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Ecological Aspects of Loan Award

Environmental Assessment, Equator Principles and Common Approaches as the Basis for Sustainable Lending

Environmental aspects can have an impact on a customer's earnings, assets and reputation. This means that they are also relevant for a customer's credit rating, collateral and image. Assessing environmental risks is part of risk management.

Environmental risk assessments and environmental compatibility assessments in financing transactions are two important ways in which Bank Austria contributes to sustainable development.

Bank Austria signed the United Nations Environmental Program (UNEP) statement on the environment and sustainable development in 1993. In accordance with this declaration, potential environmental risks were added to the catalogue of risk assessment and risk management criteria.

The rating system for corporate customers also takes into account environmental factors as part of the qualitative factors that are indicative of a company's sustainability.

As part of its implementation of Basel II, Bank Austria also includes environmental aspects in its rating of a company's creditworthiness.

Environmental Assessments for Loan Award

Environmental assessments covering the following criteria are completed for new loans and for the monitoring of existing loans:

  • Contamination: current and former uses of the site
  • Product risks: what is being produced, what materials are used, production processes, product range
  • Production risks: what production methods are used, how clean are these methods, is there an environmental management system, how is the risk of defects managed, how is disposal handled, what safety measures (work safety) are in place
  • Environmental and site factors: where is the property, can noise and/or emissions disturb neighbours, is a Natura 2000 area in the vicinity, can emissions have a negative impact on the fauna and flora of this area, is there a risk of flooding, etc.

Legal compliance, environmental liability, permits, official decisions and requirements imposed by government authorities are also aspects that must be taken into account when evaluating a company.

Project Finance: Equator Principles

Project finance is the financing of an economic entity that is capable of maintaining its own existence, but where the loan servicing is not facilitated by the equity capital of the involved companies but by the cash flow generated by the project alone.

Unlike traditional loan financing, where the key factors are the creditworthiness and the business model of the undertaking to be financed, project finance revolves around the actual expected profitability of the project to be financed. In order to ensure satisfactory cash flow generation for servicing the financing, the bank pays special attention to factors such the ability to perform and realise the project, and supply and purchase guarantees from third parties.

Bank Austria is committed to the World Bank's "Equator Principles", which should be applied to project finance anywhere in the world with an investment volume of greater than USD 10 million.

The Equator Principles are voluntary guidelines that are applied by banks on the basis of the standards and guidelines that have been prepared by the World Bank and the International Finance Corporation (IFC) to address social and environmental issues in the financing of development projects.

By subscribing to these principles, the banks undertake to only finance projects with an investment volume of greater than USD 10 million when the project owners can demonstrate to the bank that they are willing and able to apply extensive measures designed to ensure that these projects will be completed in a socially and ecologically responsible manner. In order to verify this, the banks complete a detailed project assessment focusing specifically on these aspects.

Export Financing: Compliance with the OeCD Common Approaches

Companies in Austria can take advantage of low-interest refinancing from Oesterreichische Kontrollbank AG (OeKB) through Bank Austria for their export activities (deliveries, projects, foreign investments). OeKB is an export credit agency and is empowered to issue guarantees on the basis of the Export Financing Act.

When Bank Austria grants a foreign buyer or its bank a loan under the condition that the loan is to be used for the purchase of specific Austrian goods or services, or if it irrevocably confirms letters of credit from foreign banks, Oesterreichische Kontrollbank assumes the political and economic risk.

Export financing is subject to an environmental assessment by OeKB in accordance with the OECD's Common Approaches on Environment and Officially Supported Export Credits.