Initiatives for the Equator Principles

The Equator Principles

The Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence and monitoring to support responsible decision-making.

Background to the adoption of the Equator Principles

In order to “actively contribute to the sustainable growth of society” as part of the “Aozora’s Key Priorities (Aozora Action)”, the Aozora Group strives to promote its initiatives by incorporating sustainability into the Group's overall financial services and activities as a business entity while working closely with senior management.

Large-scale development projects can have a significant impact on the natural environment and communities. Financing projects after taking the appropriate precautions to avoid and mitigate any negative impact they may have on the environment and society is a way to contribute to societal development and address environmental protection issues.

Aozora Bank adopted the Equator Principles on February 14, 2022 with the aim of supporting the reduction of customers’ environmental and social risks through the evaluation of their environmental and social impacts based on the Equator Principles as well as actively contributing to the sustainable growth of society.

Projects to be financed under the Equator Principles

The Equator Principles apply to the following types of finance:

	Acquisition Finance
Regions/Industries		Globally/All industry sectors
Types of Business		New projects Expansion of existing projects (in the case that there are any potential impacts on the environment and society)
Types of Finance	Project Finance Advisory Services	Services where total Project capital costs are USD 10 million or more
	Project Finance	Finance with total Project capital costs of USD 10 million or more
	Project-Related Corporate Loans	Loans where all of the following three criteria are met (including when we participate in syndicated lending): The majority of the loan is related to a Project over which the client has Effective Operational Control (either direct or indirect). The total aggregate loan amount and the EPFI’s* individual commitment (before syndication or sell down) are each at least USD 50 million. The loan tenor is at least two years. EPFI: Equator Principles Financial Institutions
	Bridge Loans	Loans with a tenor of less than two years that are intended to be refinanced by Project Finance or a Project-Related Corporate Loan that is anticipated to meet the relevant criteria described above.
	Refinance	Project-Related Refinance and Project-Related Acquisition Finance, where all of the following three criteria are met: The underlying Project was financed in accordance with the Equator Principles framework (including projects financed under the Equator Principles by other banks). There has been no material change in the scale or scope of the Project. Project Completion has not yet occurred at the time of the signing of the facility or loan agreement.

Internal management of the Equator Principles

In order to comply with the Equator Principles, the Aozora Group has added the Equator Principles to its “Investment and Lending Policies regarding Environmental & Societal Issues”. We have also established an “Equator Principles Manual” that stipulates how to identify and assess environmental and social risks, and incorporated them into our credit screening process.

The Bank’s business divisions and branches conduct an initial screening of environmental and social risks based on the project information provided by their customers, and then the credit group identifies these risks inherent in the project and assesses associated impacts.

＜Relationship Chart＞

Implementation of environmental and social risk assessment and monitoring

As part of our internal environmental and social review, we first categorize a project based on the magnitude of potential environmental and social risks/impacts in accordance with Principle 1 (Review and Categorization) of the Equator Principles as follows:

Category	Description
A	Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented
B	Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures
C	Projects with minimal or no adverse environmental and social risks and/or impacts

Depending on the assigned category, the Bank confirms that its customers have taken environmental and social considerations into account, in accordance with Principles 2 through 10 of the Equator Principles. Then, in light of the confirmation results, we include covenants in the loan agreement.

When a project falls in Category A or B, for example, the following is required under Principles 2 through 10 of the Equator Principles:

Principle 2	Environmental and Social Assessment
Principle 3	Applicable Environmental and Social Standards
Principle 4	Environmental and Social Management System and Equator Principles Action Plan
Principle 5	Stakeholder Engagement
Principle 6	Grievance Mechanism
Principle 7	Independent Review (by an independent environmental and social consultant)
Principle 8	Covenants
Principle 9	Independent Monitoring and Reporting (by an independent environmental and social consultant)
Principle 10	Reporting and Transparency (e.g. disclosure of the annual number of projects financed under the Equator Principles)

Internal training

When adopting the Equator Principles, Aozora Bank conducted two in-house training sessions on the Equator Principles. Following this, we made the videos of the training sessions and made them available to newly appointed personnel for the Equator Principles at relevant branches/divisions to encourage their learning at any time.

Transactions financed under the Equator Principles in 2022 (from February 14 to December 31, 2022)

Project Finance Advisory Services

No transactions

Project Finance

	Category A	Category B	Category C
Total	0	3	0

Sector:	Category A	Category B	Category C
Mining	0	0	0
Infrastructure	0	0	0
Oil/Gas	0	0	0
Power	0	3	0
Others	0	0	0

Region:	Category A	Category B	Category C
U.S.	0	0	0
Europe/Middle East/Africa	0	0	0
Asia/Pacific	0	3	0

Country Designation:	Category A	Category B	Category C
Designated Country	0	3	0
Non-Designated Country	0	0	0

Whether an Independent Review has been carried out:	Category A	Category B	Category C
Yes	0	3	0
No	0	0	0

Project-Related Corporate Loans

No transactions

Bridge Loans

No transactions

Refinance

No transactions

Acquisition Finance

No transactions