Actualidad Peru

Avoid Environmental Risk: a great challenge for all

Regulations on the Management of Social and Environmental Risk

A new initiative in regulation

On 28 March this year, under Resolution SBS 1928/2015, the Regulations for the Management of Social and Environmental Risk (hereinafter the "Regulation") was adopted for application to companies in the Peruvian Financial System. This is the first regulatory initiative by the Peruvian State through which joint and several liability is assigned to financial entities for environmental damage caused by the projects they finance. This regulation seeks to achieve greater environmental and social protection in Peru.

Within this regulatory framework, the minimum requirements for managing social and environmental risk are established, promoting the implementation of best practices and prudent risk-taking by institutions in the Peruvian financial system. For example, they are required to evaluate social and environmental risk prior to granting any credit or finance. The limits for admissibility of risk must be based on three categories measuring the impact of social and environmental risk: high, medium or low.

Although its regulatory nature is new, as Lorenzo de la Puente Brunke points out, this is not a new concern in international circles, since practically all the large banks worldwide have signed up to the “Ecuador Principles”, based on the “Performance Standards on Environmental and Social Sustainability” of the International Finance Corporation, a member of the World Bank Group.

Application Requirements

The Regulations will be applicable when offering advisory services, financing, bridging loans and corporate credit facilities in excess of USD 10m; and services to non-retail customers where the total amount of project-related loans in the financial system account for a minimum of USD 50m and the total amount of credit to projects the company is a minimum of USD 25m.

In such cases, says Lorenzo de la Puente Brunke, financial entities must require a document to describe the background to the current situation, due diligence procedures and evaluation of potential impacts, mitigation measures, engagement and dialogue levels, and grievance settlement mechanisms.

Disclosure of information

Financial companies issue a report to the supervisor and the general public at least once a year, assessing the social and environmental risks associated with all services they provide. And every quarter, they must file a report with the supervisor on each of the clients to whom they have provided services, stating the amount of funding, its category, and the economic sector and geographic location of projects and/or primary suppliers of projects.

That regulation will come into force on 1st February 2016.