Discuss ‘social risk’ in accordance with the ESRM guidelines of Bangladesh Bank.
Social risk refers to the potential adverse impacts of a bank’s lending decisions on workers, communities, and society arising from the business activities of the bank’s clients.
The core objective of the ESRM Guideline is to require banks to integrate environmental and social risk management into the overall credit risk management process, so that the credit authority is fully informed of E&S risks before making a financing decision.
What Social Risk Covers
Social risks include any adverse impacts on people arising from a financed project. Common social risk factors assessed under ESRM include:
- Labour rights violations — use of child labour, forced labour, or poor working conditions in the borrower’s operations.
- Community displacement — projects that require the involuntary resettlement of communities.
- Health and safety risks — inadequate occupational health and safety standards that expose workers or surrounding communities to hazards.
- Impact on indigenous peoples — projects that affect lands owned or claimed by indigenous communities without their documented consent.
- Gender and social exclusion — business activities that discriminate against or harm vulnerable groups.
ESRM Risk Rating for Social Risk
Under ESRM, each credit proposal is assigned an Environmental and Social Risk Rating (ESRR) — High, Medium, or Low — based on an Environmental and Social Due Diligence (ESDD) checklist completed by the Relationship Officer:
- HIGH Risk: transactions involving clients with significant adverse social impacts that are diverse, irreversible, or unprecedented — such as involuntary displacement, harm to ethnic minorities, or serious non-compliance with labour laws.
- MEDIUM Risk: transactions with specific but largely reversible social impacts that can be addressed through mitigation measures.
- LOW Risk: transactions with minimal or no adverse social impacts — all issues are sufficiently managed.
Exclusion List
Bangladesh Bank’s ESRM guideline includes an Exclusion List — activities that banks must not finance under any circumstances. Social exclusions include:
- Production or activities involving forced labour or child labour.
- Production of weapons and munitions, tobacco, gambling, or pornography.
- Projects impacting the lands of indigenous peoples without their documented consent.
