well-thought, global and systematic way, according to its priorities, context of operations and resources, and in consistency with its financial and social objectives.

This standard has 3 essential practices:

7.A.1 The provider has a strategy to achieve its environmental goals.

Having a documented strategy with specific environmental goals, indicators and targets, provides a framework for implementing well-thought, relevant, consistent actions for environmental performance management.

7.A.1.1 The provider has a documented strategy that specifies its intention to achieve at least one of the following environmental goals:

  • Reduce the provider's own adverse impacts on the environment
  • Reduce clients' vulnerability to climate change and environmental degradation
  • Reduce clients' adverse impacts on the environment
  • Foster the adoption of green practices and technologies, and meet clients' demands and needs for them

The existence of a formal strategy with environmental goals shows the strategic commitment of a provider. It holds the provider accountable to this commitment and gives a signal to internal and external stakeholders. It provides a framework of action for the provider.

Scoring guidance

To answer ‘yes’, the provider should have a formal written strategy, rather than an informal or oral one. It could be either a separate environmental strategy, or part of the provider’s overall strategy. The strategy should specify concrete environmental goals relevant to the context of operations of the provider.

If the environmental goals exist but are too vague or too ambitious, then the answer should be ‘partially’.

If the strategy is informal but it is possible to verify that environmental goals exist and are known in the organization, then the answer can be ‘partially’.

Sources of information
  • Strategy/business plan
  • Interviews with CEO/managing director
  • Interviews with branch managers
  • Interviews with field officers
Evidence to provide

Specify how and where (which documents) a commitment to environmental goals is stated. Terms like “environment”, “ecological”, “climate change”, “green” or “planet” should be mentioned directly. If the term “sustainability” is used, it should explicitly be defined as encompassing environmental sustainability, not just financial and social sustainability.

Resources

7.A.1.2 The strategy defines indicators and targets to measure the provider's progress toward its environmental goals.

Clearly defining indicators and targets makes it possible to measure whether the environmental goals are being achieved.

Scoring guidance

To answer ‘yes’, the provider should have defined in its strategy documents precise quantitative targets and indicators. The targets should be SMART: Specific, Measurable, Attainable, Relevant, and Time-bound. There should be at least one target for each environmental goal.

If only few targets are set, or they are not SMART and not really actionable, the answer is ‘partially.’

Sources of information
  • Strategy/business plan
  • Operational plan/action plan
Evidence to provide

Give examples of precise quantitative targets found in strategy documents

Resources

7.A.1.3 The provider operates in accordance with national and international laws and regulations on environmental protection.

Financial service providers are increasingly seen as accountable for their potential impact on the environment.
Making sure that operations and procedures are compliant with national and international laws and regulations on environmental protection is now a critical, minimum step to avoid legal and reputation risks, engage in environmental protection, and reassure investors.

Scoring guidance

To answer ‘yes’, the provider should have identified the national and international laws and regulations on environmental protection relevant to its operations, and made sure that its operations and procedures are fully compliant. This review and compliance check can be done by the Internal Audit department, and should be conducted on a regular basis (annually).

If the relevant laws and regulations are clearly mentioned in strategy documents and regular compliance check
is documented, for example at the Board or top management levels, the answer can be ‘yes’.

If the identification of relevant laws and regulations and the compliance reviews are regularly conducted but
not formally documented, then the answer should be ‘partially’.

Sources of information
  • Strategy/business plan
  • Manual of operations/procedures
  • Internal audit procedures
  • Board minutes
  • Interviews with CEO/managing director
  • Interviews with Internal Audit department
Evidence to provide

Specify which laws and regulations have been identified by the provider and how the provider makes sure to comply with them.

7.A.2 The provider collects, analyzes, and reports data that are specific to its environmental goals.

Collecting, analyzing and reporting environmental performance data is a strong signal that the provider is indeed committed to achieving its environmental goals. It enables the provider to track progress towards objectives, identify gaps, and define follow-up actions to improve its performance. It also allows communicating on results both internally and externally and building an image of environmental responsibility.

7.A.2.1 The provider collects the following data on an ongoing basis to measure whether it is achieving its environmental goals. Minimum frequency: annually

7.A.2.1.1 The provider's own adverse impacts on the environment
7.A.2.1.2 Clients' vulnerability to climate change and environmental degradation
7.A.2.1.3 Clients' adverse impacts on the environment
7.A.2.1.4 Outcomes related to its green products and services, including both positive and negative changes for clients, their households, and the environment

Collecting data is critical to monitor progress towards environmental goals, identify gaps, and define follow-up actions to improve environmental performance. The provider should have a formal process to collect quality data on a regular basis (at least annually) for each of the environmental goals defined by the provider. In particular, the providers should collect data on its internal ecological footprint (i.e. its own adverse impacts on the environment / the negative impacts generated at the level of the provider’s head office and branches) and on environmental risks at portfolio level (i.e. clients’ vulnerabilities to climate change and environmental degradation and clients’ adverse impacts on the environment). When a provider offers “green” products and services, it is also important to measure not only the outreach, but also the outcomes of these products and services, in order to check that they do bring the expected benefits to clients, their households, and the environment.

Scoring guidance

To answer ‘yes’, the provider must have a formal system/process in place for regular data collection and analysis, and it must have collected data on a regular basis, at least annually.

If the provider only collects environmental performance data informally (e.g. through qualitative feedback from field officers), or if the provider does not collect such data every year, or if the provider only collected such data once, then the answer should be ‘partially.’

If data is just focusing on portfolio/volume allocated to “green” products, and not on the outcomes for clients, their households and the environment, the answer should be ‘no’.

Sources of information
  • MIS
  • Management reports
  • Carbon audit / Evaluations / Clients’ surveys
  • Interviews with IT / Marketing Department / SEPM Manager
Evidence to provide

Specify what data is collected, through which channels and at what frequency.

Resources

7.A.2.2 The provider reports environmental performance data internally and externally. Minimum frequency: annually.

Regular reporting allows the provider to track progress and monitor the environmental strategy. Moreover it makes the institution accountable to its environmental achievements internally and externally, and shows its commitment to transparency.

