RBC clients have a broad array of financial needs, from traditional operating loans, to debt and equity underwriting. Whatever the nature of the financing, we work with our clients to identify, assess and mitigate the environmental and social risks associated with their business activities. Throughout this process we provide valuable advice to clients to help reduce their risk while promoting environmental and social interests. This is consistent with our leadership role in environmental and social risk management, and reflects our commitment to a balanced, responsible approach to business.
A client’s environmental and social issues can affect their cash flow, their ability to operate, or the ability to grow their business. Our experience and knowledge along with our policies and processes help us identify and manage risks associated with a client’s environmental and social issues, minimizing our exposure to credit, reputational, regulatory and legal risk. By incorporating environmental and social issues in the credit risk assessment process, we also help to promote the importance of maintaining superior environmental and social practices in the client’s business.
The scenario below shows how a client’s environmental risk may translate into risk for RBC.
- Client is a gas station operator with a history of spills.
- Client faces increased costs related to fines and site clean-up.
- Client cannot pay increased costs and defaults on loan.
Environmental and Social Risk Management Policies
Our environmental and social risk management (ESRM) process is designed to ensure we apply a suitable level of due diligence on a transaction. We maintain a suite of ESRM policies designed to identify, assess and mitigate the environmental and social risks associated with financing our clients. We believe these policies are in keeping with our leadership role in environmental and social risk management, and are reflective of our commitment to a balanced, responsible approach to business.
We proactively review and update our ESRM policies and procedures to address regulatory changes, emerging and evolving issues, and international best practices.
- Financing Projects: The Equator Principles
- Capital Markets
- Commercial and Small Business Banking
We consider the impact of environmental and social issues in all our activities, not just financing. Our Enterprise-wide ESRM Policy applies to our own operations, any acquisitions or projects, and to the development of new financial products or services, to name a few. It requires completion of a thorough review and analysis when RBC may be exposed to risks due to environmental or social issues.
The Equator Principles are a voluntary international framework for financial institutions to identify, assess, manage, and mitigate environmental and social risks in Projects. RBC was the first Canadian bank to formally adopt the Equator Principles in July 2003. RBC re-signed the Equator Principles when they were revised and re-issued in July 2006 (EP II), June 2013 (EP III) and in July 2020 (EP4).
RBC has adopted the Equator Principles to ensure Projects we finance and advise on are developed in a socially responsible manner and reflect sound environmental management practices. To support our commitment to the Equator Principles, RBC lenders and risk managers must adhere to our enterprise-wide Policy on Environmental and Social Risk Management for Projects. Before financing a proposed Project, RBC must ensure that the Equator Principles have been met, and that environmental and social issues associated with the Project have been adequately considered and minimized, mitigated, or offset. RBC’s Environmental and Social Risk Management team provides advice, expertise, training and review on implementation of the Equator Principles and our associated Policy.
In accordance with the Equator Principles, RBC’s Policy applies to the following four financial products and services: (i) Project Finance Advisory Services, (ii) Project Finance, (iii) Project-Related Corporate Loans, (iv) Bridge Loans, and (v) Project-Related Refinance and Project-Related Acquisition Finance. The relevant thresholds and criteria for application are detailed in the Equator Principles, July 2020.
RBC reports annually on our implementation of the Equator Principles. Information on RBC’s Equator Principles transactions for 2020 can be found here.
We assess our corporate lending, and our debt and equity underwriting activities and corporate credit facilities for environmental and social risk. The environmental and social risk management process depends on the type of transaction and sector(s) in which the client operates. Our policy requires that clients operating in industries of elevated environmental risk be subjected to an Environmental and Social Risk Review to evaluate the following:
- Environmental management systems
- Record of environmental compliance
- Environmental liabilities
- The impact of new environmental legislation such as carbon regulations
- Adherence to labour standards
- Approach to community engagement
- Approach to consultation with indigenous communities, and the degree to which the principles of free, prior and informed consultation are applied
- Impacts on water supply or quality
- Use of conflict minerals
- Operations in environmentally sensitive areas and UNESCO World Heritage Sites
- Certification of logging operations (FSC, SFI, CSA or any other applicable)
The purpose of these policies is to ensure that we identify and address environmental risks in our commercial, agricultural, and small business loan and mortgage transactions. We follow a detailed environmental due diligence process to ensure we apply a suitable level of analysis on a transaction. We consider a number of factors including the size and type of transaction, conditions of the loan, and the nature of the client's business.
Due Diligence Process
We consider the size and type of transaction, loan to value ratios, term of the loan, and the sector or industry in which the client operates when conducting environmental and social due diligence on a transaction. We perform our analysis using a range of tools such as site visit checklists, client questionnaires, and environmental assessments by third-party environmental specialists, the outcome of which we then evaluate and incorporate into our standard credit process. Our environmental and social due diligence requirements are often based on international best practices such as the International Finance Corporation (IFC) Performance Standards as well as standards set by the Canadian Standards Association (CSA) and ASTM International.
Based on the outcome of our investigations, we may require clients to manage or mitigate environmental and social issues before we proceed with financing. Transactions flagged as having unclear or higher risk are reviewed by RBC’s Environmental and Social Risk Management team, which includes professionals responsible for environmental and social risk management at RBC.
RBC and our clients routinely use third-party environmental consultants to perform environmental investigations and prepare environmental reports. In large-scale project financing, consultants are responsible for carrying out environmental impact assessment reports, and an independent engineer may be appointed to monitor and report on environmental and social issues. All investigations carried out as part of the financing process must be performed by environmental consultants that meet RBC’s rigorous standards. RBC maintains a list of pre-qualified environmental consultants to ensure information provided to RBC is reliable and recommendations are sound. To inquire about becoming an RBC pre-qualified environmental consultant, click here.
Reporting and Performance
We report on environmental and social risks to various internal and external stakeholders. Our Board of Directors and senior management committees receive periodic reports and analyses on these risks. We also track loan losses resulting from environmental issues. For external audiences, we report annually on our implementation of the Equator Principles on our website. We report on environmental risk in our Annual Report(opens new window). We also produce information about our environmental and social policies, lending, emerging issues, stakeholder engagement, environmental initiatives and performance.View all Reporting and Performance