SER MATURITY AND CHALLENGES FOR FINANCIAL INSTITUTIONS
I-Social and Environmental Responsibility (SER) Policy
As part of its SER policy, a financial institution can align itself with a number of goals among the 17 Sustainable Development Goals (SDGs) defined by the United Nations by 2030, depending on the mission, vision and values it wishes to promote.
These SDGs include, for example: health and well-being, quality education, the fight against
climate change, etc.
An institution’s SER policy can also be based on several pillars and commitments such as:
– Social responsibility to develop fair management of human capital
– Civic responsibility to combat exclusion and promote education and culture
– Environmental responsibility for climate action
– Economic responsibility to finance the economy ethically
The regulatory framework in Tunisia ensures that the SER policy of financial institutions meets the following standards and regulations:
– Circular of the Central Bank of Tunisia N°2021-05 of 19 August 2021 on the governance framework for banks and financial institutions,
– Act 2018-35 of 11 June 2018 on corporate social responsibility,
– Decree No. 2005-1991 of 11 July 2005 on environmental impact assessment and establishing the categories of units subject to environmental impact assessment,
– The World Bank’s environmental and social standards for the assessment and management of environmental and social risks and effects.
Any financial institution is therefore called upon to adopt a SER policy, which must include a policy, which describes its vision and mission on environmental, societal and sustainable
II-SER Policy and Environmental and Social Management System (ESMS)
The same financial institution generally faces a number of risks such as, for example, the risk of social or environmental damage caused by the client, the counterparty risk resulting from the deterioration of the client’s ability to repay, and reputational risk which may have a
commercial and financial impact on the institution, in particular if the institution is listed on
the stock exchange.
The objectives of implementing a system for managing social and environmental risks are
therefore to anticipate those risks by identifying them prior to the grant of the financing and to monitor them throughout the repayment of the financing.
The establishment of an ESMS is therefore based on an SER Policy which presents precisely the institution’s vision and approach to environmental and socio-economic issues and on the organization and procedures which will ensure that the legal and other provisions relating to the management of the risks in question are respected and that appropriate resources are allocated.
This policy requires that financial institutions, whose projects will be financed, inter alia, by
foreign donors, be able to control certain environmental and social risks.
To this end, the financial institution should ensure that all projects funded are reviewed under the ESMS against the applicable requirements and, to the extent possible, that all projects are managed in accordance with the applicable requirements on an ongoing basis throughout the project funding period.
The main objectives are to:
– Ensure that all projects funded by the financial institution are reviewed within an appropriate framework in relation to applicable environmental and social requirements.
Environmental criteria include waste management, water management, reduction of greenhouse gas emissions and prevention of environmental risks.
Social criteria include measures for staff in the areas of health, safety, training, diversity, social dialog and non-discrimination.
-Fund projects only when they are designed, implemented and operated in a manner that
meets applicable requirements.
– Ensure, to the extent possible, that all projects are managed in accordance with the applicable requirements on an ongoing basis throughout the project funding period and to ensure transparency of project activities.
III- Implementation of an Environmental and Social Management System
The ESMS is a process for assessing the negative environmental and social impacts caused by the activities to be funded. It prevents and manages the potential environmental and social risks of the project during its implementation.
It is used by Financial Institutions to ensure that funded projects and activities do not harm
the environment and are carried out in particular in accordance with the policies and procedures of the donors within a scope that covers the entire credit cycle from the inception to the end of the commitment.
The implementation of an ESMS is based on a number of guiding principles, namely:
– The assessment of the credit application must be based on due diligence in the assessment of environmental and social risks.
– The results of this due diligence shall be taken into account in the decision to grant the
financing and in the definition of the contractually agreed safeguard measures.
– The client must comply with the Tunisian regulations on environmental and social aspects and, if possible, with international standards.
– The financial institution’s exposure to the environmental and social risks of its clients must be controlled and not constitute a threat to the sustainable development of its activities and profitability.
