The Rotterdam Convention on the Prior Informed Consent (PIC) Procedure for Certain Hazardous Chemicals and Pesticides in International Trade is a multilateral treaty that aims to promote shared responsibility and cooperative efforts in the international trade of hazardous chemicals. Adopted in 1998 and enforced from 2004, the Convention ensures that countries are informed about hazardous chemicals and can make decisions about their import based on health and environmental considerations. It applies to certain industrial chemicals and pesticides that have been banned or severely restricted in at least two countries from two different regions and have been included in Annex III of the Convention. The core of the Convention is the PIC procedure, which requires exporters to obtain explicit consent from importing countries before proceeding with trade.
This Convention holds significant implications for the banking and finance industry, especially during the project appraisal and environmental due diligence phases. Banks that finance industrial, agricultural, mining, or infrastructure projects must ensure that such projects comply with all international environmental obligations, including the Rotterdam Convention. The Convention is particularly relevant in the context of environmental impact assessments conducted before making financing decisions. Environmental and social risks, especially those involving the use of hazardous chemicals, are now key elements of financial risk assessment, aligning with the growing importance of environmental, social, and governance factors in credit and investment decisions.
For banks, specific sections of the Convention are highly relevant. Annex III lists the chemicals subject to the PIC procedure, and banks must ensure that any project they finance does not involve the use of these substances without proper consent. Article 10 outlines the importing country’s obligations to consent to or prohibit such chemicals. Article 12 requires exporters to notify importing countries about any shipments of hazardous chemicals. Article 14 calls for adequate information exchange, including safety data sheets and handling procedures, and Article 16 mandates technical assistance and capacity building, particularly in developing countries. These obligations must be considered when assessing environmental risks and drafting conditions for loan agreements.
Failure to ensure compliance with the Rotterdam Convention can expose banks to a range of risks. Financial risks may arise from project delays, fines, or even the cancellation of projects. Reputational risks can damage a bank’s standing with stakeholders, particularly in an era of heightened scrutiny around ESG performance. Non-compliance may also attract regulatory sanctions or investigations, leading to legal liabilities or exclusion from sustainability-linked financing opportunities. Lawsuits and reputational damage can be particularly severe when financed activities are found to contribute to environmental harm.
To mitigate these risks, banks should integrate Rotterdam Convention compliance checks into their environmental impact assessment processes and broader environmental and social risk frameworks. This includes requiring clients to disclose all chemicals intended for use in their projects, verifying that proper PIC procedures have been followed, and supporting training and capacity building where needed. For banks that follow international standards such as the Equator Principles, adherence to treaties like the Rotterdam Convention is becoming a minimum expectation. Ensuring compliance not only reduces risk exposure but also demonstrates a commitment to responsible and sustainable financing.