Unmanaged Environmental and Social Risks are Credit Risks

This case study focuses on the relationship between a client’s failure to manage their pollution impact and credit risk.  It presents three different businesses that were existing clients of the bank.  One a chemical warehouse facility, one a small-scale metal plating company and the third a medium scale textile finishing company.  The warehouse facility was seeking part financing to expand the facility, the metal plating company funding to build a new state of the art facility and the textile company financing for the installation of a new production line. 

The cases also highlight the scope of potential environmental and social (E&S) risks to be considered and the importance of appraising all client operations and not just those associated with the project being financed.  The E&S risk that results in a credit risk may not come from the project related transaction under consideration but from another part of the operation.