Reporting – Banco Mercantil del Norte S.A. (2016)

Adoption Date:12 March 2012
Country of Headquarters:Mexico
Region of Headquarters:North America
Institutional Reporting Hyperlink:https://www.banorte.com/cms/archivos/Equator_Principles_Annual_Report_2016.pdf
https://www.banorte.com/cms/archivos/Informe_Anual_2016_VE.pdf
Current EPFI Reporting Year/Period:2016
EPFI Reporting in Compliance:Yes

Please read the important notes and disclaimer for further information on ‘EPFI Reporting’, compliance and publication on the Equator Principles Association website.

Further information on this EPFI may be obtained through the Institutional Reporting Hyperlink above.

PROJECT FINANCE ADVISORY SERVICES

Total number mandated in the reporting period: 0

PROJECT FINANCE TRANSACTIONS

Total number that reached financial close in the reporting period: 26

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EQUATOR PRINCIPLES

bookEQUATOR PRINCIPLES

gridEQUATOR PRINCIPLES

Totals5516
Totals5516
SectorCategory ACategory BCategory C
Mining
Infrastructure31
Oil & Gas
Power1
Others2415
RegionCategory ACategory BCategory C
Americas5516
Europe, Middle East & Africa
Asia Pacific
Country DesignationCategory ACategory BCategory C
Designated1
Non-Designated5516
Independent ReviewCategory ACategory BCategory C
Yes55
No16

1Designated Countries are those countries deemed to have robust environmental and social governance, legislation systems and institutional capacity designed to protect their people and the natural environment. For the list of Designated Countries, go to: http://www.equator-principles.com/index.php/ep3/designated-countries

PROJECT NAME REPORTING FOR PROJECT FINANCE TRANSACTIONS

26 projects were not disclosed as per the disclosure conditions specified in Annex B of the Equator Principles

PROJECT-RELATED CORPORATE LOANS

Total number that reached financial close in the reporting period: 9

Totals018
SectorCategory ACategory BCategory C
Mining1
Infrastructure
Oil & Gas
Power
Others8
RegionCategory ACategory BCategory C
Americas18
Europe, Middle East & Africa
Asia Pacific
Country DesignationCategory ACategory BCategory C
Designated1
Non-Designated18
Independent ReviewCategory ACategory BCategory C
Yes1
No8
Totals018

1Designated Countries are those countries deemed to have robust environmental and social governance, legislation systems and institutional capacity designed to protect their people and the natural environment. For the list of Designated Countries, go to: http://www.equator-principles.com/index.php/ep3/designated-countries

IMPLEMENTATION OF THE EQUATOR PRINCIPLES

Adoption of the Equator Principles and its insertion in the processes

In 2009, Banorte signed an agreement with the IFC under which it committed to establish its own system of environmental and social risk management. In March of 2012, Banorte adopted the Equator Principles (EP’s). In October 2012 the Social and Environmental Risk Management System (SEMS) started operating.

The SEMS defines a process of identification, categorization, evaluation and management of social and environmental risks associated with the provision of credit, based on the rules of the EPs, the IFC Performance Standards and The World Bank Group Environmental, Health and Safety Guidelines.

Thus, the objective of the SEMS and the EPs is to analyze the environmental and social risk of the loan portfolio of the Corporate Banking, Commercial Banking, Government Banking and Structured Financing, in order to ensure that projects that receive financing or advisory from Banorte are developed in a socially responsible manner, reflect the application of strict environmental management practices which cause the least amount of harm possible.

Administrative structure of the Equator Principles

The SEMS and the EP’s are in charge of the leadership of Sustainability department, who created the Social and Environmental Risk Area (Gerencia de Riesgo Socio-Ambiental: GRSA) in order to successfully administrate and operate the system.  The GRSA is integrated by two manager positions and one analyst with education, experience, competence and specialized skills related to social and environment issues.

Social and Environmental Risk Management System and the Equator Principles

The SEMS of Banorte is responsible for the social and environmental risk analysis process, which consists of the identification, categorization, evaluation and management of the social and environmental risks associated with the financial transactions.

1. Identification of social and environmental risks

The process begins with the identification of potential social and environmental risks.  This is achieved by analyzing the characteristics of potential investments proposed by the credit officers based on information provided by the Selective Credit Alliance System (Sistema Alianza Crédito Selectivo: SACS), by telephone or through questionnaires  prepared by the SEMS (in case of the Government Banking and Structured Finance). The characteristics include customer activity, credit destination, financial product, amount of the credit, and the corresponding deadlines.

At this stage the use of bank exclusion list is very important to rule out any activity considered prohibited. Additionally a reputational risk analysis is performed to better understand the exposure of Banorte to this type of risk.

2. Categorization of social and environmental risks

The categorization is assigning a social and environmental level to credits depending on the magnitude of impacts and risks that generate. The risk is classified in the following categories: low risk (C), medium risk (B) or high risk (A). Also, the categorization pays special attention to sensitive industries (mining, chemicals, forestry, agribusiness, tourism, etc.) and its impact on natural areas, cultural heritage and indigenous people.

The determination of the social and environmental risk level is made based on the initial risk, which is automatically provided by SACS, according to a predetermined matrix that relates the purpose of the loan with a specific risk level from each industrial activity. Thus, once the potential risks are identified, the GRSA will then confirm or reassign the level of risk.

3. Evaluation of social and environmental risks

The evaluation of social and environmental risks consists of the projects compliance verification under the current national regulatory framework and according the international guidelines on social and environmental issues for the financial sector (Performance Standards and Principles of Ecuador).

Loans over 1 million dollars are evaluated by the IFC Performance Standards, and loans over 10 million dollars are analyzed under the Equator Principles framework. All the loans related to sensitive industries are evaluated. Thus, GRSA requires that the loan officers obtain the necessary information to conduct due diligence  that ensure compliance.

The evaluation of the social and environmental risks includes recommendations for both the Credit Committee and the customer regarding the social and environmental viability of the project and improvements in social and environmental performance. The Committee considers the GRSA opinion to grant funding and customers receive guidance to improve their environmental management practices and social responsibility.

4. Management of social and environmental risks

The risk management stage refers to the monitoring of the project’s environmental and social performance during the life cycle of financings. This monitoring applies to loans that were evaluated, mainly projects analyzed under the EP’S framework. During this stage, GRSA establishes continuous contact with the executives and analysts in order to guide clients in complying with assessment frameworks, through annual documentary reviews, site visits and monitoring projects and/or company’s reputational risk.

Review of the implementation of the Equator Principles

As part of the Banorte’s SEMS continuous improvement process, the Head of Sustainability department, in partnership with GRSA, assesses the SEMS operation and the EP application conducting an annual review of the results attained and the objectives achieved. This review considers the feedback of the different departments of the bank which are involved in the system (Credit, Compliance, Legal and Specialized Credit Areas).

Training of the Equator Principles staff

The GRSA, responsible for the operation of the SEMS, is comprised of personnel with specialized education and skills on social and environmental issues. In addition, the GRSA periodically receives in-person or online training related to specific topics regarding environmental and social risk management including human rights, indigenous communities, cultural heritage, impact evaluation and environmental risks, among others.

Also, GRSA trains the Credit Areas about the definition, objectives, responsibilities, scope and operation of SEMS and PE, through personal contact at the time of investment analysis, online training and the monthly distribution of a newsletter “SEMS en breve” showcasing of high social and environmental risk at national and international level.

Further information can be found at:

https://www.banorte.com/cms/archivos/Equator_Principles_Annual_Report_2016.pdf, and

https://www.banorte.com/cms/archivos/Informe_Anual_2016_VE.pdf