Environmental and Social Risk Management
Table of contents:
Overview
Proven approach to relationship banking
Lending to best in class customers
Environmental and Social Risk Management Practices
Scope
Accountability
Standards
Best Practices
Training
Corrective actions
Sector-specific guidance
Energy and Extraction Industries
Coal and Metal Mining
Oil and Gas Exploration and Production
Natural gas
Offshore drilling
Oil sands
Power and Utilities Industry
Agriculture Industry
Crops, Dairy, Livestock, Wineries, Agricultural Real Estate Forestry
Commitment to Continuous Improvement
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Overview
For more than 160 years, Wells Fargo has been in the risk management business. Although we have seen a lot of change
over the years, the fundamentals of our risk management remain the same. Our success depends on healthy, sustainable
communities, and we’re committed to responsible environmental stewardship in all our business decisions.
As a company with 265,000 team members and 70 million customers, we are committed to finding new ways to minimize
our energy consumption and operate more efficiently. While we implement measures to reduce the company’s
environmental impact where we work, we recognize our responsibility extends beyond our own operations. We believe
engaging with responsible customers and clients leads to stronger credit quality and shareholder value. As part of our
renewed environmental commitment, we have increased our strategic focus on promoting responsible ways of working
together with our business customers.
Proven Approach to Relationship Banking
Building and maintaining long-term relationships is a fundamental part of our approach to helping our customers succeed
financially, and the cornerstone of our ongoing efforts towards environmentally and socially responsible lending, advising
and investing. Our credit policies and practices stress the importance of “knowing your customer.” Our experience has
shown that a deeper understanding of the issues facing our customers and their industries, including environmental and
social risks, improves our credit decisions, allows us to better satisfy our customers’ financial needs, and builds stronger,
more durable relationships. Our goal is to be there for our customers over the long haul, supporting them through the
challenges of changing markets and economic cycles.
Our 160 years of experience has proven the value of this approach to help our customers manage risks and can be
evidenced more broadly in the credit quality of our loan portfolio.
Fostering Relationships with Best-in-Class Customers and Clients
In all our relationships, we aim to do business with the best-in-class of each industry, including customers with positive
environmental and social track records who proactively work to address industry challenges, risks and opportunities. We
consider environmental and social risks as important factors in the long-term financial success of our customers.
Wells Fargo Environmental and Social Risk Management Practices
Scope
To ensure a consistent approach across our Wholesale bank, our enhanced Environmental and Social Risk Management
(ESRM) practices apply to lending, securities and capital markets services wherever we do business.
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Accountability
Our ESRM team reviews transactions or relationships per company policy or at a team member’s request
Internal controls ensure the ESRM process operates effectively. The primary responsibility for applying
our ESRM tools is held by our relationship management teams, who have a deep understanding of issues
facing our customers and their industries. Our ESRM group is a specialized team that supports our
traditional Credit Risk Management group and relationship managers to evaluate potential social and
environmental risks. At times, environmental and social risk assessments are elevated to senior credit
approval authorities. Customers may be required to manage or mitigate issues; in some cases, a
transaction will not be approved to proceed.
Alignment with External Standards
We support several external standards for environmental and social risk management. The Equator Principles reflect
industry best practices for managing environmental and social risks associated with project finance. Because we do not
engage in the type of project finance transactions that would require application of the Principles, we became an Associate
of the Equator Principles in 2010. In 2008, we adopted the Carbon Principles, which address financing of new electric
power projects in the U.S. Only one transaction to date has called for the application of the Carbon Principles.
Best Practices
We value the work of organizations and companies working to manage or solve environmental and social issues. Through
the Wells Fargo Environmental Grant program, we support external organizations working to solve challenging
environmental problems.
Training and Engagement
Team member training is an integral part of environmentally and socially responsible banking. We expect our credit and
lending officers to be well trained, knowledgeable, up-to-date, and to use common sense and conservative assumptions.
We regularly communicate our approach to trainees in our Wholesale Banking Credit Management Training Program, our
loan officer credit training program. These programs have been taught for more than 30 consecutive years; graduates
include some of Wells Fargo’s highest ranking credit officers.
