Reporting – Banco Mercantil del Norte S.A. (2017)

Adoption Date:12 March 2012
Country of Headquarters:Mexico
Region of Headquarters:North America
Institutional Reporting Hyperlink:EP Annual Report 2017

2017 Annual Report
Current EPFI Reporting Year/Period:2017
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: 32

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EQUATOR PRINCIPLES

bookEQUATOR PRINCIPLES

gridEQUATOR PRINCIPLES

Totals2921
Totals2921
SectorCategory ACategory BCategory C
Mining
Infrastructure1
Oil & Gas1
Power4
Others521
RegionCategory ACategory BCategory C
Americas2921
Europe, Middle East & Africa
Asia Pacific
Country DesignationCategory ACategory BCategory C
Designated1
Non-Designated2921
Independent ReviewCategory ACategory BCategory C
Yes11
No1821

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

32 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: 16

Totals2212
SectorCategory ACategory BCategory C
Mining
Infrastructure11
Oil & Gas1
Power
Others112
RegionCategory ACategory BCategory C
Americas2212
Europe, Middle East & Africa
Asia Pacific
Country DesignationCategory ACategory BCategory C
Designated1
Non-Designated2212
Independent ReviewCategory ACategory BCategory C
Yes211
No111
Totals2212

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 IFC under which it committed to establish its own system of environmental and social risk management. In March of 2012, Banorte adopted the EPs. In October 2012 the Social and Environmental Risk Management System (SEMS) started operating.

The SEMS defines a process of identification, categorization, selection, evaluation and management of social and environmental risks and impacts generated by the activities we finance, based on the rules of the EPs, the World Bank Group Environmental, Health, and Safety Guidelines.

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

Organizational Structure

The implementation of the EPs through the SEMS is in charge of the Social and Environmental Risk department (Área de Riesgo Socio-Ambiental – ARSA), which is part of the Direction of Sustainability and Responsible Investment. ARSA is integrated by a team with specialized education, experience and skills related to social and environment issues.

Moreover, SEMS is supported by the Champions of Sustainability, a group of Credit department partners who act as a link between ARSA and the Business area of the Bank to disseminate at national level, an adequate social and environmental risk management.

Social and Environmental Analysis Process

The Social and Environmental Risk Management System of Banorte follows a process of identification, categorization, selection, evaluation and management that operates in parallel with the credit procedures. In this manner, credits are analyzed previous to its authorization by the Credit Committee.

Identification

The process begins with the identification of potential social and environmental risks, based on a review of the characteristics of the financing. So, ARSA confirm with the Credit area the customer’s activity, the financial product, the destination of the credit, the amount and the term.

In this stage, the exclusion list of the Bank (Appendix 1) is used to rule out any activity considered as a risk or prohibited situation. Likewise, a research is carried out about the reputation of the project and/or company to know its exposure to this type of risk.

Categorization and Selection

The categorization consists of assigning a level of social and environmental risk to credits, depending on the magnitude of their impacts and the possibility of mitigating them. Risk is classified into three categories: low risk (C), medium risk (B) and high risk (A). In addition, special attention is paid to sensitive industrial sectors such as mining, oil and gas, chemicals, among others, due to its high potential for affecting natural areas, indigenous communities and cultural heritage.
Once financings are categorized, we proceed to choose those that must be evaluated considering the assigned risk category, the destination of the credit, the sector, the reputational background and the amount of the loan. Priority, we evaluate category A and B projects belonging to sensitive sectors.

Evaluation

The evaluation consists in verifying the compliance of the projects and/or companies with the current national legal framework, as well as with the established international guidelines on social and environmental risk for the financial sector, the Performance Standards and the EP’s.

Loans over 1 million dollars are evaluated by the IFC Performance Standards, credits over 10 million dollars are analyzed under the EP’s framework and loans lower than 1 million dollars pass through the SEMS Evaluation .

Thus, ARSA requests to the client, through the Credit area, the necessary information to elaborate a due diligence that validates the compliance with standards. Among the documentation requested are authorizations, permits, resoluteness, licenses, plans, programs, protocols, specialized studies and good practices.

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. So, the Committee considers ARSA’s opinion and conditions to grant financing, and customers receive guidance to improve their environmental and social responsibility management practices. In this way, we disseminate the World Bank Group Environmental, Health, and Safety Guidelines.

Management

Finally, risk management stage refers to the monitoring of the environmental and social performance of the projects, 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, ARSA provides continuous advice to Credit area in order to guide clients in complying with assessment frameworks and developing action plans. These action plans must contain personnel in charge, deadlines and measures defined face of conditions established by ARSA and the external and internal experts of the project.

ARSA conducts in addition, annual documentary reviews, reputational monitoring and on-site visits for financed projects and/or companies to verify the attention on opportunity areas detected, as well as the implementation of action plans.

Review of the implementation of the Equator Principles

As a part of the Banorte’s SEMS continuous improvement process, the Direction of Sustainability and Responsible Investment, in partnership with ARSA, verify the SEMS operation and the EP’s application conducting annual reviews. These reviews consider the results attained, the objectives achieved, the feedback of the different stakeholders (Credit, Normativity, Compliance Legal and Specialized Credit Areas) and the identification of opportunity areas and its corrective actions.

Training

The Credit and Business area plays a key role in environmental and social risk management. Therefore, raising awareness and developing expertise in these issues is essential. Addressing this need, ARSA provides training for Credit’s analysts, executives and directors in person mode, online and by telephone. Also we published the monthly informative newsletter “SEMS en breve” .

During 2017, we reached to train more than 375 executives in topics such as sustainability in the financial sector, social and environmental risk management, SEMS operation, sensitive sectors, case studies, sustainable and responsible customers and reputational risk.

As mentioned above, ARSA is formed by a team with specialized education and experience in social and environmental matters, who in addition receive periodically training on specific topics for the adequate risk management such as human rights, indigenous people and cultural heritage, among others.

Further information can be found at:

https://www.banorte.com/cms/archivos/Equator-Principles-Annual-Report-2017.pdf, and

https://www.banorte.com/cms/archivos/AR_BANORTE_2017.pdf