Integrating environmental considerations into lending

Description

Integrating environmental considerations into lending involves systematically assessing and incorporating environmental risks and impacts into financial decision-making processes. This strategy ensures that loans and investments support projects with minimal environmental harm, promote sustainable resource use, and comply with environmental regulations. By embedding environmental criteria in lending policies, financial institutions can mitigate ecological damage, reduce long-term financial risks, and encourage borrowers to adopt environmentally responsible practices, directly addressing unsustainable development and environmental degradation.

Implementation

The World Bank's Operational Directive on Environmental Assessment was approved in 1989, and expanded in 1991. It is the principal mechanism for taking account of the environmental effects of the Bank's project lending. All prospective Bank projects are screened for potential environmental effects and classified into categories. For instance, category A groups projects with potentially serious environmental damage and require complete Environmental assessments (EAs). Several A category projects have been modified as a result, including re-routing a channel to avoid disruptions to a lagoon, for the Lower Guayas flood control project in Ecuador.