Scoring guidance

To answer "yes", the provider must publish and share reports on its environmental performance both internally (i.e. for Board, management, employees) and externally, and at least on an annual basis. The reports should include key performance data related to the provider’s environmental goals. Reporting on environmental performance data can be done either through dedicated reports, or as part of more global performance reports.

If the reporting is done only internally and not externally, or if it is not done on a regular basis, or if it has been produced only once, the question should be answered "partially".

Sources of information
  • Management reports
  • Annual report
  • Institutional website
  • Atlas database
  • Interviews with branch managers
  • Interviews with loan officers
Evidence to provide

Specify the kind of reporting done (target audience, format, content) and its frequency.

Specify how results are shared with employees and stakeholders.

Resources

7.A.3 The provider's governance and management structure ensures the  implementation and oversight of the environmental strategy.

In line with Dimension 2 on Committed leadership, having an environmental strategy is of little value if it is not being implemented. The Board and management play a key role here in ensuring that environmental issues are fully considered in decision-making, and that employees at all level are well informed and trained on their responsibilities.

7.A.3.1 The Board and management make strategic decisions based on the following environmental performance data. Minimum frequency: annually.

7.A.3.1.1 Analysis of the provider's own adverse impacts on the environment
7.A.3.1.2 Proportion of the portfolio that is vulnerable to climate change and environmental degradation, and the proportion generating adverse impacts on the environment
7.A.3.1.3 Positive and negative outcomes for clients from implementing green practices and technologies.

The Board and management priorities should be consistent with the provider’s environmental strategy. The Board and management should adopt a balanced approach to performance management, using financial, social, and environmental data to make decisions.

Scoring guidance

To answer ‘yes’, the board and management minutes should reflect discussions on the topics listed in the details, based on updates from management and reports, provided with internal environmental check/ data (7.1.3.1.1), a careful portfolio segmentation aligned with the level of environmental risks (7.A.3.1.2), or outcomes data collected from clients (7.A.3.1.3), at least once a year.

If the Board or management only has informal or partial data to discuss, or only checks these data on an irregular basis, the answer should be ‘partially’.

Sources of information
  • Board/management meeting minutes
  • Reports sent to Board/management
  • Interviews with Board members
  • Interviews with the CEO/managing director
Evidence to provide

Specify the date of the board/management meeting minutes where information is found, and/or reference to examples cited during interviews with board members or CEO related to strategic decision-making on environmental issues. Give examples of decisions/concrete actions taken based on analysis of environmental performance data.

7.A.3.2 The provider defines roles and responsibilities for implementing the environmental strategy.

7.A.3.2.1 A dedicated senior management person or team is responsible for the execution of the environmental strategy.
7.A.3.2.2 The provider integrates its environmental strategy in job descriptions and objectives for all relevant roles.

To ensure that the environmental strategy is implemented, the provider must assign clear roles and responsibilities.

Having a dedicated person or committee tasked with managing environmental issues improves chances of achieving progress. It shows that there is someone in the institution who is accountable for managing the environmental dimension. While senior management should be ultimately responsible for achieving environmental objectives, they may lack the expertise or the tools to do so. Many providers have found it useful to assign a dedicated function to supporting the management in making decisions—for example, an environmental manager dedicated to defining and monitoring environmental goals. It does not need to be a full-time function and can be a part-time one, depending on the size of the provider and the ambition of the environmental strategy. To be heard from other colleagues, this person or team should be of sufficient seniority and/or strategic function.

The risk of having only a dedicated person or team is however to create a silo around environmental issues. It is thus critical that the provider also assigns roles and responsibilities related to the environment to all relevant functions within the institution, from field officers to top managers, in particular through job description and objectives. All departments and levels usually have a role to play in implementing the environmental strategy (e.g. promoting green loans at field officers’ level, including environmental issues in staff training for the HR department, checking compliance with environmental laws and regulations for the Internal Audit department, etc.).

Scoring guidance

For 7.A.3.2.1
To answer ‘yes’, at least one person of sufficient seniority should formally have part of his/her time dedicated to managing environmental topics.

If there is an informal commitment and evidence can be provided to demonstrate, then the answer should be ‘partially.’ If the assigned person or team is not in senior management, the answer should also be ‘partially.’

For 7.A.3.2.2
To answer ‘yes’, job descriptions and employees’ objectives should formally integrate roles and responsibilities in implementing the environmental strategy, at all level of the institution (from field officers to top managers, for all different departments).

If roles and responsibilities are not formally defined in job descriptions but there is strong evidence that employees, for all relevant functions, are aware of their roles and responsibilities in implementing the environmental strategy, the answer should be ‘partially.’

Sources of information
  • Job descriptions
  • Employees’ annual objectives
  • Interviews with CEO/managing director
  • Interviews with HR
  • Interviews with branch managers
  • Interviews with field officers
Evidence to provide

For 7.A.3.2.1

Specify the person or team assigned, and its role in the oversight of the environmental strategy. Refer to the profile/experience of the person(s) to show that they have sufficient seniority.

For 7.A.3.2.2

Specify how job descriptions and objectives integrate the environmental strategy, and for which employees.

Resources

7.A.3.3 The provider trains board members, management and employees on their respective roles and responsibilities, and builds capacity as needed, for implementing the environmental strategy.

In order to successfully support, safeguard or implement the provider’s environmental strategy, board members, management and employees all need to understand what the environmental objectives are and how they should contribute achieving them. Capacity-building is even more crucial as environmental issues may be new, little known, not seen as a priority, and often quite technical. Regular trainings should thus be organized at different levels to make sure that board members, management and employees are familiar with the environmental strategy and their responsibilities, and to progressively build internal capacities on environmental issues, according to the areas of actions defined by the provider (e.g. renewable energy, climate-smart agriculture, environmental risk management, etc.).

Scoring guidance

To answer ‘yes’, the provider must systematically include a session on the provider’s environmental strategy and explanations of respective roles and responsibilities in all orientation / integration trainings for new Board members / managers / employees. It should also organize regular trainings to build capacities on environmental issues (at least every 2 years).

