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HomePersonal BankingWealth ManagementSmall BusinessCommercialCorporate & InstitutionalAbout BMO

Responsible Lending

As lenders, we use sound risk management practices to identify, evaluate and mitigate to the extent practical the environmental impacts on credit facilities provided. It is BMO’s intent to avoid dealing with borrowers who have poor environmental risk management track records.

Risk guidelines

Environmental risk is one of many factors considered during the credit assessment process that results in the decision to accept or reject a loan application. All eligible borrowers for commercial and corporate loans are subject to our environmental risk assessment process.

For several years now, our commercial lenders have followed detailed guidelines with respect to the criteria for and methodology employed in the assessment of environmental risk. The guidelines identify over fifty industries that are considered environmentally sensitive and which require a heightened level of screening. Additionally, our lending officers are provided with training on how to recognize environmental risks as part of their credit risk skills development program.

Depending on the degree of investigation and the potential for environmental risk, BMO may employ in its evaluation (individually or in combination) questionnaires, checklists, Phase I and II Assessments, and/or specialized Environmental Impact Assessments. Environmental Assessments are conducted by qualified external professionals and conform to standards established by the Canadian Standards Association or equivalent bodies.

Standard areas investigated during the assessment process include, among other things:

  • The nature of the environmental risks faced by the borrower;
  • The adequacy of the borrower’s corporate policies and procedures designed to address the environmental risks;
  • The amount of capital expenditures planned for environmental compliance and rehabilitation; and
  • Whether the borrower complies with all environmental laws and regulations applicable to them.

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Climate change and forest biodiversity

We have updated our lending guidelines to provide more specificity to the task of identifying and evaluating environmental risks relating to climate change and forest biodiversity.

Climate change

During the lending process, BMO develops an understanding of the nature and degree of potential risks posed by climate change. When assessing the eligibility of borrowers, particularly those that fall into the category of significant emitters of greenhouse gases*, we assess:

  • Whether the borrower monitors and reports their greenhouse gas emissions;
  • The extent of the borrower’s greenhouse gas emissions;
  • Whether the borrower has a carbon mitigation plan, how it is implemented and whether the board of directors was involved in its development; and
  • The borrower’s preparedness to deal with forthcoming regulatory requirements regarding greenhouse gas emissions.

* The following sectors typically contain companies that are large emitters of greenhouse gases: thermal electricity generation; resource extraction; forest products; smelting and refining; iron and steel; cement; and lime and chemicals.

Forest biodiversity

When there is a known specific use of lending proceeds, BMO will not engage in providing new financing for commercial projects or operations that result in resource extraction on an unsustainable basis from: tropical rainforests, UNESCO World Heritage Sites or High Conservation Value Forests.**

In addition, when assessing the eligibility of borrowers from the forestry sector, we assess whether a company demonstrates sustainable management of natural resources through an appropriate system of independent certification or other acceptable alternative, such as the forest management schemes developed by the Forest Stewardship Council, Canadian Standards Association and American Forests and Paper Association.

** High Conservation Value Forests (HCVF) are defined by the Forest Stewardship Council (FSC) as forests with one or more of the following attributes:

  • contain globally, regionally or nationally significant concentrations of biodiversity (e.g. endangered species);
  • significant large landscape level forests where viable populations of most, if not all, naturally occurring species exist in natural patterns of distribution and abundance;
  • are in or contain rare, threatened or endangered ecosystems;
  • provide basic services of nature in critical situations (e.g. watershed protection, erosion control); and/or
  • are fundamental to meeting basic needs of local communities (e.g. subsistence, health) or are critical to local communities’ traditional cultural identity.

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Project financing and Equator Principles

In our assessment of applications for project financing, we apply our internal guidelines, which implement the requirements of the Equator Principles – a credit risk management framework intended to ensure that projects are developed in a manner that is socially responsible – and reflect sound environmental management practices.

BMO has been a signatory to the Equator Principles since 2005. We have participated in working groups that have revised the Equator Principles to reflect signatories’ experiences and incorporated revisions to the International Finance Corporation’s Performance Standards, upon which the principles are, in part, based. BMO subsequently recommitted to the principles in 2006 and 2012. To date, all projects financed under the Equator Principles have been in North America.

Equator Principles Application
Equator Principles Category A
Equator Principles Category B
Equator Principles Category C
Total projects

Projects are categorized based on the magnitude of their potential impacts and risks, in accordance with the environmental and social screening criteria of the International Finance Corporation.

* One of these projects occurred in the oil and gas sector, the remaining four occurred in the power sector.

Category descriptions:

Category A represents projects with potential significant adverse social or environmental impacts that are diverse, irreversible or unprecedented.

Category B represents projects with potential limited adverse social or environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures.

Category C represents projects with minimal or no social or environmental impacts.

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