Lenders’ Environmental & Social Due Diligence

Lenders’ Environmental & Social Due Diligence

As the number and scale of clean‑energy projects continue to grow, so do the financing needs of project owners and developers. While traditional financial metrics remain important for securing loans and other forms of financing, lenders and private banks are increasingly focused on the overall sustainability of their investments.

Consequently, many financing institutions require an environmental and social due‑diligence (ESDD) process that follows a specific set of standards. The exact standards applied vary by lender, but common requirements and guidelines include:

• International Finance Corporation (IFC) Performance Standards
• Equator Principles
• World Bank Environmental and Social Framework
• World Bank Group Environmental, Health and Safety Guidelines: general and industry / sector specific
• European Investment Bank’s Environmental and Social Standards
• EBRD Environmental and Social Policy
• Asian Development Bank’s Environmental and Social Standards
• ILO Conventions and Core Labour Standards

Both financiers and borrowers conduct ESDD assessments to ensure projects adhere to industry best practices and meet the required standards. Risk assessment during this process is multi‑faceted and demands a deep understanding of the most material risks in each sector. Therefore, the evaluation goes beyond mere compliance with national or EU legislation; specialist input and expert opinion are essential. The manager overseeing the procedure must synthesize these diverse inputs to evaluate overall risk.

For example, achieving the biodiversity‑net‑gain targets required by certain investors cannot be satisfied solely by meeting national regulations. Assessors must define measurable, practical KPIs and develop plans that address gaps identified in the initial review.

Following a project review, an environmental and social action plan is created to align with the applicable standards. High‑risk findings typically need to be resolved before financial close (FC).

These assessments often demand a substantial amount of expert time and resources within a tight timeframe (typically 6–10 weeks). Both the client and the consultant must allocate sufficient resources to achieve a satisfactory outcome. Borrowers should also recognize that the process is not a one‑off exercise; the initial risk assessment and action plan lay the groundwork for ongoing work, with continuous improvement and KPI reporting required to satisfy financing institutions.

Hendrikson brings extensive experience across multiple institutional standards—including EP4, IFC, EBRD, and EB. Our background in planning procedures, mergers and acquisitions, EU legislation, and biodiversity management gives us a comprehensive understanding of environmental and social risks across various sectors.

Contact us today to strengthen the financial, environmental, and social sustainability of your project.