If the trainings are not conducted in a systematic and regular way, or if they are only conducted for a limited audience (e.g. only for Board members, but not for employees), then the answer should be ‘partially.’

Sources of information
  • HR policy
  • Annual training plan
  • Training materials
  • Interviews with HR
  • Interviews with Board members
  • Interviews with management
  • Interviews with field employees
Evidence to provide

Specify how and when board members, management and employees are trained on the environmental strategy of the provider, on the roles/responsibilities of each internal stakeholder, and on specific skills for environmental management. Give examples of recent trainings in relation with those subjects.

7B Standard The provider identifies and manages environmental risks and opportunities.

Environmental issues are broad and very diverse. To engage in environmental performance management, it is important that the provider first identifies the environmental risks and opportunities relevant to its context of operations. Then it can define relevant strategies to mitigate these risks and/or grasp potential opportunities.

This standard has 3 essential practices:

7.B.1 The provider identifies and manages its own environmental risks at  headquarters and branch level.

This Essential Practice focuses on environmental risks at the provider’s level (while 7.B.2 focuses on environmental risks at portfolio or client level). It looks both at the environmental risks faced by the provider (i.e. the vulnerability of its headquarters and branches to climate change) and the environmental risks generated by the provider’s activities (i.e. the adverse impacts of its internal activities on the environment).

7.B.1.1 The provider assesses the vulnerability of its properties, buildings, and human resources to climate shocks.

With climate change, heat waves and dramatic climate events are becoming more and more frequent and serious, affecting all countries around the world. Some regions are more particularly affected, depending on their exposure, sensitivity and adaptive capacity. For a provider, these climatic shocks may directly affect their properties, buildings and human resources (e.g. heat waves creating hard work conditions, floods damaging buildings and properties, mudslides threatening lives, etc.). In the end, it can affect the provider’s capacity to operate, and thus translate into operational and financial risks. Assessing the vulnerability of its properties, buildings and human resources to climate shocks is a first step to be able to manage such risks.

Scoring guidance

To answer ‘yes’, the provider must have mapped key climate risks that have or can impact its headquarters and branches (key climate risks may be floods, heavy rains, typhoons, mudslides, drought, heat waves, etc.). The mapping should be done per branch / area of operation, and specify the likelihood of occurrence and significance of impact. The provider must also assess its strengths and weaknesses in facing these hazards to gauge its level of vulnerability.  This assessment should be updated at least every two years.

Sources of information
  • Risk mapping
  • Interviews with Risk Management
  • Interviews with the dedicated person on environmental strategy (if applicable)
Evidence to provide

Specify how the climate risk assessment / climate risk mapping is conducted and at what frequency.

Resources

7.B.1.2 The provider has a contingency plan to mitigate the vulnerability of its properties, buildings, and human resources to climate shocks.

Having a contingency plan helps the provider prepare for future climate shocks, by anticipating climate shocks and outlining the systematic measures by which the provider will effectively respond before, during or immediately after a disaster. Its main objective is to ensure the safety of clients and personnel once a disaster strikes.

Scoring guidance

To answer ‘yes’, the provider must have a documented disaster contingency plan or disaster risk reduction and management plan, with clear distribution of roles and responsibilities and definition of procedures to follow before, during and immediately after a disaster (e.g. warning system, communication protocol, evacuation procedures, emergency procedures, etc.). The plan should be known from all employees.

If the provider has a documented disaster contingency plan, but the latter is not known from employees at all level, then the answer should be ‘partially.’

Sources of information
  • Disaster contingency plan
  • Interviews with CEO/operations manager
  • Interviews with the dedicated person on environmental strategy (if applicable)
  • Interviews with branch managers/field officers
Evidence to provide

Mention the contingency plan and what year it was published. Specify how the contingency plan is shared with employees at all levels (e.g. Is it only by providing access to the document? Are there trainings or awareness-raising sessions on the roles/responsibilities/actions to be taken in case of disaster? Is it included in the induction training of the staff? etc.)

Resources

7.B.1.3 The provider identifies the adverse impacts of its internal activities on the environment.

Through its internal activities, at its headquarters, branches or during field visits, the provider can generate adverse impacts on the environment. Being a service provider, these negative impacts are mostly linked to energy consumption, water consumption, paper consumption, transportation and fuel consumption, and waste production. They can be translated into greenhouse gas emissions to calculate the provider’s carbon footprint for Scope 1 and Scope 2 emissions (Scope 1 covers emissions that the provider makes directly – for example running its vehicles; Scope 2 are emissions that the provider causes indirectly when the energy it purchases and uses is produced; Scope 3 encompasses emissions that the provider is indirectly responsible for, up and down its value chain, i.e. mainly at the portfolio level).

Being service providers, financial service providers usually have a limited internal ecological footprint. Yet, managing direct adverse impacts is important to show that the provider is directly engaged (and not just asking clients to engage). It helps the provider build legitimacy on the environmental topic and create internal buy-in. Identifying the direct / internal adverse impacts is a first step to be able to mitigate these impacts.

Scoring guidance

To answer ‘yes’, the provider must conduct regular assessments (annually) of the negative impacts of its internal activities on the environment, by tracking at least one of the following: energy consumption, water consumption, paper consumption, transportation and fuel consumption, waste production and greenhouse gas emissions.

If the assessment is not conducted for the whole institution (e.g. only for the headquarters but not for branches), or if it is not conducted regularly (every year), or if it has been done only once, then the answer should be ‘partially.’

Sources of information
  • Management reports
  • Annual report
    Carbon audit
  • Interviews with CEO/managing director
  • Interviews with the dedicated person on environmental strategy (if applicable)
Evidence to provide

Specify what is assessed, how the assessment is conducted and at what frequency.

