“How HCOB manages ESG risks in the lending business“
HCOB supports the sustainable transformation of the economy and society through its business. Therefore, the Bank has developed a comprehensive evaluation system based on four core elements – the Black List, the ESG Decision Matrix, ESG Scoring and Sustainable and Transformational Finance Framework (STFF) Classification. With the help of these comprehensive and forward looking ESG risk management instruments, the Bank aims to contribute to the long-term sustainability and performance of its loan book.
1. Black List: As a first step in HCOB’s decision process in loan origination, the Blacklist must be used as a basis for classifying new transactions. It is updated regularly and published on the Bank’s website. The Blacklist consists of three levels: country, industry and company. Based on this first step, HCOB ensures a thorough screening process for new business. Existing business has been screened as a one time effort when the Blacklist was initially introduced. The use of proceeds, the borrower or company, and the location of the project and sponsor are all taken into consideration, including basic ethical principles such as respect for human rights.
2. ESG Decision Matrix: In a second step, the ESG decision matrix is used to guide the lending process, allowing for an efficient pre-selection of new business opportunities also from a sustainability perspective. It also enables HCOB to support less sustainable companies in their sustainable transformation, by combining the loan application’s use of proceeds and the client’s individual exposure to blacklisted business activities.
3. ESG Scoring: HCOB’s ESG Scoring approach is based on the EBA Action Plan for Sustainable Financing and the BaFin Guideline on Dealing with Sustainability Risks, published at the end of 2019. It encompasses a thorough analysis of climate, environmental, social and governance risk factors for every financing, and a solid minimum ESG grade of ‘4’ is required for the credit decision.
4. STFF Classification: HCOB‘s Sustainable & Transformational Finance Framework (STFF) is a classification system designed to categorise the Bank’s financings as ‘sustainable’ or ‘transformational’. The assessment process includes considerations such as the requirements of the EU Taxonomy, creating transparency through a comprehensive and consistent approach.