The financial institution will therefore need to identify, assess and mitigate the potential
environmental and social impacts of its activities using the following summarized approach:
Step 1-Verification of Project Not Belonging to the Exclusion List
This list, which may be supplemented by a list specific to the financial institution, shall include, in particular:
– Projects involving harmful forms of labor involving exploitation or forced labor, exploitation of minors…
– The production or trade of any product or activity deemed illegal under the laws or
regulations of the host country or under international conventions and agreements: pharmaceuticals, pesticides / herbicides…
– The production or trade of arms and ammunition.
– The production or trade of certain alcoholic beverages and tobacco. Gambling, casinos and equivalent businesses.
– Production or trade of uncontrolled radioactive material.
– Production or trade of asbestos fibers.
– Drift-net fishing in the marine environment.
Step 2-Project Categorization:
This has to be done through an environmental review to determine the environmental category of the project to be funded in relation to the five environmental and social risk categories:
– Category A: Project with significant, heterogeneous, irreversible or unprecedented
potential negative social or environmental impacts.
– Category B+: Project with substantial negative social or environmental impacts, generally
reversible or easily addressed by mitigation measures.
– Category B: Project with moderate negative social or environmental impacts, usually sitespecific, largely reversible and easily addressed through mitigation measures.
– Category C: Project with minimal or no negative social or environmental impacts.
– Category FI: Business activities involving investments in FIs or through mechanisms involving financial intermediation.
The determination of the ES risk category therefore requires a certain expertise and must be done before the approval of the financing of the project according to criteria defined by the ESMS such as the size of the investment, the sector of activity, the irreversibility of its effects on the environment and the local population, the extent of social and environmental
problems, the proximity of ecologically sensitive areas…
Step 3 – Implementation of the appropriate procedure for the specified category.
By way of example:
– If the project identified falls into category A, it may be considered ineligible for funding by
certain foreign donors or its funding may be conditioned by the prior communication by
the client of an Impact Study whose results have been approved by the National Environmental Protection Agency (NEPA) and materialized by the issuance of a certificate.
– If the identified project falls into category B, the client will be subjected to a thorough Questionnaire to assess his level of environmental and social risk.
IV - Maturity Degree of Financial Insitutions in Tunisia
AMEF Consulting supervised the work of a Master’s student from the Toulouse School of
Economics (TSE) on “The study of the impact of the implementation of an Environmental and Social Management System (ESMS) and of the carbon tax on the carbon footprint of banks’ portfolios”
In this context and in order to assess in particular the degree of SER maturity of Tunisian
financial institutions, an online survey was carried out over the period July-August 2022
among a sample of banks and leasing companies.
It seemed useful to summarize the first results of this study based on the replies received to date.
– 80% of Respondents have a well-defined SER policy, formalized and disseminated to all
company staff. This includes stated goals and commitments for sustainable development
and the fight against climate change.
– 40% of Respondents have an annual SER budget, with only 20% of Respondents having
carried out more than 10 SER actions in the past year.
– 80% of the Respondents have had a SER structure since 2018 for half of them, with a
dedicated manager either partially or totally.
– The same percentage (80%) of Respondents said they had organized 3 to 5 internal trainings on the company’s SER policy. Only half of the Respondents trained more than 50% of their staff.
– Only 20% of Respondents said that they had established an ESMS and had an Expert in
environmental and social risks.
– 80% of Respondents say that their credit policy incorporates environmental and social risk management requirements. Climate change risks are integrated into risk management
policy for 60% of respondents.
– The entity in charge of managing climate change risks varies according to the institutions:
SER unit, Marketing unit, Risks unit.
– No Respondent currently has climate change risk measurement tools and is able to calculate the carbon footprint, or to integrate the clients’ carbon footprint into the carbon footprint.
– No institution among the Respondents prepares or publishes an annual carbon balance
but nevertheless 60% of them have defined SER requirements towards their suppliers and
work for 40% of the Respondents with certified suppliers (ISO 26000, ISO 14001…)
– In terms of SER piloting:
-80% of Respondents have SER targets but only 40% have SER performance indicators
-60% of the Respondents have a system for reporting and monitoring indicators and 80%
publish a SER report on an annual basis for 75% of them.
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