IFC, International project finance & ESIA - Royal HaskoningDHV/media/royalhaskoning... · 2015-06-05 · royalhaskoningdhv.com International project finance & ESIA The benefits of

International project finance & ESIAThe International Finance Corporate Performance Standards (IFC PSs) establish a private environmental and social regulatory framework against which the majority of international project finance is assessed against to ensure third party investment. The ‘bankability’ of projects is largely the defining point at which the project can be delivered or remain a concept and aspiration. In this respect the eight (8) IFC PSs provide standards against which projects demonstrate compliance for key environmental and social themes, as identified below:

n PS 1-Assessment and Management of Environmental and Social Risks and Impacts

n PS 2 Labour and Working Conditionsn PS 3 Resource Efficiency and Pollution Preventionn PS 4-Community Health, Safety, and Securityn PS 5-Land Acquisition and Involuntary Resettlementn PS 6-Biodiversity Conservation and Sustainable

Management of Living Natural Resourcesn PS 7-Indigenous Peoplesn PS 8-Cultural Heritage

Service: International project

finance & ESIA

royalhaskoningdhv.comroyalhaskoningdhv.com

International project finance & ESIA

The benefits of early engagement and understanding of the IFC PSs for a project investment, or where critical projectfinance is required, are significant and include:n Reducing the timeline from concept to consent and

operation.n Raising the likelihood of direct project financing.n Increasing the likelihood of divestment opportunities

to ethical and mainstream investors.n Providing greater Return on Investment (RoI) due to

lower use of risk budgets.n Operational risk is reduced if not eradicated due to

robust assessment.n Public relations issues are mitigated out through the

design phases of the project.n Reputational benefits for investors and developers

within the framework of CSR.

Royal HaskoningDHV has a dedicated and growing international project finance specialist group covering social, environmental, engineering and economic analysis to deliver international standards at the local level. We are successfully advising financial institutions, credit agencies, institution development banks and private clients on these issues. Recently, we have undertaken positive and successful assignments in Latin America, Sri Lanka, Angola, Qatar, India, Brazil and Guinea.

For further information please contact our Export & Project Finance Group at:[email protected]

Charles HainePrincipal Environmental and Social ConsultantT: +44 (0)207 222 2115E: [email protected]

John VercoeDirector International EnvironmentT: +44 (0)207 340 9690E: [email protected]

0014

9-ss

-iem

-mo-

rhdh

v-07

13-g

b-v0

3-in

h

Equator Principles IIISince the 4th of June 2013, the third version of the Equator Principles (EPIII) are now enforce, with all lenders and borrowers needing to be aware of the amendments. Previous iterations of the Equator Principles can be used until 31 December 2013 with mandatory use of new principles for all contracts signed from 1 January 2014.

The EPIII function in the same manner as previous iterations with key changes in the following aspects:� An expanded range of transactions are now included

within the framework; � Increased scope of underlying reviews; and� Additional range of obligations for disclosure and

reporting.

The Equator Principles were first introduced in 2003, and were led by several leading financial institutions, in response to NGO campaigns to address disclosure and responsible finance objectives. By adopting the Principles, Equator Principles Financial Institutions (EPFIs) commit to ensure that Projects they finance and advise on are developed in a socially responsible manner, reflecting sound environmental management practices.

Royal HaskoningDHV’s 130 years of successful experience in international development through design, environmental

and social safeguards, and infrastructure delivery provides our clients with a unique insight into how the Equator Principles can be delivered in a viable manner and within client’s commercial, programme and investment constraints. Recent successful work for export credit agencies, international finance institutions and private clients across Africa, Asia, Europe and Russia has placed us in the front-line for delivering lower risk and robust responsible financing outcomes.

Enhanced or new aspects required as part of EPII are identified below and overleaf under the themes of Project Size, Export Finance, Public Disclosure, Host Country Laws, Human Rights, Climate Change, and Enforcement Mechanism.

Project SizeEPIII includes an expanded scope of applicable projects including:� Project Finance – All project finance transactions with

project capital costs that exceed US$ 10M;� Advisory Services – All project finance advisory services

with project capital costs that exceed US$ 10M;� Corporate Loans – All corporate loans if: i) related to

a single project over which the client has effective operational control ii) the total aggregate loan amount is at least US$ 100M, iii) the EPFIs’ individual commitment is at least US$ 50M and iv) the loan tenor is at least 2 years; and

Service: Responsible Finance

royalhaskoningdhv.com

EquatorPrinciples III

� Bridge Loan – Loans with a tenure less than 2 years that are intended to be refinanced by the above project financing or project-related corporate loans.