Resources

7.B.1.4 The provider avoids, minimizes and/or offsets the adverse impacts of its internal activities on the environment linked to:

  • Energy consumption
  • Water consumption
  • Paper consumption
  • Transportation and fuel consumption
  • Waste production
  • Greenhouse gas emissions

Even if financial service providers usually have a rather limited internal ecological footprint due to the nature of their activity (service), implementing actions to avoid, minimize or offset its own adverse impacts on the environment shows the commitment of the provider to act, and not just preach. It is also a very efficient way to raise employees’ awareness and commitment, create a corporate spirit around environmental responsibility, and build the provider’s legitimacy to engage clients in the same pathway.

Scoring guidance

To answer ‘yes’, the provider must implement more than one action to avoid, minimize and/or offset the adverse impacts of its internal activities. An action is defined either as an investment for the headquarters, branches or staff (e.g. in solar panels, insulation, water tanks, energy efficient vehicles, etc.), as an awareness-raising initiative (e.g. awareness campaign, visual material to remind good practices, etc.), or as a formal procedure (e.g. to sort waste, to automatically switch off all lights after work hours, to have systematic double-side printing, etc.).

The answer should be ‘partially’ if only one action is implemented.

If nothing formalized is in place, then the answer is ‘no’.

Sources of information
  • Management reports
  • Annual report
  • Manual of procedures
  • Interviews with CEO/managing director
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with employees
Evidence to provide

Specify the actions implemented and in which manual of procedures or report those activities are detailed.

Resources

7.B.2 The provider identifies and manages client-level environmental risks.

This Essential Practice focuses on environmental risks at the portfolio or client level (while 7.B.1 focuses on environmental risks at institution level). It looks both at the environmental risks faced by clients (i.e. clients’ vulnerabilities to climate change and environmental degradation) and the environmental risks generated by clients (i.e. clients’ adverse impacts of on the environment).

Resources

7.B.2.1 The provider identifies clients' vulnerability to climate change and environmental degradation related to the following:

  • climate change
  • biodiversity loss
  • pollution and other environmental degradation

While poor and vulnerable people only contribute marginally to global greenhouse gas emissions (in particular in developing countries), they are the ones most affected by the effects of climate change and environmental degradation. This is largely due to their higher exposure and sensitivity to these risks (e.g. they may live in more disaster-prone areas, they rely more on natural resources for livelihoods
) and their lack of coping capacities (e.g. they do not have savings or insurance, they lack alternatives
). Climate change, biodiversity loss, pollutions or other environmental degradations may directly affect clients’ businesses, livelihoods, health, lives, and that of their families. For the provider, it may represent a financial risk of degraded portfolio quality. Identifying clients’ vulnerabilities to climate change and environmental degradation is an important first step to be able to manage and mitigate these risks. It is particularly important for providers working with clients in the agricultural sector, which is already directly impacted by climate change and will become increasingly impacted in the near future.

Scoring guidance

To answer "yes", the provider must assess the level of exposure and sensitivity of its clients to climate and environmental risks, per geographic areas and sector of activities, as well as their adaptive capacities to such risks. This assessment should be updated at least every two years.

If the assessment is not conducted for the whole portfolio, or if it is not done regularly, or if has just been done once, the answer should be "partially".

Sources of information
  • Risk mapping / portfolio segmentation by level of risks
  • Interviews with Risk Management
  • Interview with the dedicated person on environmental strategy (if applicable)
Evidence to provide

Specify what types of client-level risks are assessed, how the assessment is conducted and at what frequency.

Resources

7.B.2.2 The provider identifies clients' adverse impacts on the environment, related to the following:

  • Greenhouse gas emission
  • Air, water, or soil pollution, including the use and improper storage of hazardous chemicals
  • Deforestation, land degradation, biodiversity loss, protected wildlife/areas, in particular linked to biodiversity-sensitive areas
  • Waste production and management

While a majority of clients may be involved in small trade and small service activities with limited negative impacts, some other clients may be engaged in activities with significant adverse impacts on the environment.
This is particularly the case for activities that use chemicals (e.g. agriculture, textile dyeing), produce solid or liquid wastes (e.g. leather tanning), generate polluting particles (e.g. brick kilns), have inefficient production processes that consume a lot of energy or water, or exploit or degrade natural resources (e.g. mining, charcoal making). Be they micro, small or medium-size, these activities can generate negative impacts on the environment that directly and significantly affect the livelihoods and health of the clients, their families and surrounding communities. For the provider, it may in the end represent a financial risk of degraded portfolio quality, as well as a reputation risk linked to the financing of harmful activities. Identifying clients’ adverse impacts on the environment is an important first step to be able to manage and mitigate these risks.

Scoring guidance

To answer ‘yes’, the provider must assess the level of risk (high, medium, low) of clients’ adverse impacts on the environment, either at individual or sector level. This assessment should be done systematically for all new loan application, and formally integrated in the loan appraisal process (e.g. through the loan application form, the manual of procedures, etc.). The assessment should clearly focus on environmental risks, and not just social risks.

Regarding biodiversity loss, the provider should at least identify biodiversity-sensitive areas and how its activities may affect these protected areas. It should also identify the risks on biodiversity in general, linked to the use of pesticides in agriculture, deforestation, predatory activities, etc.

If the assessment is not conducted for the whole portfolio (e.g. only for individual loans but not group loans, only for loans above a certain amount, only using an exclusion list targeting specific activities), the answer should be ‘partially.’

Sources of information
  • Loan appraisal format
  • Credit manual
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with loan officers, branch managers
Evidence to provide

Specify the procedures and tools used to evaluate the level of environmental risks of clients’ activities. Various tools may be used, such as an environmental risk categorization list per sector, or a specific environmental list checklist in the loan application process.

Resources

7.B.2.3 The provider develops risk mitigation policies and processes in response to identified  vulnerability and adverse environmental impacts and integrates them into its standard risk management

After having evaluated client-level environmental risks (indicators 7.B.2.1 and 7.B.2.2), the next step is to define strategies and actions to manage these risks. Different measures can be taken: excluding highly risky loan applications, diversifying the portfolio, including environmental clauses in the loan contract requiring clients to improve their practices, offering incentives for switching to ecological or resilient practices, raising awareness or training clients on risk mitigation and good practices, etc. Experience shows that it is important to integrate environmental risk mitigation policies and processes into the provider’s standard risk management system, so that environmental risk management can be systematically applied.

