The financial sector plays a pivotal role in managing environmental and social risks. In this regard, we carried out the first climate risk assessment on our entire loan portfolio in 2021. This assessment marked our first steps toward analyzing the climate risks within our portfolio in terms of physical and transition risks. Thus, we have laid the foundations of our future strategy and targets in the field of climate risk management. In 2022, we initiated the integration of climate risks into our credit risk assessment processes and models. As part of these efforts, we provided training and organized workshops to increase the technical knowledge of the relevant teams.
In order to identify, prevent or minimize the environmental and social risks of the investments to be financed, we implement the Environmental and Social Risk Assessment System (ESRA) based on national legislation and the Environmental and Social Performance Standards of the International Finance Corporation (IFC). Under the ESRA, we evaluate all loan requests against the loan policies and the Exclusion List in the Yapı Kredi Environmental and Social Policy. Activities that do not comply with these policies or that are on the Exclusion List are not financed under any circumstances.
The ESRA System is executed by our expert staff under the Loans Management. The Executive Vice President of Loans, a member of the Sustainability Committee, is responsible for the management of the system. The effectiveness of the ESRA System is closely monitored through internal audits as well as regular trainings provided to all teams responsible for the implementation of the model, particularly to portfolio managers.
In 2019, we expanded the scope of the ESRA System, which has been applied to investment and project finance loans with a loan amount of USD 20 million or more, and a loan demand of at least three years since 2017. In this regard, we use the ESRA System to evaluate all new investment and project finances with an investment amount of USD 10 million and more, and provide resources and services under the corporate and commercial business lines. Moreover, since 2019, we have been performing environmental and social risk assessments for thermal power plant projects, requesting the restructuring of existing loans.
Additionally, in order to align the scope of the ESRA System with the Equator Principles, we made improvements in 2021 with references to national legislation, International Finance Corporation Performance Standards (IFC PSs), and Equator Principles practices.
Under the ESRA System, investments are examined in line with the national Environment and OSH legislation as well as within the scope of various international standards on issues such as cultural heritage, resettlement of affected people, natural resource use, stakeholder engagement, environmental and social management systems, community health and safety, media and community objection. According to the results of our assessment performed with sector-specific question sets, we determine the relevant risk category of the investment in question. We create our action and monitor plans that are suitable for this classification in cooperation with the investor, and if the investment is found to be high-risk, we monitor these actions in cooperation with independent consultants. We clarify the criteria and control definitions for the selection of independent consultants for investments, and include these in the implementation process of the ESRA System. The assessed investments are classified into four categories according to their risk level: high (Category A), medium-high (Category B+), medium-low (Category B-) and low (Category C).
Additionally, we report and disclose the results from the implementation of the ESRA System on an annual basis.
Internal audits are conducted for the implementation of the Environmental and Social Risk Assessment (ESRA) Model. Within the scope of the relevant audit processes, we examine whether the functionality of the system is appropriate and sufficient, and we follow up by identifying possible improvement suggestions.