Corrective Actions
Customers may be required to manage or mitigate issues prior to financial transaction approvals; in some cases, the
transaction will not be approved to proceed.
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Sector-specific approaches
Energy and Extraction Industries
Coal and Metal Mining
Mining of coal and metals can generate significant economic benefits to local communities by providing jobs in rural
areas, or in developing countries, where few other employment or economic development opportunities are available.
However, coal and metal mining present significant concerns and impacts. In particular, the surface mining practice
known as mountaintop removal (MTR) mining has drawn considerable attention and controversy.
Wells Fargo recognizes the significant environmental, legal, regulatory, financial, and reputational risks facing the mining
industry. To manage these risks, we have established a credit policy and published related internal guidance for coal and
metal mining lending transactions.
Our Approach:
Credit approval process requires input from the Wells Fargo ESRM group and approval by Wells Fargo’s
senior credit approval authorities.
Enhanced due diligence is required for all new credit approvals, renewals and increases in exposure. The
process evaluates each company's approach and track record including, but is not limited to, the following
areas:
Degree of organizational capacity and commitment the company dedicates to environmental,
safety and community concerns. The process generally includes direct conversations with our
customers on these issues.
Review of litigation; environmental, health and safety regulatory compliance; worker safety
records; community engagement approach; and environmental performance.
We carefully consider companies who are engaged in surface mining in the Appalachian region of the
United States. We recognize the significant concerns associated with this practice and we also
acknowledge the significant investments made by our coal customers in their mine operations, which
were entered into in good faith and in accordance with applicable regulations. As a result of our deliberate
approach and the broader movement of the industry toward other mining methods, our involvement with
the practice of MTR is limited and declining Wells Fargo will not extend credit to individual MTR mining
projects or to a coal producer that receives a majority of its production from MTR mining.
We encourage our clients to use Wells Fargo Insurance Services, a leading provider of insurance
brokerage and risk management services to the energy and mining industries. Services provided by Wells
Fargo Insurance Services reduce the potential for accidents, thereby limiting the potential for workplace
injuries or adverse environmental impacts. Products provided by this group provide protection and
indemnity to customers, their employees and the communities in which they operate.
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Oil and Gas Exploration and Production
Oil and gas are key energy sources in the United States. Because oil and gas properties are explored and produced in
different ways, depending on reservoir characteristics, the associated environmental and social impacts may vary. We
require elevated levels of ESRM in our relationships with customers engaged in hydraulic fracturing in all geographic
areas, as well as oil exploration and production in Canadian oil sands, the Arctic and Alaska, and offshore.
Natural gas. Natural gas needs will grow in our nation’s transition to cleaner energy. The U.S. has vast reserves of
commercially viable natural gas as a result of advances in horizontal drilling and hydraulic fracturing technologies
enabling greater access to gas in shale formations. This increase in availability provides jobs and revenue in local
economies, and it contributes to our nation’s energy security. Natural gas emits fewer greenhouse gases when combusted
and does not emit mercury and other air pollutants associated with other fossil fuels. Responsible development of shale
gas resources offers important economic, energy security, and environmental benefits.
A drilling technique called hydraulic fracturing, or fracking, is often used to stimulate production of natural gas in shale
formations. This technique uses highly pressurized water, sand and chemical lubricants to stimulate production of oil and
gas from rock formations. The economic, environmental and community impacts of fracking can be challenging and
complex. Some stakeholders have concerns about the impact of fracking on water supplies, air quality, watershed
ecosystems and communities.
Offshore drilling. Offshore drilling provides a significant source of domestic oil production. It also provides jobs and tax
revenues. Nevertheless, it presents potential environmental and social risks from potential oil spills from platforms,
pipelines and tankers.
Oil sands. Canada’s oil sands, where bitumen is found, provide a secure source of energy and economic benefits,
including employment. However, oil sands exploration and production is energy-intensive compared to conventional
methods and bitumen mining consumes large volumes of water that may impact local water supplies, wildlife and
communities.
Wells Fargo recognizes the challenges facing the oil and gas industry. We believe responsible exploration and production
is possible, and we are committed to relationships with best-in-class customers in this sector.