Export FinanceThe primary amendment in EPIII reflects the:� Explicit exclusion of export finance in the form of

supplier credit and other financial instruments that do not finance an underlying project, i.e. services and consultancy work.

Public DisclosureReporting requirements require expanded obligations including:� Requirement to publish a summary document of the

ESIA online;� EPFIs are obligated to produce an annual report which

reports on transactions that have reached Financial Close, and on their respective Equator Principle implementation processes and experience; and

� Reporting is not required for bridge loans.

Host Country LawCompliance with Host Country Laws has been clarified as follows: � Compliance with local laws of the host country where the

country’s regulation “designation” is deemed sufficient (as listed on the Equator Principle website); and

� EPFIs are committed to developing a comprehensive outreach strategy targeted at China, India and other priority markets.

Human RightsEPIII elements on human rights now reflect the updated IFC Sustainability Framework (2012) including the following aspects: � Projects affecting indigenous peoples require a process

of informed consultation and participation;� Mandated Free, Prior and Informed Consent from

indigenous stakeholder for projects in certain “designated” countries;

� Borrowers obligations to develop specific human rights due diligence quality plans limited high risk circumstances; and

� Lenders and borrowers need to screen and monitor third-party participants up the supply chain to address safety issues that may result in fatalities.

Climate ChangeClimate change reporting and analysis have been expanded to include:� Reporting publicly on emissions for project emitting

over 100,000t CO2 per annum and conduct an analysis to identify alternatives; and

� Obligations may increase as present requirements are not in line with new IFC Performance Standards of 25,000t CO2.

ContactJohn Vercoe, Director Environment Finance, LondonT: + 44 (0) 207 3409 690 M: +447917 636 805

0002

1-ss

-iem

-mo-

rhdh

v-01

13-n

l-v01

-cw

a

Reducing project risks & increasing valueThe Business and Biodiversity Offset Programme (BBOP) has recently published a revised standard on how to apply, assess and monitor biodiversity offsets. By implementing the BBOP Standard operational risks from biodiversity impacts can be managed if not significantly reduced. Previously capital intensive mitigation measures can be designed out during the concept phases with a resultant decrease in financial exposure and an increase in biodiversity benefits. Furthermore, investor and developer public profiles are maintained and improved, due to local benefits and a truly enhanced local society.

Critically, corporate clients also gain an added benefit through implementing the BBOP Standard as international projects will not qualify for international funding if biodiversity issues and ecosystem services have not been assessed (and if necessary, mitigated). Being aware of

and conforming to the BBOP standard offers companies the assurance that they have met and demonstrated international best practice, enabling investment, alongside the practical reduction of risk for their financial investment.

The ApproachBiodiversity offsets enable a developer to ensure their financial exposure is defined very early in the scheme’s development such that the investment cost and mitigation expenditure for the scheme can is identified and mitigated with an improved scheme outcome. The standard applied the Mitigation Hierarchy (avoid, minimise, rehabilitate/ restore, offset), contributing to the alignment between development schemes and the International Financial Corporation (IFC) Performance Standards (PS6). The application of biodiversity offsets results in the designation and implementation of compensation actions where impacts are unable to be mitigated fully on or off site.

Service: Biodiversity Offsets


Reducing project risks & increasing value

Why is this an emerging issue?Biodiversity offsets are measurable conservation outcomes resulting from actions designed to offset significant residual adverse biodiversity impacts arising from project development after appropriate prevention and mitigation measures have been taken. Any organisations developing and administering policy on the mitigation hierarchy and biodiversity offsets (whether they work for governments, individual companies or industry associations), will benefit from the implementation of BBOP Standard, as it captures international best practice on identifying impacts on biodiversity and applying the mitigation hierarchy (avoid, minimise, rehabilitate/restore, offset).

How do we apply the BBOP Standard? n The BBOP standard is a hierarchy of Principles,

Criteria and Indicators (PCI). Royal HaskoningDHV implementation of BBOP Standard processes delivers:

n Alignment with International Financial Corporation (IFC Performance Standard 6 (PS6) together with the BBOP standard on Biodiversity Offsets which is instrumental in obtaining project finance;

n The incorporation of relevant environmental and social consequences of the project identified at the consultation phase of process into formalised processes such as the Environmental and Social Impact Assessment (ESIA) and Biodiversity Action Plan (BAP);

n The provision of economic valuation and quantification of residual losses relative to pre-project baseline; and

n The identification of Biodiversity Offsets that are aligned with International Standards and that promote the achievement of no net loss and preferably a net gain of biodiversity on the ground with respect to species composition, habitat structure, ecosystem function and people’s use and cultural values associated with biodiversity.

