{"id":6184,"date":"2024-08-01T18:57:28","date_gmt":"2024-08-01T21:57:28","guid":{"rendered":"https:\/\/banrisul.centralesg.com.br\/indicadores\/descricao-da-abordagem-para-incorporacao-de-fatores-ambientais-sociais-e-de-governanca-esg-na-analise-de-credito-2\/"},"modified":"2025-09-26T18:18:45","modified_gmt":"2025-09-26T21:18:45","slug":"descricao-da-abordagem-para-incorporacao-de-fatores-ambientais-sociais-e-de-governanca-esg-na-analise-de-credito-2","status":"publish","type":"indicador","link":"http:\/\/banrisul.centralesg.com.br\/en\/indicadores\/descricao-da-abordagem-para-incorporacao-de-fatores-ambientais-sociais-e-de-governanca-esg-na-analise-de-credito-2\/","title":{"rendered":"Description of approach to incorporation of environmental, social, and governance (ESG) factors in credit analysis"},"content":{"rendered":"\n

1. The entity shall describe its approach to the incorporating environmental, social, and governance (ESG) factors into its credit analysis.<\/strong><\/p>\n\n\n\n

The proposals for targeted credit transactions, above R$10 million, are aimed at production and medium- and long-term investment in the real estate, rural and infrastructure sectors. In these cases, social, environmental and climate risk assessment analyses , are carried out, using a specific form covering industry, location, legal and management characteristics. Throughout 2023, 38 transactions underwent this process.<\/p>\n\n\n\n

The Bank monitors its agribusiness credit transactions with a Social and Environmental Compliance System, a tool that aims to identify possible restrictions on access to rural credit due to legal or infra-legal provisions relating to social, environmental and climate issues, as provided for in Rural Credit Manual 2-9 (MCR 2-9, in Portuguese) and other environmental legislation.<\/p>\n\n\n\n

The Bank prevents actual negative impacts on operations and on the sale of products and services to the agricultural sector by regularly checking the documents of the enterprise to be financed under rural credit, including, where applicable, its inclusion in the Agricultural Climate Risk Zoning (ZARC, in Portuguese). Banrisul also monitors the risk of deforestation in the beef chain, in a voluntary commitment made as a signatory to Febraban’s self-regulatory system (Febraban Standard SARB 26\/2023), which provides for the monitoring of customers operating in the cattle slaughterhouse and meatpacking activities, especially those located in the Legal Amazon region. The Bank now requires these customers to adopt a traceability system for their herds by December 2025 and to demonstrate that they do not purchase cattle associated with illegal deforestation from direct and indirect suppliers.<\/p>\n\n\n\n

In other sectors with greater exposure to risk, the Institution identifies the SAC risks inherent in the economic sector of the activity, based on the CNAE code, according to the Green Taxonomy methodology developed by Febraban.<\/p>\n\n\n\n

For smaller companies (average monthly revenue of up to R$2 million) and individuals, the analysis is carried out using statistical models. The exception segments for legal entities are identified based on the company’s main CNAE and apply to companies with seasonal activities. In addition to the statistical models used for credit risk assessment, which aim at mitigating the risk of default and supporting the credit granting process, the customer’s exposure is controlled in order to avoid over-indebtedness by determining healthy levels of commitment based on the customer\u2019s risk rating, size and profile.<\/p>\n\n\n\n

 2. The scope of disclosure shall include commercial and industrial lending as well as project finance.<\/strong><\/p>\n\n\n\n

The risk analysis for establishing the exposure limit is general in nature, i.e., it addresses the most relevant information and considerations for credit risk without taking account the specific characteristics of the credit lines in question. In this context, additional information and analyses can be required during the credit analysis and approval process, with special attention to ESG aspects, especially credit lines for investment, agribusiness and real estate projects.<\/p>\n\n\n\n

Given the relevance of credit exposures, all operations above R$10 million in which the use of funds or directed credits is known must fill out standardized questionnaires. The questionnaire may also be applied to other operations or amounts lower than this threshold.<\/p>\n\n\n\n

The proposals for targeted credit transactions (budget funds earmarked for production and medium- and long-term investment in the real estate, rural and infrastructure sectors) above R$10 million, in which the use of funds can be known, are subjected to social, environmental and climate risk assessment by filling out a specific questionnaire. Other transactions or proposals of a lower amount than the cut-off, or from other lines of credit, are subjected to assessment upon request of the Credit Committees. The information collected makes up the basis of a risk opinion, which is made available to the Credit Committee as an additional input for decision-making, showing Banrisul’s exposure to these risks. To prepare the opinion, public social and environmental compliance lists are consulted and information is sought from freely accessible media. The company’s size is taken into account, as well as practices adopted by its peers, considering: the counterparty’s sector of activity, the location where the credit will be used, specific applicable legislation and the counterparty’s level of management of social, environmental and climate aspects.<\/p>\n\n\n\n

3. The entity shall describe policies that determine its approach to the incorporation of ESG factors in credit analysis.<\/strong><\/p>\n\n\n\n

