SITAWI supports implementation of ESMS at El Salvador’s Banco Hipotecario

SITAWI was engaged to design and monitor the implementation of the Environmental and Social Risk Management System (ESMS) at Banco Hipotecario, in El Salvador. The ESMS will cover the social and environmental risk management of the bank’s small and medium-sized rural and urban portfolios.

Required by the Brazilian Central Bank since 2015, the ESMS is still at a nascent stage in some Latin American countries, despite its many benefits: an improvement of the risk profile of the loan portfolio, access to international financing, and identification of new business opportunities with clients, among others.

In the case of Banco Hipotecario, whose portfolio is focused on agriculture, there are several risks that can be identified and mitigated for greater legal, reputational and financial security.

SITAWI’s consultancy is part of an agreement signed between Finance in Motion, a German impact manager, and Banco Hipotecario, that provides financial support to clients with sustainable practices.

Nora Mercedez Miranda de López, CEO of Banco Hipotecario, and Juan Vega, of SITAWI, at the signing of the contract for the development of the pilot ESMS.

According to SITAWI’s Sustainable Finance analyst, Juan Vega, a well-implemented ESMS requires less investment compared to the benefits it can bring.

“Sustainability is becoming increasingly important for private sector companies. However, there is still some resistance to this practice within the banking sector, either based on the belief that ESMS implementation is difficult and will only materialize in the long run, or based on the belief that an ESMS requires a lot of specialization in order to be implemented”, he said.

The ESMS is a set of policies, processes, procedures and tools that enable professionals to identify the social and environmental risks of their clients. It does not necessarily require environmental experts for its implementation; the objective is just to provide structure to this analytical process. Vega also commented on another misconception:

“The aim of ESMS is not to restrict the number of loans the bank will make, but rather to help the bank encourage good social and environmental practices among its clients, thus reducing possible negative impacts”, he concluded.

To learn more about SITAWI’s work in Sustainable Finance and ESMS development for financial institutions, please refer to our annual report with the main projects developed over the last year, as well as our webpage on the topic.