The Vienna Convention for the Protection of the Ozone Layer and its Montreal Protocol continue to significantly influence banking sector environmental due diligence decades after their adoption. These foundational environmental treaties established strict phase-out schedules for ozone-depleting substances (ODS) that remain highly relevant for financial institutions funding industrial projects. Banks must pay particular attention to ozone protection requirements when financing chemical manufacturers, refrigeration system producers, foam insulation plants, and other sectors historically dependent on chlorofluorocarbons (CFCs), halons, and related compounds. The Convention’s provisions create both compliance obligations and transition risks that require careful evaluation during environmental impact assessments.
When conducting EIAs for potentially affected projects, banks should focus on three critical dimensions. First, they must verify strict compliance with current substance prohibitions under the Montreal Protocol’s evolving schedules, which now include hydrofluorocarbons (HFCs) through the Kigali Amendment. Second, assessments should evaluate the technological and financial preparedness of borrowers to transition to approved alternative substances, including analysis of patent portfolios and research pipelines. Third, due diligence must examine cross-border trade controls, as the Protocol’s restrictions on ODS trafficking between signatory nations can significantly impact supply chain viability. These considerations become especially important when financing industrial facilities in developing countries still navigating their phase-out timelines under the Protocol’s differentiated responsibilities.
Failure to adequately account for ozone protection requirements exposes banks to multiple risks. Regulatory consequences include potential violations of national implementing legislation like the U.S. Clean Air Act, which could lead to project shutdowns or costly retrofits. Financial risks emerge from stranded assets in industries still transitioning from soon-to-be-prohibited substances, as well as from liability claims related to environmental damage. Reputational risks have become increasingly material as environmental groups monitor financial institutions’ continued support for ozone-harming technologies. The Montreal Protocol’s Multilateral Fund provides important context, as its approved transition projects often signal upcoming regulatory changes that banks should anticipate in their risk modeling.
To effectively manage these exposures, financial institutions should implement specialized due diligence protocols. These include maintaining updated chemical prohibition lists aligned with UNEP Ozone Secretariat data, requiring substance-level audits for relevant industrial borrowers, and prioritizing financing for natural refrigerant systems and other sustainable alternatives. Monitoring frameworks should track both national implementation plans and individual facility compliance certifications, with particular attention to destruction protocols for existing ODS stocks. As the Kigali Amendment accelerates the global HFC phase-down, banks that proactively integrate ozone protection standards into their environmental risk assessments will be better positioned to support sustainable industrial transitions while avoiding the financial and reputational consequences of non-compliance. Those failing to adapt risk financing obsolete technologies with diminishing regulatory acceptance and market viability in an increasingly environmentally-conscious global economy.