ESG aspects are analyzed qualitatively by credit risk analysts in line with Banrisul\u2019s Institutional Manual\/Social and Environmental Responsibility Policy. At Banrisul, credit risk analysis is based on statistical models for individuals and for corporate customers in the retail segment. The exception segment includes those of low commercial interest, including those of high environmental and social risk.<\/p>\n\n\n\n

In the BLT system, there are internal and external incidents received from credit bureaus and other official agencies, in which management and restrictive incidents that may indicate a worsening of ESG-related risk are recorded . As for individual analyses, in addition to these same controls, data extracted from the financial statements and notes thereto, as well as other information made available by customers are used. They must also fill out a specific checklist, which helps analysts to gather qualitative information that will be used in their opinion, risk analysis and exposure limits.<\/p>\n\n\n\n

Legal entities that are not subject to the retail analysis are also analyzed, on an individual basis, in which quantitative and qualitative aspects are observed. In the qualitative analysis, besides the governance and management aspects, which are essential for credit risk analysis, environmental and social matters related to the company and its production chain are evaluated. Analyses are performed by risk analysts who are sorted in specialized groups per industry in which the companies operate, interacting with the other analysts and who have detailed knowledge of the companies, their role and impact on the local economy. In order to include a qualitative aspect in credit analysis, Banrisul incorporated an ESG assessment tool into the process. The tool uses a questionnaire completed by companies\/economic groups with exposure or proposed risk limit higher than R$5 million to generate a score that is incorporated into the customer\u2019s internal risk rating. The tool is currently being used to assess the risk limit of sectors considered to be more sensitive to ESG aspects.<\/p>\n\n\n\n

Following the credit risk analysis, considering potential impacts of investment transactions (project finance), all transactions above R$10 million are subjected to the completion of special questionnaires to better measure social, environmental and climate risk (this questionnaire may also be used in other transactions or in transactions involving a lower amount)<\/p>\n\n\n\n

Moreover, in specialized lines, environmental licensing and compliance with labor\/tax certificates, etc. are required. <\/strong>The guidelines related to the products, which complement the Institution\u2019s credit policy, are set out in the specific regulations for Agribusiness (N7), Development (N33) and Real Estate (N30).<\/p>\n\n\n\n

The Institutional Policy on Social, Environmental and Climate Risk Management is targeted at outlining the management processes, seeking to mitigate these risks and, consequently, safeguard the assets and interests of its customers, shareholders, employees and other stakeholders.<\/p>\n\n\n\n

The Social, Environmental and Climate Risk Responsibility Policy (PRASC in Portuguese) sets out the guidelines for social, environmental and climate responsibility activities of the Bank and companies in the prudential conglomerate, aligned to the nature of each company\u2019s activities and the complexity of their products and services, complying with the principles of relevance, proportionality and efficiency.<\/p>\n\n\n\n

4. The entity shall discuss how it incorporates ESG factors when estimating credit losses over the contractual term of the entity\u2019s financial assets.<\/strong><\/p>\n\n\n\n

The monthly calculation of the provision for loan losses (PCLD, in Portuguese) also takes into account ESG factors for all active contracts based on the rating calculation \u2013 one of the factors that can worsen this rating is the customer not having an approved credit exposure limit. This individual analysis is not allowed for some business sectors\/CNAE codes (CNAE stands for national classification of economic activity in Portuguese), including gambling and betting and various agricultural crops (tobacco and sugarcane, for example), as well as companies included in the list of Slave Labor and Judicial Restrictions, among others. In the analysis process, exposure limits may be denied on the basis of insufficient environmental licenses or debts to the federal government, among other factors.<\/p>\n\n\n\n

Moreover, during the analysis process, exposure limits may be denied due to the lack of environmental licenses, debts with the federal government, and one of the consequences is the possibility of worsening the customer\u2019s credit score, especially for those who already have exposure with the Bank.<\/p>\n\n\n\n

Furthermore, regardless of the exposure limit in force and the size of the company or individual customer, in the monthly calculation of the Provision for Loan Losses, incidents are verified that may worsen the customer’s risk in a timely manner, such as inclusion on the list  of Employers that use Forced\/Compulsory Labor, court restrictions, internal audit notes for fraud, fraud with the BACEN and irregularities with the CVM.<\/p>\n\n\n\n

5. The entity shall describe its approach to implementation of the aspects of the entity\u2019s ESG incorporation practices.<\/strong><\/p>\n\n\n\n

ESG aspects are analyzed qualitatively by credit risk analysts and is in line with the Institutional Manual\/Socia and Environmental Responsibility Policy. Banrisul has currently incorporated an ESG assessment tool into the analysis process. The tool uses a questionnaire completed by companies\/economic groups with exposure or a proposed risk limit higher than R$5 million to generate a score that is incorporated into internal the customer\u2019s risk rating. The tool is currently being used to assess the risk limit of sectors considered to be more sensitive to ESG aspects.<\/p>\n\n\n\n

In order to prepare an opinion on social, environmental and climate risks in relevant operations (targeted credit above R$10 million), public social and environmental compliance lists are consulted and information is sought from open-access media. The size of the company is taken into account, as well as the practices adopted by peers:<\/p>\n\n\n\n