Scoring guidance

To answer "yes", the provider must have defined specific strategies, policies, procedures or actions to manage client-level environmental risks (both in terms of vulnerabilities to climate change and environmental degradation, and adverse impacts on the environment), and have integrated them in its standard risk management system to ensure their systematic implementation.

If the provider has developed risk mitigation measures but without integrating them into the standard risk management system, or if the environmental risk mitigation measures are not implemented, or if the risk mitigation measures do not cover all the client-level environmental risks identified, then the answer should be "partially".

Sources of information
  • Credit manual
  • Risk management procedures
  • Interviews with Risk Management
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with loan officers, branch managers
Evidence to provide

Specify what policies or processes have been developed to mitigate client-level environmental risks and how they are integrated into the provider’s risk management system.

Resources

7.B.2.4 The provider categorizes loan applications according to their level of environmental risks and implements at least one of the following actions for loan applications with high environmental risks:

  • Conducts additional analysis of environmental risks.
  • Excludes or limits financing, taking into account potential trade-offs with the provider's social and financial performance.
  • Includes environmental clauses in the loan contract, conditioning loan renewal or provision of incentives on the adoption of mitigation solutions and/or green practices.

Evaluating client-level environmental risks (indicators 7.B.2.1 and 7.B.2.2) is important, but to truly manage these risks, the results of the evaluation should be taken into account in loan decisions. There should be consequences for borrowers whose activities present high levels of environmental risk. The type of consequences is to be defined by the provider according to its global strategy and in alignment with its social and financial objectives.

Scoring guidance

To answer "yes", the provider must categorize loan applications according to their level of environmental risks (low / medium / high) and for high-risk applications, it must effectively implement one of the actions listed in the indicator.

If the provider’s policy is to assess environmental risks and categorize loan applications only for part of its portfolio (e.g. only for individual loans), but effectively implement measures for this portfolio segment, then the answer of this indicator may be "yes" – while the scoring for 7.B.2.1 and/or 7.B.2.2 would be "partially".

If the provider categorizes loan applications according to their level of environmental risks but does not apply specific procedures for high-risk categories, or only applies the procedures for loans of high amount (representing a limited share of its portfolio), the answer should be "partially".

Sources of information
  • Credit policy
  • Loan application
  • MIS
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with branch managers, loan officers
  • Interviews with clients
Evidence to provide

Specify whether the loan categorization applies to all loan applications or not.

Specify the type of follow-up actions implemented for loan applications with high environmental risks.

Resources

7.B.3 The provider identifies opportunities to finance green practices and technologies.

Managing environmental performance is not just about managing environmental risks: it is also about fostering green opportunities. If the provider has identified client-level environmental risks (in 7.B.2), it usually implies that there is a need to help clients mitigate these risks. And if there is a need, it means that there is an opportunity for the provider to offer a solution – a “green” solution – to fulfill this need. Risks and opportunities can thus be seen as the two sides of the same coin. This also works for some specific social and economic risks (e.g. linked to lack of access to energy or water, inefficient production processes
) for which green practices and technologies can be a response. Gauging the potential market for green practices and technologies opens new opportunities for the provider, who can then consider developing new products and services, differentiating from competitors, and increasing its outreach.

7.B.3.1 The provider identifies green practices and technologies that create benefits for clients in at least one of the following ways:

  • improve access to basic services.
  • increase productivity, revenue, efficiency, or quality of production.
  • reduce adverse impacts on the environment and on health.
  • reduce vulnerability to climate change or environmental degradation.

Offering financial products and services to promote green practices and technologies can be a great opportunity for a provider to diversify its product line and increase its customer base, while addressing some critical environmental, social or economic needs. A first step for the provider is to identify what are the environmentally-friendly practices and technologies that could respond to the specific needs of its clients and bring clear benefits to them. For instance, solar home systems can respond to the basic social need of access to electricity and decrease energy expenditures for the clients, while mitigating the adverse impacts on the environment linked to the use of kerosene lamps or generators. Or, setting an agroforestry system can reduce the farmers’ vulnerability to climate change, while helping to diversify sources of income and secure agricultural yields.

Scoring guidance

To answer "yes", the provider must show documented evidence that it identifies green practices and technologies relevant to its clients and investigates the social, environmental and economic benefits that they generate. This can be done through interviews with experts, technical supports from specialized organizations, references to national or regional studies, data collection from clients, market studies, etc.

Sources of information
  • Management reports
  • Market studies / clients’ surveys
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with CEO/managing director and/or operations manager
  • Interviews with marketing/product development department
Evidence to provide

Specify the green technologies and practices identified, and how they were identified.

7.B.3.2 The provider ensures that the practices or technologies identified are recognized as "green" by an environmental taxonomy and/or comply with clear environmental criteria.

Sometimes, some practices and technologies can be misperceived as “environmentally-friendly” or may be “green” in some contexts but have detrimental impacts on the environmental in others. This can be the case in particular for agricultural practices (e.g. ploughing can be perceived as more environmentally-friendly than using chemical herbicides, but it can contribute to soil degradation and CO2 emissions). The provider needs to go beyond “intuition” to identify green technologies and practices, and actually make sure that the identified technologies and practices are recognized as “green” by an environmental taxonomy (or local/national classification / categorization) and/or comply with clear environmental criteria.

Scoring guidance

To answer "yes", the provider must show evidence that an environmental taxonomy or clear environmental criteria have been used to assess all selected green practices and technologies. If an environmental taxonomy is used, it should be recognized as a standard at international, regional or national level (e.g. EU Taxonomy). If environmental criteria are used, they should have been defined and used with the support of experts.

If a taxonomy or environmental criteria have been used for only part of the selected green practices and technologies, then the answer should be "partially".

Sources of information
  • Environmental taxonomy used
  • Market studies
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with CEO/managing director
Evidence to provide

Specify the taxonomy or environmental criteria used.

