A year ago, I wrote a column explaining why banks need to develop a social safeguards policy for their lending operations. Allow me to share the rationale behind this initiative we have taken at the Development Bank of the Philippines (DBP) and share the steps we have taken to make it a reality in our operations.
As a bank committed to sustainable development, DBP in 1997 adopted an environmental policy in line with our vow to protect the environment. We realized however that an environment policy needs further enhancement through a social safeguards policy.
For the ADB, a social safeguards policy “builds upon the three previous safeguard policies on the environment, involuntary resettlement of indigenous peoples, and brings them into one single policy that enhances consistency and coherence, and more comprehensively addresses environmental and social impacts and risks.” It is a commitment which affirms the objectives of promoting long-term sustainability of projects by assessing their potential effects on the three pillars of sustainability — environmental (planet), social (people), and economic (profits).
Development projects have the potential of causing negative environmental and social impacts. The Social Safeguards Policy aims to address risk relative to social aspects or minimize problems on the environment and local communities and comply with national laws and regulations. This policy applies to all project loans, advisory services and non-credit programs and services to be financed by our bank.
In our Social Safeguards Policy statement, we decided to make the identification of social impacts and risks a part of the normal process of risk management and assessment. Aside from compliance with local, national and international regulations and conventions applicable to social considerations of projects, we have also decided take an active role in influencing our clients, business associates, bank officers and staff to integrate social considerations into their project operations, and to define performance measures for social impact and evaluation activities to measure performance against goals.
The bank prepared a manual to provide guidance to DBP personnel in the conduct of social due diligence of projects as part of the overall processing of loan applications. Social due diligence is the identification and assessment of social risks associated with a proposed project, including identifying the mitigation and management measures that are necessary to reduce any social risks of the project.
The assessment is done during the project evaluation process. There is also a third party review through a process we call Project Evaluation and Endorsement Review. The social assessment encompasses six areas: land acquisition and involuntary resettlement; indigenous peoples (IPs); cultural heritage; labor and workplace conditions; community health, safety and security; and gender and development.
Bank officers will need to assess how many families or people will be affected by a certain project, the existence of any resettlement plans, and the grievance mechanism for the displaced affected community. If the project will potentially affect the IPs, bank officers should ensure that the IP review process has been completed by the client. If there are cultural properties and sites that are within the project site, appropriate certification from the National Historical Commission of the Philippines should be made available by the client.
We should never take for granted our foremost responsibilities to society as we aim to bring forth development in our country. A social safeguards policy approach is a partnership with clients which must, however, be as less intrusive as possible. We embark on this system as a guide to remind our stakeholders of our joint responsibility to the bigger community.
(Benel D. Lagua is executive vice president at the Development Bank of the Philippines. He is an active Finex member and a longtime advocate of risk-based lending for SMEs. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as Finex.)