The Equator Principles and Sumitomo Mitsui Trust Bank

Sumitomo Mitsui Trust Bank became a signatory to the Equator Principles in February 2016. This set of guidelines for private financial institutions requires due consideration of the impact on the natural environment and the regional community when approving project finance.

The Equator Principles are standards that enable private-sector financial institutions approving loans for a large-scale project to confirm the project pays sufficient care to impacts on the natural environment and regional communities. Regardless of the country where the project is sited or industry, the Principles apply to project finance, project-related corporate loans (PRCL), and bridge loans that are intended to be re-financed by a project finance or PRCL.

The Equator Principles are based on guidelines and standards concerning environmental and social risk management established by International Finance Corporation, a member of the World Bank Group. These standards and guidelines span many fields from implementation processes for assessing environmental and social risks and/or impacts, pollution prevention, and consideration for regional communities to environmental protections.

March 2022, more than 130 Financial Institutions (including export credit agencies) from around the world have signed the Equator Principles. Signatories require project proponents to comply with the Equator Principles. The signatories will not provide financing if requirements are not met, particularly in the case of large-scale projects in developing countries.

Based on its Sustainability Policy, Sumitomo Mitsui Trust Group has developed environmental and human rights policies with the aim of moving towards a sustainable society, and is working to further strengthen its ESG risk management system in line with international standards. Sumitomo Mitsui Trust Bank is aware that financing large-scale projects such as mine development, oil and gas development, power plants, petrochemical plants and infrastructure development may indirectly have an adverse effect on the natural environment and the regional community. Sumitomo Mitsui Trust Bank also believes it is the responsibility of a responsible financial institution to avert or mitigate the risk of deterioration in loan receivables due to the suspension of projects as a result of environmental or social problems.

When we identified the priority sustainability issues (Materiality Assessment) at Sumitomo Mitsui Trust Group, we realized the importance of environmental and social risks and/or impacts when investing. In recognition of the necessity to integrate risk management procedures based on the Equator Principles, the global standard for private-sector financial institutions, we adopted them into our project finance credit decision processes.

Sumitomo Mitsui Trust Bank promote sustainable environmental and social development and aim for improved financial, environmental and social outcomes by continuously working in partnership with our clients to conduct due diligence in accordance with the Equator Principles. We believe that conducting due diligence in accordance with Equator Principles offers significant benefits to ourselves, our clients and other stakeholders.

We recognize the importance of climate change, biodiversity and human rights and believe that the potential adverse impacts of projects on the environment, local communities and climate should be avoided where possible. In cases where impacts cannot be avoided, they need to be minimized, mitigated or offset.

In adopting the Equator Principles, we drew up policies for protecting the environment and communities based on the Equator Principles framework and procedures for evaluating social and environmental impacts. Financial Products Administration Department (Social & Environmental Risk Assessment Team) carries out assessments of environmental and social impacts relating to individual projects.

According to Equator Principles and “Implementation Guidelines for the Equator Principles”, Financial Products Administration Department (Social & Environmental Risk Assessment Team) carries out environmental and social risk/impact reviews on projects subject to the Equator Principles to confirm whether protections for the environment and communities the borrower has adopted for the project satisfy the standards established by the Equator Principles. In environmental and social risk/impact reviews based on screening forms, the relevant project is categorized into one of three categories - A, B, and C as shown below - reflecting its environmental and social risks and/or impacts. Financial Products Administration Department (Social & Environmental Risk Assessment Team) conducts detailed reviews based on environmental impact assessment reports that take into account the risk/impact category, the status of the country (designated or non-designated country) where the project is sited, and industry. The results of the environmental and social risk/impact reviews are sent to a credit supervision department, where it devises a comprehensive risk assessment based on the review results.

As a rule, projects subject to the Equator Principles are engaged to submit regular reports in the loan agreement stipulating compliance with important items concerning environmental and social laws, regulations and rules as well as approvals and permits. Based on regular reports submitted by the borrower of the projects, we monitor compliance with rules relating to the environment and communities.

In adopting the Equator Principles in February 2016, we provided multiple training sessions for the employees of sales, assessment, screening and other departments and sections involved to foster a thorough understanding of Equator Principles concepts as well as implementation processes for environmental and social risk/impact reviews and we have been conducting training sessions since the adoption of the Equator Principles. Through regular training programs, we strive to go further to raise awareness regarding environmental and social impacts among our employees and deepen their understanding of the Equator Principles concepts and implementation processes for environmental and social risk/impact reviews.

For the following information, we apply the 4th version of the Equator Principles to transactions which are mandated on or after October 1, 2020. The following data represents the number of Equator Principles applicable projects which reached Financial Close in FY 2021(April 1, 2021 to March 31, 2022).

FA services, Project-Related Corporate Loans, Project-Related Refinance or Project-Related Acquisition Finance applying the Equator Principles in FY2021: None

Selected information reviewed and assured by PwC is marked with (✓).