DBJ and the Equator Principles
Background to DBJ's adoption of the Equator Principles
DBJ's corporate philosophy is to apply financial expertise to design the future: to gain the trust of our customers with creative financial solutions, and to work together for sustainable development and future prosperity. Based on this philosophy, we contribute to Japan's international competitiveness and regional development through the supply of high-quality risk money and proprietary knowledge.
In accordance with our corporate philosophy, we have established a Policy on Sustainability under which we work to solve the issues of our customers and the larger society as we move toward sustainable development for Japan and the world. Basing our activities on a unique business model featuring integrated investment and loans, we aim for a balance of economic and social value.
We believe that in evaluating credit for project finance and other instruments, we must follow our corporate philosophy and Policy on Sustainability, adhering to clear guidelines developed by identifying, evaluating, and managing each project's environmental and social risks. Our adoption of the Equator Principles in July of 2020 was in line with this reasoning.
The Equator Principles
The Equator Principles are a framework designed to ensure that financial institutions take full account of potential impacts on the natural environment and local society when financing large-scale projects.
Based on the Equator Principles, DBJ identifies a project's environmental and social risks and assesses their impact. When an impact is deemed significant, the Bank will ask the project operator to take mitigating steps.
Regarding the original Equator Principles, please refer to the original website as below.
Applicable projects
The Equator Principles are applied to the following financial instruments and processes.
| Regions | Worldwide |
|---|---|
| Industries | All industries |
| Business types | ① New projects ② Expansion of existing projects (when these have potential environmental and social impacts) |
| Financial instruments and services | Project Finance with total project capital costs of USD 10 m or more |
| Project Finance Advisory Services where total project capital costs are USD 10 m or more | |
| Project-Related Corporate Loans where all of the following three criteria are met: i. The majority of the loan is related to a Project over which the client has Effective Operational Control (either direct or indirect). ii. The total aggregate loan amount and the Equator Principles Financial Institution's individual commitment (before syndication or sell down) are each at least USD 50 m. iii. The loan tenor is at least two years. |
|
| Bridge Loans with a tenor of less than two years that are intended to be refinanced by Project Finance or a Project-Related Corporate Loan that is anticipated to meet the relevant criteria described above. | |
| Project-Related Refinance and Project-Related Acquisition Finance, where all of the following three criteria are met: i. The underlying Project was financed in accordance with the Equator Principles framework. ii. There has been no material change in the scale or scope of the Project. iii. Project Completion has not yet occurred at the time of the signing of the facility or loan agreement. |
DBJ's management structure for the Equator Principles
Upon adopting the Equator Principles, we created the Environmental & Social Assessment Office and “Equator Principles Operation Manual”, which is the Bank’s own internal manual to evaluate environmental and social risks and confirm that they are taken into account.
In accordance with the Equator Principles and “Equator Principles Operation Manual”, the Environmental & Social Assessment Office identifies the project's environmental and social risks and conducts an impact assessment.
Environmental and social risk assessment and monitoring
Based on project information received from the client, the business units and Structured Finance Department (specifically, the Environmental & Social Assessment Office) carry out an environmental and social risk assessment to determine whether the project operator's consideration of environmental and social factors meets the criteria established in the Equator Principles.
When evaluating environmental and social risk in line with the first of the Equator Principles, we assign projects to the following categories according to their potential environmental and social risks or impacts.
| Category | Description |
|---|---|
| A | Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented |
| B | Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures |
| C | Projects with minimal or no adverse environmental and social risks and/or impacts |
Regarding a category which is assigned to the project, we conduct an environmental review based on Equator Principles 2 through 7. After that we include covenants in the loan agreement that the client will give consideration to environmental and social factors as required by Principle 8, and then DBJ confirms the client's adherence to the covenants.
When a project has been assigned to Category A, the items required in Principles 2 through 10 are as follows.
| Principle 2 | Conduct an Environmental and Social Impact Assessment |
|---|---|
| Principle 3 | Comply with applicable environmental and social standards |
| Principle 4 | Develop or maintain an Environmental and Social Management System Prepare an Environmental and Social Management Plan and, where necessary, an Equator Principles Action Plan |
| Principle 5 | Demonstrate effective Stakeholder Engagement |
| Principle 6 | Establish a grievance mechanism |
| Principle 7 | Carry out an Independent Review by an Independent Environmental and Social Consultant |
| Principle 8 | Incorporate covenants linked to compliance with the Equator Principles |
| Principle 9 | Obtain monitoring and reporting by an Independent Environmental and Social Consultant |
| Principle 10 | Disclose information and ensure transparency |
Internal training
To deepen understanding of the concepts behind the Equator Principles and DBJ's internal processes related to environmental and social impact assessment, we launched an e-learning course for all employees and regularly conduct internal training sessions, primarily targeting employees in the business units. We will make continuing efforts to raise awareness of the importance of environmental and social considerations.
Transactions in accordance with the Equator Principles in FY2022 (DBJ)
The numbers of transactions from 1 April 2022 to 31 March 2023 to which the Equator Principles (EP4) apply are shown below.
Project Finance
The table below shows the numbers of transactions that reached financial close in FY2022 (from 1 April 2022 to 31 March 2023). The total number of transactions to which the Equator Principles applied was five.
| Category A | Category B | Category C | |
|---|---|---|---|
| - | 3 | 2 | |
| Sector | Category A | Category B | Category C |
| Mining | - | - | - |
| Infrastructure | - | - | - |
| Oil & Gas | - | - | - |
| Power | - | 3 | - |
| Others | - | - | 2 |
| Region | Category A | Category B | Category C |
| Americas | - | - | - |
| Europe, Middle East & Africa | - | - | - |
| Asia Pacific | - | 3 | 2 |
| Country Designation | Category A | Category B | Category C |
| Designated Country | - | 3 | 2 |
| Non-Designated Country | - | - | - |
| Independent Review | Category A | Category B | Category C |
| Yes | - | 3 | - |
| No | - | - | 2 |
There were no Project Finance Advisory Services, Project-Related Corporate Loans, Project-Related Refinance or Project-Related Acquisition Finance transactions in FY2022.
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