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Letter To FIs - Compliance of ESRM Implementation Strategy

The State Bank of Pakistan has issued a directive for banks and DFIs to comply with the Environmental & Social Risk Management (ESRM) Implementation Strategy, following unsatisfactory progress in ESRM implementation. The strategy outlines a phased approach with specific milestones to be achieved by November 2025, including the development of a Green Banking Policy, integration of ESRM into credit risk management, and ongoing capacity building. Banks are advised to prioritize these tasks and allocate resources accordingly to ensure compliance within the set timelines.

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130 views1 page

Letter To FIs - Compliance of ESRM Implementation Strategy

The State Bank of Pakistan has issued a directive for banks and DFIs to comply with the Environmental & Social Risk Management (ESRM) Implementation Strategy, following unsatisfactory progress in ESRM implementation. The strategy outlines a phased approach with specific milestones to be achieved by November 2025, including the development of a Green Banking Policy, integration of ESRM into credit risk management, and ongoing capacity building. Banks are advised to prioritize these tasks and allocate resources accordingly to ensure compliance within the set timelines.

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ztblfaheem
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State Bank of Pakistan

SME, Housing & Sustainable Finance Department


I.I. Chundrigar Road
Karachi

No. SH&SFD/GB&IFD/2024-4044 June 21, 2024

The Presidents / Chief Executives,


All Banks and DFIs

Dear Sir / Madam,

Compliance of SBP’s ESRM Implementation Strategy

Reference is made to State Bank of Pakistan’s (SBP) instructions issued vide IH&SMEFD
Circular Letter no. 12 dated November 09, 2022 on the Environmental & Social Risk Management (ESRM)
Implementation Manual.
2. Under the above-mentioned circular, SBP has provided three (03) years to banks/DFIs for
implementation of ESRM, however, recent quarterly reports indicate that the progress of some
banks/DFIs is not satisfactory. This has led to confusion in the market due to uneven implementation of
ESRM.
3. Going forward, in order to ensure uniformity in the progress of ESRM implementation across all
banks/DFIs, SBP has developed an ESRM Implementation Strategy, which includes time-bound
milestones till November 2025 that will be adhered by all banks and DFIs. The key features of ESRM
implementation strategy along with specified timelines are as given below:
 Phase 1 (Timeline: August 31, 2024): Develop and approve the Green Banking Policy (with
addition of ESRM) and ESRM Procedural Manual. Integrate ESRM Implementation into the scope
of internal audit and compliance to ensure timely execution.
 Phase 2 (Timeline: September 2024 – March 2025): Run the Environmental & Social Management
System (ESMS) in parallel with conventional credit risk management procedure of your bank i.e.
start screening all loan transactions against ESMS and develop MIS for E&S data.
 Phase 3 (Timeline: December 2024 onwards): Start reporting to SBP on quantitative data related
to E&S, such as the number and value of transactions screened etc.
 Phase 4 (Timeline: April 1, 2025 onwards): Formally integrate ESRM into credit risk management
procedures for all loan transactions, with decision-making based on E&S risk ratings.
 Capacity Building (Timeline: Ongoing Activity): Identify in-house trainers and arrange training
sessions for staff and senior management. And provide continuous progress in capacity building
in quarterly reporting to SBP.
4. In view of the above, it is advised to prioritize these tasks and allocate the necessary resources to
achieve full compliance of SBP’s ESRM Implementation Strategy within given timelines.

Yours sincerely,
Sd/-

(Uzma Mansoor)
Joint Director

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