Resources

7.B.3.3 The provider conducts market research for the green practices and technologies identified,  with at least one of the following objectives:

  • Assess demand for green practices and technologies, and related financial needs of target clients.
  • Identify local technology or technical providers of green practices and technologies, and the quality of their practices and technologies.
  • Identify local market and regulation incentives or disincentives for green practices and technologies.

In line with Dimension 3 – Client-centered products and services, it is important that the provider conducts market research to better understand the demand (i.e. clients’ needs, in terms of green practices or technologies, financial needs to invest in these practices and technologies, and needs for training or awareness-raising), the current supply (i.e. local technology providers, local technical providers of training and technical assistance, quality of the locally available technologies and practices, costs and return on investments for the green practices and technologies), as well as the overall context (e.g. regulations, incentives, technology support such as apps or software, funding opportunities, etc.). This market research will help the provider identify the green practices and technologies most adapted to its clients’ needs, define adapted financial products and marketing material, identify reliable technology or technical providers with which to partner, and grasp potential opportunities in terms of financing.

Scoring guidance

To answer "yes", the provider must have conducted market research for all selected green practices and technologies. The market research should address at least one of the objectives listed in the indicator.

If the provider has conducted market research only for part of the selected green practices and technologies, then the answer should be "partially".

Sources of information
  • Market research reports
  • Interviews with the dedicated person on environmental strategy (if applicable)
  • Interviews with operations
  • Interviews with marketing/product development
Evidence to provide

Specify when and how the market research was conducted, and where it has been documented (refer to related reports if available).

7C Standard The provider offers financial and non-financial products and services to achieve its environmental goals.

Beyond a mere do-no-harm approach, the provider can also opt for a proactive support by offering financial products and non-financial services that will contribute to reduce clients’ vulnerabilities to climate change and environmental degradation, mitigate clients’ adverse impacts on the environment, and foster the adoption of green practices and technologies.

7.C.1 The provider offers financial products and services to achieve its  environmental goals.

Offering financial products that promote environmentally-friendly practices and technologies gives an opportunity for the provider to diversify its product range, differentiate from competitors, and expand into new markets, while contributing to environmental risk management and ecological transition.

7.C.1.1 The provider offers at least one of the following financial products or services to help clients cope with climate shocks:

7.C.1.1.1 Emergency loans, loans rescheduling, or loans restructuring
7.C.1.1.2 Agricultural or climate insurance products
7.C.1.1.3 Saving products, money transfer, remittances, or guarantees

With climate change, dramatic climate events, such as heat waves, droughts, heavy rains, floods, or storms are becoming more and more frequent and serious. These climate shocks directly and strongly affect poor and vulnerable populations who have limited coping capacities. In case of extreme climate events affecting the business or household of clients (e.g. crop loss, asset loss, injuries, etc.), offering adapted financial products and services to affected clients can help them better cope with the consequences of the shocks. For the provider, it is a strategy to manage portfolio risk, at least in the short term (in the longer term, what is needed is to increase the adaptive capacities or resiliency of clients by adopting climate-smart practices and/or diversifying their sources of revenues).

Scoring guidance

For 7.C.1.1.1

To answer ‘yes’, the provider must have a formal procedure specifying how emergency loans, loans rescheduling, or loan restructuring are applied in case of climate shocks or natural disasters. Emergency loans do not have to be specifically designed for climate risks; they can be generic emergency loans but must have a formal procedure specifying that they apply particularly in cases of climate shocks. The provider must also give evidence that emergency loans, loans rescheduling, or loan restructuring are effectively provided to clients in cases of climate shocks.

If the procedures or products have not been formalized but there is evidence that they are applied in cases of climate shocks, the answer can be ‘partially.’

For 7.C.1.1.2

To answer ‘yes’, the provider must have a formal insurance product that specifically cover climate and/or agricultural risks – and not only other general risks such as death, health, etc. The insurance product can be offered directly by the provider or through a partnership with a third-party. The provider must also give evidence that the insurance product is effectively mobilized in cases of climate shocks.

If the provider can give evidence (documents, past events, etc.) that an insurance product that is not specific for climate or agriculture risks has been able to cover losses from an agriculture or climate event, score ‘partially.’

For 7.C.1.1.3
To answer ‘yes’, the provider must have a formal procedure specifying how saving products, money transfer, remittances, or guarantees are mobilized to help clients in case of climate shocks or natural disasters. These financial products and services do not have to be specifically designed for climate risks; they can be generic financial products and services, but must have a formal procedure specifying that they can easily and quickly be mobilized in cases of climate shocks (e.g. term deposits made available in cases of climate shocks). The provider must also give evidence that the products or services are effectively provided to clients in cases of climate shocks. These financial products or services can be offered directly by the provider or through partnerships.

If the procedures or products have not been formalized but there is evidence that they are applied in cases of
climate shocks, the answer can be ‘partially.’

Sources of information
  • Product descriptions
  • Credit manual
  • Partnerships agreements
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with head of operations, branch managers, loan officers
  • Interviews with clients
Evidence to provide

Specify the type of financial product or service and how it is provided.

Resources

7.C.1.2 The provider offers loans that allow its clients to implement or maintain green practices and technologies, including:

7.C.1.2.1 Sustainable agriculture, animal breeding, or fishery practices ("nature-based solutions")
7.C.1.2.2 Clean energy and energy efficiency technologies
7.C.1.2.3 Improved access to clean drinking water and sanitation
7.C.1.2.4 Waste management and recycling ("circular economy")

This indicator is about financing activities or technologies that are environmentally-friendly, be it through dedicated loan products or more standard loan products; while indicator 7.C.1.3 is more specifically about having developed dedicated loan products to finance these activities.

Regarding 7.C.1.2.1
Smallholder farmers are particularly vulnerable when it comes to dealing with the effects of climate change. Rising temperatures and erratic weather like flooding and drought, can lead to loss of production, reduced productivity, loss of infrastructure, soil erosion and diminished food security. Moreover, smallholder farmers can have practices (e.g. deforestation, use of chemicals
) that negatively impact the environment (pollution, loss of biodiversity, etc.) and can affect their production (e.g. decreased soil quality) and health. Offering financial products that promote sustainable and climate-smart agriculture gives an opportunity for the provider to help clients be more resilient to climate change, decrease their impacts on ecosystems, improve their productivity and ensure food security.

