Sustainable Finance And Environmental & Social (E&S) Risks At The Project Level

Eduardo Nunes de Lima, Environmental, Social and Climate Change Risk Manager, Santander CIB

Eduardo Nunes de Lima has 29 years of professional experience in sustainability across financial institutions, industries, consultancies, and NGOs, including 12 years specializing in E&S Risk Management at financial institutions. He holds a Master of Science in Strategic Leadership towards Sustainability from the Blekinge Institute of Technology (BTH), Sweden. Eduardo has been directly involved in assessing and monitoring E&S risks associated with large companies, project financing, and ESG transactions across various geographies and industries.

The urgency for investments in projects and economic activities aligned with a sustainable society is escalating. According to the European Central Bank (ECB), substantial investments are required through 2030 and beyond to achieve carbon neutrality by 2050 in the European Union. An annual additional investment of nearly €400 billion is needed, with 75 percent allocated to the power grid and power plant sectors.

The climate change emergency compels us to transform the global power matrix as soon as possible systematically. Electricity and heat account for almost 30 percent of worldwide greenhouse gas emissions. Moreover, transitioning to a sustainable economy will necessitate the electrification of several sectors, including transportation.

However, pursuing low-carbon electricity poses significant challenges. A sustainable future for humanity requires not only low CO2 emissions but also good working conditions, a safe environment for neighboring communities, effective pollution controls, and minimal biodiversity loss.

Challenges with Renewable Energy Projects

A sustainable future for humanity requires not only low CO2 emissions but also good working conditions, a safe environment for neighboring communities, effective pollution controls, and minimal biodiversity loss

While renewable energy projects promise to reduce carbon emissions, they are not inherently free from adverse environmental and social impacts. These impacts must be carefully considered. In fact, numerous renewable energy projects face implementation or operational challenges due to significant negative effects on nature.

Regrettably, the global economy and society are still far from adopting a holistic and strategic approach to sustainability — one that genuinely respects the planetary boundaries necessary for humanity to thrive for generations. Nevertheless, robust and well-tested frameworks exist to help understand and manage the environmental and social risks associated with new projects. One such framework is the Equator Principles (EP).

The Role of the Equator Principles

The Equator Principles serve as a financial industry benchmark for assessing and managing environmental and social risks in projects. Currently, 129 financial institutions globally are signatories to the EP. While the EP is not specifically designed to guide investments toward sustainability, it offers a comprehensive framework to ensure that all potential environmental and social impacts of a project are thoroughly understood and, where possible, avoided or mitigated.

Through a detailed E&S due diligence process aligned with the Equator Principles, financial institutions can achieve several objectives. These include avoiding support for unacceptable projects from an environmental and social perspective, encouraging clients to select appropriate projects, and facilitating smooth project development and operation.

By adopting and rigorously applying frameworks like the Equator Principles, stakeholders can contribute to a more sustainable future while minimizing risks and fostering trust among communities, investors, and policymakers