Royal HaskoningDHV has experts who currently advise several financial institutions and credit agencies on these issues. Our experience from these clients clearly indicates the ability for our services in this area to increase our private client’s ability to manage their risks and business line, investment, reduce overall programme delays and to ensure the overall likelihood of a successful and sustainable development.



0014

5-ss

-iem

-mo-

rhdh

v-07

13-g

b-v0

1-in

h

Regulatory change for international project financeFrom 1 January 2012, the International Finance Corporation (“IFC”) updated the environmental and social standards (the “2012 IFC Performance Standards”). All new schemes seeking project finance from the majority of international lenders must now deliver a full Environmental and Social Management Systems (“ESMS”). The 2006 IFC Standards continue to apply to any ESMS implemented prior to 1 January 2012, provided it is completed by 30 June 2012. The implications for international investments as a result of the 2012 change to the IFC Performance Standards can be managed and adhered to without significant impact in so far as planning and early incorporation into investment decisions is made.

The IFC Performance Standards have become the benchmark for all international project financing as they guide over 90% of global project finance. Royal HaskoningDHV’s 130 years of successful experience in international development provides us with a unique insight into how the global project finance standards can be delivered without significant impact to investors, developers and local communities. Recent successful

work for export credit agencies, international finance institutions (IFIs) and private clients across Africa, Asia, Latin America and Russia has placed us in the front-line for delivering lower risk and robust project financing.

Key changes are identified below under the themes of Engagement, Supply Chain Risks, Project Development, Social Responsibility, Prevention and Resources and Cultural Heritage.

Engagement with a broader range of stakeholders affected by a projectn Emphasis on the need for an effective ESMS. n Community engagement, rather than ‘consultation,

with all affected throughout the project life cycle under the banner of ‘Free, Informed and Consent’.

n Supply chain risks and protecting vulnerable groups. �� Stakeholder scoping to informed engagement.

Project development obligations n Identifying and reducing risks of child or forced labour

in a project’s primary supply chain.

Service: Regulatory Change for

International Project Finance


Regulatory change for international project finance

n Monitoring general health and safety and working conditionsof workers on the project site.

n Evaluating primary suppliers to limit procurement from those suppliers that contribute to significant conversion or damage to natural/critical habitats.

n The use of Ecosystem Services to enable economic quantification of impacts.

n Social responsibility and Indigenous Peoples n Protection of the rights and interests of women,

children and indigenous peoples. n Free, Prior and Informed Consent (FPIC) n Establishing preventative measures to minimise

the impact on the health and safety of project-affected communities, livelihood restoration plans for involuntary resettlement.

n Greater planning and more appropriate resource allocation for emergency events.

Prevention and Resources n Improved resource efficiency and pollution prevention.n The importance of preventing negative impacts

is increased when compared to commercial considerations.

n Mitigating damage from historical pollution in areas covered by a project.

n Quantifying amounts of CO directly emitted from facilities controlled within a project’s physical boundaries where total CO emissions exceed 25,000 tonnes (previously this was 100,000 tonnes).

Cultural Heritage n For significant cultural heritage areas long term access

is to be maintained e.g. to burial grounds or sites of significance.

n The use of a mitigation hierarchy for replicable and nonreplicable cultural heritage sites.



Charles HainePrincipal Environmental and Social ConsultantT: +44 (0)207 222 2115 E: [email protected]

John VercoeDirector International EnvironmentT: +44 (0)207 340 9690 E: [email protected]

0015

0-ss

-iem

-mo-

rhdh

v-07

13-g

b-v0

2-in

h

Delivering viable resettlement outcomesfor local communitiesResettlement of project affected people, due to the severity and long-term nature of associated impacts, has emerged as a critical element in the assessment of social impacts where projects are required to comply with international lenders’ requirements. Through the development and monitoring of appropriate resettlement plans, project developer’s significantly improve the likelihood of obtaining finance by demonstrating a “social license to operate” whilst improving the living standards of project affected people. Investment in local economic and social development pay dividends for project developers in the form of enhanced good will, the community, national and international corporate reputation, and a well-founded partnership with International Funding Institutions (IFIs) for future investment opportunities.