Regarding 7.C.1.2.2
Loan products that finance renewable energy (RE) and/or energy efficient (EE) technologies help address an important environmental and social risk in contexts where energy sources are impacting negatively the environment (fossil fuel, charcoal) while being expensive, unreliable, polluting and sometimes dangerous for people’s health (e.g. wood-burning cook stoves, kerosene lamps). Because RE and EE technologies often involve a significant upfront cost (especially for poor households), financing such technologies gives an opportunity for the provider to diversify its product line while promoting green energy solutions.

Regarding 7.C.1.2.3
Loan products that finance improved access to drinking water and sanitation help address an important environmental and social risk in contexts where people rely on unsafe sources of water that are dangerous for their health, or where the lack of proper sanitation systems generate social discomfort and may contribute to water sources pollution.  Because water and sanitation technologies often involve a significant upfront cost (especially for poor households), financing such technologies also gives an opportunity for the provider to diversify its product line while promoting environmentally-friendly solutions.

Regarding 7.C.1.2.4
Significant waste production and improper solid and liquid waste management are the direct causes of serious pollutions of air, soil and water, which directly affect people’s health and ecosystems’ biodiversity. Offering financial products that promote businesses and practices linked to waste management and circular economy (i.e. sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible) gives an opportunity for the provider to help clients optimize their production processes (reducing wastes, accessing cheaper material
), reduce expenditures, or even develop new businesses.

Offering those types of products can also have more global positive impact on the financial sustainability of the provider: decrease of loan default (linked to decrease of clients’ expenditures, increase of revenues due to improvement of agricultural yields or development of new businesses
), increased client retention and satisfaction, impact on the provider’s reputation (which can possibly lead to attracting new investors), etc.

Scoring guidance

To answer "yes", the provider must give evidence that it offers loans for the implementation of at least one of the green practices or technologies specified in the detailed scoring guidance below. It could be either through dedicated loan products, or through standard loan products. What matters for this indicator is the loan destination (how the loan is used), not the loan product. When the green practices or technologies are financed through standard loan products, the provider must have a monitoring system that enables to track the loan destination in details and show what proportion of the portfolio goes to the financing of the green practices or technologies.

If the green practices and technologies financed represent less than 5% of the provider’s portfolio, then the answer should be "partially".

For 7.C.1.2.1
Sustainable agriculture practices include organic, agroecological, conservation agriculture, permaculture, climate-smart and/or ecosystem-based practices, such as: use of organic fertilizers and pesticides, integrated pest management, integrated nutrient management, vermicompost, soil restoration, no-tillage system, drip irrigation, infiltration pits, natural retaining walls, rainwater reservoirs, resilient seeds (no GMO), crop association, crop rotation, crop diversification, local species, live fences, agroforestry, sylvopastoralism, managed grazing, coastal wetland management, etc.

It does not include the provision of agriculture or climate insurance, which is assessed in 7.C.1.1.

For 7.C.1.2.2
Renewable energy technologies include solar photovoltaic solutions (solar lamps, pico PV, solar home systems, solar water pumps
), solar thermal solutions (solar water heaters, solar dryers or dehydrators, solar cookstoves
), biomass solutions (biogas digesters, biomass gasifier stive
), micro-hydro, mini-wind turbine, and clean energy and hybrid mini-grids.

Energy efficient technologies include housing thermal insulation, improved cook stoves, and energy efficient devices (refrigerators, air conditioners, etc.).

For 7.C.1.2.3
Water and sanitation solutions include clean water filters, desalination systems, solar water disinfection, rainwater catchment systems, connection to piped water network, improved private toilet, composting toilets, etc.

For 7.C.1.2.4
Circular economy solutions include all models of production and consumption that involve sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible.

Sources of information
  • Product descriptions
  • MIS
  • Partnerships agreements
  • Purchase orders to providers of green technologies
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with head of operations, branch managers, loan officers
  • Interviews with clients
Evidence to provide

Specify the types of green practices and technologies financed, the % of portfolio they represent, and how the provider gives evidence of the loan destination (dedicated loan product, monitoring system).

Resources
  • ESAF's Clean Energy for the Poor Initiative
  • XacBank's Eco Product Program

7.C.1.3 The provider offers dedicated green loans and promotes their uptake and responsible use by doing the following:

7.C.1.3.1 Defining financial conditions (loan amount, term, repayment schedule) adapted to the green practice or technology financed
7.C.1.3.2 Documenting the costs, return on investment, and benefits of the green practices or technologies financed
7.C.1.3.3 Having dedicated marketing material and channels
7.C.1.3.4 Verifying that clients are using green loans to invest in green technologies and practices
7.C.1.3.5 Entering into partnerships with third parties to increase the provider's ability to offer high quality green practices and technologies to its clients

While the previous indicator (7.C.1.2) focuses on the loan purpose (financing activities or technologies that are environmentally-friendly), this indicator is more specifically about having developed dedicated loan products and procedures to finance these green activities or technologies.

Most green practices and technologies indeed require adapted financial conditions (7.C.1.3.1): e.g. sustainable agriculture solutions often represent upfront investments to be amortized over longer periods and with a repayment schedule adapted to income seasonality; while for renewable energy solutions for domestic use, the repayment schedule can be tailored to match the monthly savings generated by the technology in terms of energy expenditures.

Many of the green practices and technologies are more “push” solutions than “pull” solutions: they need to be promoted in order to attract customers. For the provider, it is thus critical to reach out to target customers and inform them about the existence, benefits and accessibility of these green practices and technologies (7.C.1.3.3). In particular, to convince clients, experience shows that beyond the social and environmental benefits, it is crucial to communicate on the financial benefits that can be expected from these practices and technologies (7.C.1.3.2).

Having a system in place to make sure that clients are indeed using their loans for the expected purpose (7.C.1.3.4) is a strong signal to show the provider’s commitment to promote green technologies and practices, as well as an opportunity to follow up on clients’ satisfaction and possible outcomes, and to adapt products offer accordingly.

