CAIXA Econômica Federal (2023)

Governance and Organization of Social, Environmental and Climate Risk at CAIXA

CAIXA’s social, environmental and climate risk management is carried out by the Vice-Presidency of Risks. The social, environmental and climate risk is found in the Special Risks unit – GEREP.

GEREP’s mandates related to social, environmental and climate risk are:

▪ Models, guidelines, methodologies, and risk management parameters;

▪ Stress tests;

▪ Calculation of economic capital;

▪ Monitoring and reporting risks.

It is in this unit that models, guidelines, and other socio-environmental requirements applicable to the entire bank are developed, in addition to being responsible for the Equator Principles, of which CAIXA has been a signatory since 2009. At the end of 2023, the staff working in social risk, environmental and climate management was made up of 2 teams, totaling 15 employees.

In line with the need for RSAC integration, relevant actions were incorporated into CAIXA, namely:

• Update of social, environmental and climate risk models;
• Implementation of social and environmental risk indicators in the Risk Appetite Declaration;
• Advances in the CAIXA methodology of the Social, Environmental and Climate Risk Document (DRSAC), considered in Brazil a key piece to understand and mitigate the risks faced by institutions in their credit and investment operations;
• General review of processes related to the Equator Principles (reported in the following topic “Equator Principles”).

Internal processes and Policies

CAIXA has specific rules and guidelines for granting responsible credit, using environmental and social criteria for approving clients and projects, to ensure that they are in accordance with CAIXA’s Institutional Policy. This concern also extends to the bank’s portfolio, with socio-environmental requirements in other areas, such as rural credit, sanitation, infrastructure, and housing.

The company has specific rules to regulate its Institutional Policy, which defines the implementation of socio-environmental responsibility guidelines. The assessment and management of social, environmental and climate risks guarantee alignment with current legislation, corporate strategy and good market practices, and relationships with interested parties for which non-compliant practices are demonstrated are prohibited. to social, environmental, and climatic requirements. It also highlights that the risk management structure identifies, measures, evaluates, monitors, reports, controls, and mitigates social, environmental and climate risks.

In its Risk and Capital Management Policy, there is a specific item for the management of social, environmental and climate risk, which must be compatible with the complexity of CAIXA’s activities, services, products, and processes and be integrated, enabling identification, measurement, evaluation, monitoring, establishment of possible limits, reporting, control, and mitigation of adverse effects resulting from interactions between risks. This management considers, among others: (a) specific guidelines for sensitive sectors and segments and activities that represent a greater potential for negative socio-environmental impact; (b) political, legal, regulatory, technological and market changes; (c) the perspective of extreme climate change and its potential economic and social consequences and (d) the assessment of impacts in scenarios.

In addition, CAIXA monitors concentrations of exposures to economic sectors most susceptible to suffering or causing social, environmental or climate damage, and, when appropriate, establishes limits for these exposures, as defined in its Capital Risk Management Policy.

CAIXA has a specific standard to comply with the Equator Principles, mapping all the actors involved and procedures necessary for their application.

Equator Principles

Regarding the analysis of projects framed in the Equator Principles, the bank follows the international standardization of the International Finance Corporation – IFC, a member of the World Bank Group that has great expertise on the subject, adopting the environmental criteria referenced by the IFC Performance Standards on Social and Environmental Sustainability and the World Bank Group Environment, Health and Safety Guidelines. CAIXA requires, when analyzing projects, a socio-environmental compliance assessment carried out by an independent socio-environmental consultancy, if high risk is identified (Category A) and, when necessary, in medium risk projects (Category B). This assessment addresses the legal requirements applicable to environmental management, health and safety management and occupational medicine, the conditions of environmental licenses and the implementation of the Basic Environmental Plan for compensation and mitigation of socio-environmental impacts, as well as other criteria established in the Equator Principles.

For projects with socio-environmental impacts of high magnitude, socio-environmental monitoring reports are also periodically required, which cover the implementation and operation of the project during the term of the financing. Currently, socio-environmental risk consultants work on the analysis and monitoring of projects that comply with the Equator Principles, whose review of the analyzes and monitoring conducted is carried out in pairs for greater due diligence and critical assessment. Once validated by the team (which always collaborates with peer review), all technical analyzes also go through two higher levels until they are finally approved.

Furthermore, the team periodically reviews the internal standards that deal with the Equator Principles, always seeking to improve the management of socio-environmental risks and ensure that projects are rigorously evaluated and monitored by the bank. The business areas are responsible for framing the operations, forwarding them to the area of social, environmental and climate risks, in addition to conducting all necessary negotiations for Due Diligence, hiring consultants and dealing with the entrepreneur. They are also responsible for assuming contractual obligations to comply with Principle 8. Furthermore, they are responsible for monitoring the contract throughout the life of the project, as well as for dealing with periodic socio-environmental monitoring.

In 2023, all social, environmental and climate risk regulations and instruments related to the Equator Principles underwent review and improvement, of which we highlight:

a) contractual clauses (Principle 8);

b) the bank’s terms of reference for hiring an independent socio-environmental consultancy company (Principles 7 and 9);

• A Working Group was set up between CAIXA and another large Brazilian public bank that is a signatory to the PE, aiming to review the Terms of Reference for Hiring Independent Socio-Environmental Consulting, with the incorporation of governance recommendations and guidance notes.
• Additionally, an agenda was held with Independent Socio-Environmental Consultancies that are involved in the analysis and monitoring of projects covered by the Equator Principles, in order to inform about the update of the Terms of Reference, as well as align relevant aspects to comply with the Principles.

c) the project risk categorization form (Principle 1).

In addition, the bank promoted a review of its internal standards based on documents available for consultation on the Equator Principles and Intralinks website, seeking greater alignment with EP recommendations and requirements, aiming to improve internal processes, as well as mitigate of social, environmental and climate risks linked to projects financed by CAIXA.

Still in relation to the EP, CAIXA participated in a member vote that changed the entity’s governance, having signed the new Signatory Agreement to maintain CAIXA’s affiliation with the Equator Principles.

Equator Principles Hiring 2023

In 2023, a project financed by CAIXA was contracted, framed under the Equator Principles in the “Project Finance” modality, referring to the sanitation sector (sanitary sewage), becoming part of CAIXA’s periodic monitoring of social, environmental and climate risk, with support from an independent socio-environmental consultancy.

In the “Project Finance Advisory Services” modality, CAIXA provided technical support for five projects in the areas of Public Lighting and Solid Waste through the FEP CAIXA program.

Transparency and Data Disclosure

Regarding the reporting and dissemination of data, it is worth highlighting the Social, Environmental and Climate Risks and Opportunities Report (GRSAC), which aims to ensure the disclosure, standardization, and official qualification of internal and external reports on the disclosure of data and information on social, environmental and climate risks. The socio-environmental risk data for 2023 can be found in the following document: https://www.caixa.gov.br .

Annually, GEREP reports to higher authorities on the Equator Principles, both to the Risk Superintendency of the bank to which it is linked, and to the bank’s General Secretariat, responsible for institutional relationships with external entities. It is also responsible for the annual report on the Equator Principles with the EP and for the Bank’s Integrated Report or its Sustainability Report.

More information about CAIXA’s socio-environmental responsibility, its management of social, environmental and climate risks and about the projects included in the Equator Principles in 2023 can be found in its Sustainability Report: https://www.caixa.gov.br/sustentabilidade

To access the Integrated Report, visit: https://ri.caixa.gov.br/en/company/integrated-report/