The IFC and “Land Acquisition and InvoluntaryResettlement” Standard (PS5) Project developers are required by both IFIs and the International Financial Corporation (IFC) to meet their guidelines and standards in addition to local and national land acquisition and resettlement requirements in the areas where they operate or are investing. Implementation of appropriate planning and management aligned with international guidelines is therefore critical to allow investment from the majority of international lenders.

Corporate Social Responsibility (CSR), operational disruptions, investment costs and negative impacts to corporate brand and reputation also make this an essential consideration for developers.

Service: Resettlement Planning


Delivering viable resettlement outcomesfor local communities

How do we apply the “Land Acquisition and Involuntary Resettlement” Standard? Royal HaskoningDHV manage project risk by applying clearly defined and articulated principles that align projects to international guidelines and standards, thus significantly reducing or eradicating project risk and enabling third party financing. Guiding principles include: n Avoidance of Involuntary resettlement; n Where involuntary resettlement is unavoidable,

ensuring populations affected are be compensated fully and fairly for lost assets;

n Conceiving of Involuntary resettlement as an opportunity for improving the livelihoods of the affected people; and

n Ensuring affected populations are consulted and involved in resettlement planning to safeguard mitigation of adverse effects.

The application of these principles can effectively be assisted through the development of a Resettlement Action Plan (RAP) or a Resettlement Policy Framework (RPF) that: n Clearly articulates resettlement expectations in

agreements with project partners; n Assesses project-specific strategies for aligning project

expectations with those of implementing agencies; n Clearly articulates detailed Lenders’ requirements for

resettlement planning, implementation and external monitoring in land acquisition and resettlement;

n Develops and publicises a grievance procedure within the local community so that affected households are aware that mechanisms other than protesting to raise their concerns and seek arbitration are available;

n Maintain records of resettlement activities including land surveys, asset inventories and valuations, and all payments made to affected households; and

n Conduct internal and external monitoring of the resettlement activities, including the disbursement of compensation to affected households.

Royal HaskoningDHV has a dedicated and growing international project finance specialist group covering social, environmental, engineering and economic analysis to deliver international standards at the local level. We are successfully advising financial institutions, credit agencies, institution development banks and private clients on these issues. Recently, we have undertaken positive and successful resettlement assignments in Latin America, Angola, Qatar, India, Brazil, Philippines, Morocco and Guinea.



0015

1-ss

-iem

-mo-

rhdh

v-07

13-g

b-v0

3-in

h

Social considerations for internationalproject financeRequirements for enhanced consideration of social impact and assessment are increasingly demanded in the international project finance arena. The International Finance Corporation (IFC) Performance Standards were enhanced in January 2012 to boost the consideration given and investments required for the assessment and mitigation of social impacts.

The International Finance Corporation (“IFC”) Environmental & Social Performance Standards have become the global benchmark for sustainability in project financing. They are now used by all financial institutions around the globe that have signed up to the Equator Principles (currently 76 financial institutions), accounting for the majority of global project finance sources. This makes the IFC Standards a widely used benchmark for entities wishing to leverage, open up and maintaining access to capital for their international investments.

Critical social risks affecting infrastructure development and extractive industry projects include:

n Compliance Issues - involuntary resettlement, stakeholder engagement, workers’ rights and child labour, as well as supply chain management;

n Operational and reputational Issues - arising from the effects of development and operations on local and indigenous communities (e.g. from on and offsite accidents, loss of biodiversity with community values and worker camps impacting on local communities); and,

n Local stakeholder Issues – where communities grievances from ‘boomtown effects’are linked to a lack of investment and compensation, i.e. financial revenues are not directly linked to local social infrastructure investments.

Service: Social Impact Assessments


Social considerations for internationalproject finance

Delivering IFI support requires joint lender-borrower identification and understanding of the social risks and issues affecting a project. Beyond understanding the social issues, key actions need to be followed to meet the socialperformance requirements of IFIs which include:n Using social specialists from the initiation of projects

rather than as an afterthought;n Identifying the relevance of the IFIs’ social performance

standardsto the project;n Social engagement throughout the investment

decision and project life-cycle;n Recognition that appropriate planning and

management of social impact and assessment reduces risk to the project not being delivered and increased project delivery costs.





0014

7-ss

-iem

-mo-

rhdh

v-07

13-g

b-v0

1-in

h

Documents

IFC, International project finance & ESIA - Royal HaskoningDHV/media/royalhaskoning... · 2015-06-05 · royalhaskoningdhv.com International project finance & ESIA The benefits of