Our Approach:
Wells Fargo maintains guidelines and due diligence procedures specific to the hydrocarbon exploration
and production methods outlined above. We evaluate each company’s approach and track record
including, but not limited to, the following areas:
Degree of organizational capacity, management hierarchy and commitment the company
dedicates to environmental, safety and community concerns. Our process requires direct
conversations with our customers on these issues.
Review of litigation; environmental, health and safety regulatory compliance; worker safety
records; community engagement approach; and environmental performance
Approval by a senior credit officer is required for customers with certain established thresholds of
exposure to the issues outlined above.
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We seek opportunities to support industry and community organizations working to define responsible
practices to manage environmental and social risks specific to this sector.
Power and Utilities Industry
Coal-fired power plants are a large source of electricity in the U.S. and coal is anticipated to be a significant contributor to
the reliability of our nation’s energy supply for the foreseeable future. However, coal combustion is a leading source of
greenhouse gas emissions and other pollutants.
Recent regulations and market conditions have significantly changed the power generation industry in the U.S., including
decisions about fuel sources for future power generation projects and about plant retirements of existing assets. We have
entered a transition period where the majority of baseload power plants developed in the U.S. are now natural gas-fired.
Natural gas burns more cleanly than other fossil fuels, and stable capital costs and attractive pricing make it a desirable
source of new capacity.
Utility scale and distributed renewable generation is becoming a more significant component of our energy mix.
Currently, solar, wind and other renewable resources account for only 5.3 percent of annual electricity generation
(excluding hydro generation) in the U.S.
During society’s transition to cleaner sources of energy, we will continue to support our customers in the power and
utilities industry to meet new regulations. We follow a comprehensive due diligence process for our power and utilities
industry transactions.
Our Approach:
We carefully assess environmental, social, regulatory, financial and reputational risks associated with
customers’ and prospective customers’ operations. Our due diligence in this sector includes an assessment
of carbon risk as part of the underwriting process. Our Credit Policy specifically references carbon and
environmental risk.
In 2008, we adopted the Carbon Principles, which address financing of new electric power projects in the
U.S. Only one transaction to date has called for the application of the Carbon Principles.
We do not finance coal- power plants on a stand-alone basis. For example, we generally provide
commercial banking services such as treasury management and general lines of credit that may be used
for multiple purposes. We are actively accelerating toward a more sustainable economy and are leading
the transition to cleaner energy sources. We have provided more than $11.7 billion in financing to
environmentally beneficial business opportunities since 2005. By 2020, we will provide more than $30
billion in financing to environmentally beneficial business opportunities.
1 U.S. Energy Information Administration Electric Power Monthly Data for November 2012
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Agriculture Industry
Crops, Dairy, Livestock, Wineries, Agricultural Real Estate
Agricultural products provide us with food, fiber, fuel and raw materials, which contribute to the growth of our economy
and society. Agriculture also has a significant environmental impact.
Our Agricultural Lending policies apply to agriculture loans and lines of credit related to crops, dairy, livestock, wineries,
and agriculture real estate loans. Our policies are tailored to reflect environmental and social risks unique to the specific
subsectors.
Our Approach:
Financing producers, processors, and marketers of agricultural products involves a host of industryspecific risks. Recognizing the unique nature of the agriculture sector, Wells Fargo maintains a specialized
team of experienced agriculture experts who help our relationship managers and customers. They provide
analysis, perform inspections and produce reports addressing issues including water availability, quality
and cost; land quality; waste issues; and producer reputation, experience and past performance.
Forestry
From building materials to textiles and packaging material, thousands of products are made from timber resources.
Forestry is an important industry in many of the communities where we operate.
Our Approach:
Our team of agricultural experts includes forest products specialists, who assist in evaluating a customer’s
management and practices.
We supplement traditional considerations with forestry-specific information including environmental,
legal and legislative issues.
Continuous Improvement
To ensure we address evolving best practices to support the success of our customers, we conduct ongoing reviews and
updates of our ESRM practices.
For inquiries please write to environmental.affairs@wellsfargo.com.
© 2013 Wells Fargo Bank, N.A. All rights reserved.
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