Finally, as one cannot expect financial service providers to become experts of all environmental technologies and practices, experience shows that having partnerships with third parties (e.g. technologies suppliers, technical assistance providers
) is key to a successful implementation of green financial products (7.C.1.3.5).
Partners can indeed bring their expertise and/or technologies, contribute to the marketing and communication efforts, bring new customers, share funding opportunities, conduct training or awareness sessions, ensure post-sales follow-up, etc.

Scoring guidance

To answer ‘yes’, the provider must offer financial products that have an explicit objective of promoting green technologies and practices (related to sustainable agriculture, clean energy and energy efficiency, water and sanitation, waste management, recycling and "circular economy"), and must have formal, documented evidence for the different practices mentioned in the details.

Sources of information
  • Loan product descriptions
  • Market studies
  • Marketing materials
  • Monitoring forms or procedures
  • Partnerships agreements
  • Interviews with head of operations, branch managers, loan officers
  • Interviews with marketing/product development
  • Interviews with the dedicated person on environmental strategy (if applicable)
  • Interviews with clients
Evidence to provide

Specify how the provider implements the different details and where they are documented.

Resources

7.C.2 The provider offers non-financial services to achieve its environmental goals.

Addressing environmental issues usually implies changing habits or practices. If financial services can remove some of the barriers to adopting green practices/technologies (i.e. the financial barrier, as well as the physical barrier in case of partnerships with green technology providers), they only work if clients are already aware and willing to change their behavior and adopt new practices/technologies. Non-financial services are indispensable to foster behavior change and help the provider achieve its environmental goals.

7.C.2.1 The provider raises awareness of its clients on their vulnerability to climate change and environmental degradation, on their adverse impacts on the environment, and/or on green practices and technologies, through at least one of the following channels:

  • Leaflets, brochures, posters, videos
  • Individual talks
  • Awareness-raising events or activities

This indicator is about raising awareness – a first, light-touch approach to make clients’ conscious of some key environmental risks and opportunities –, while indicator 7.C.2.2 is about building more in-depth, technical skills around environmental risk mitigation and green practices.

Awareness-raising can be used as a strategy to mitigate the client-level environmental risks identified by the provider, or as a necessary, preliminary action to foster the uptake of green loan products. It may take the form of formal awareness sessions / events / campaigns or may be integrated into the existing touch points with clients.

Scoring guidance

To answer "yes", the provider must effectively conduct awareness-raising efforts, based on key messages formally defined and communicated to its employees. The awareness-raising efforts can be conducted by the provider itself or in partnerships with a third party. Staff involved in the awareness-raising efforts should be clear on the key messages to communicate to clients, even if these efforts are carried out in an informal way.

If the provider conducts awareness-raising efforts but there is no formalization of the key messages or no formal training of the staff to communicate in a consistent way, then the answer should be ‘partially.’

If the awareness-raising activities implemented reach less than 10% of the providers’ clients, then the answer should be "partially".

Sources of information
  • Awareness materials
  • Interview with HR/ Training department
  • Interviews with branch managers, loan officers
  • Interviews with dedicated person on environmental strategy (if applicable)
  • Interviews with clients
Evidence to provide

Specify the type of awareness-raising efforts conducted and their outreach.

Resources

7.C.2.2 The provider builds the capacity of its clients to reduce their vulnerability to climate change and environmental degradation, to mitigate their adverse impacts on the environment, and/or to adopt green practices and technologies, by offering at least one of the following services:

  • Field visits or peer-learning opportunities
  • Trainings
  • Technical assistance to implement or maintain green practices and technologies, including after-sales services

This indicator is about building in-depth, technical skills around environmental risk mitigation and green practices, while indicator 7.C.2.1 is about raising awareness, in a first, light-touch approach to make clients’ conscious of some key environmental risks and opportunities.

Capacity-building can be used as a strategy to mitigate the client-level environmental risks identified by the provider (e.g. training clients on climate-smart agricultural practices to reduce their vulnerability to climate change), to foster the transition towards a more ecological economy (e.g. training clients on developing a solar installation business), and/or to make sure that clients properly use and implement new green technologies/practices, and hence increase the probability of positive outcomes.

Scoring guidance

To answer "yes", the provider must offer at least one of the capacity-building services mentioned in the indicator. These capacity-building actions must specifically address strategies to reduce vulnerabilities to climate change and environmental degradation, mitigate adverse impacts on the environment, and/or adopt green practices and technologies. They can be conducted by the provider itself or in partnerships with a third party (7.C.2.3).

If the capacity-building activities implemented reach less than 5% of the providers’ clients, then the answer should be ‘"partially".

Sources of information
  • Training materials
  • Interview with HR/ Training department
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with clients
Evidence to provide

Specify the type of capacity-building services offered and their outreach.

Resources

Kompanion's Credit for Conservation [#297]

7.C.2.3 The provider partners with third parties to offer training to clients on environmental risks and opportunities, and/or technical support to clients for the implementation or maintenance of green practices and technologies.

Environmental issues not only cover a variety of topics (energy, waste, agricultural practices, biodiversity, etc.), but they are often quite technical. It is not expected that the provider can build all the internal knowledge and capacities to address all issues on its own. Also, the provision of non-financial services can be costly and difficult to finance for some providers. This is why it is strongly recommended to work in partnerships with third parties that already have the required skills and experiences and that may also have the budget to offer trainings and technical support to clients. Such partnerships also help the provider build on economies of scale while reaching out more widely than just the provider’s clients. Environmental issues are complex; to successfully address them, a variety of actors need to work together, as an ecosystem.

Scoring guidance

To answer "yes", the provider must have at least one formal and active partnership with a third party offering training or technical support to clients on environmental risks or good practices.

Sources of information
  • Partnerships agreements
  • Annual report
  • Interview with the dedicated person on environmental strategy (if applicable)
  • Interviews with CEO/managing director and/or operations manager
  • Interviews with clients
Evidence to provide

Specify the name and sector of the partner, the objective of the partnership, when the partnership started, and the type of trainings or technical support offered.