ESIA in developing countries
- Corporate governance ,
- Consultancy ,
John-Paul Wale, from SKM Enviros, describes the role of environmental and social impact assessment (ESIA) in protecting communities, the environment and clients' interests
Social and environmental issues associated with infrastructure developments represent visible, tangible and newsworthy reputational risk to clients and the financial institutions funding projects. International best practice environmental and social management systems have understandably become a prerequisite for project financing, wherever a project’s location.
Social and environmental issues on UK projects are managed through a stable planning and regulatory framework, underpinned by a well-established and highly skilled environmental industry. Large projects require an ESIA to best practice standards, approved by a well-funded, technically proficient regulator. By contrast, planning and environmental legislation in developing countries is often in its infancy. Poorly resourced regulators frequently lack technical capacity to enforce mandates and consequently environment management practice remains in the early stages of development.
The stable UK environment provides confidence to investors that social and environmental risks will be adequately addressed, removing a key barrier to finance. As developing countries cannot yet provide this assurance, financial institutes have developed various standards and guidelines to manage these risks – collectively referred to here as “international standards”. Key examples include the International Finance Corporation’s Performance Standards on Environmental and Social Sustainability (the IFC standards). Financial institutions without in-house standards commonly sign up to the equator principles (EPs), which reference the IFC Standards on social and environmental issues.
This article discusses some of the challenges of conducting ESIAs in developing countries and the application of international standards. It also presents SKM Enviros’ approach to ESIA, which focuses on the key project risks, which ensures that communities and the environment are protected while delivering the best outcomes for clients.
The first challenge facing practitioners tasked with delivering ESIA in developing countries are the tight schedules involved. Risky early-stage development is often funded by sponsor’s equity or expensive finance. Clients therefore want project finance ASAP.
Next there are a series of considerations related to lenders’ or internal (balance sheet) finance, including:
- International standards – while they are not a legal requirement, they effectively become de facto conditions due to financing pressure. However, these standards offer clients the opportunity to apply a consistent approach wherever their projects are located.
- Bespoke standards – different financial institutions may have different standards (not all revert to EPs or IFC standards).
- Varying interpretations – standards are open to interpretation by financial organisations’ social and environment experts. Different experts’ individual concerns or preferences can lead to onerous requirements if not managed correctly.
- Internal requirements – Internal finance may still have strict requirements or revert to IFC standards.
ESIA practitioners must then take into account the local regulatory landscape. There may, for example, be prescriptive legal requirements, but regulators can often be process-focused and lack technical or resource capacity. This opens up the project to a risk of onerous scope requirements due to poor technical knowledge and therefore those performing the EISA must tread carefully. Another issue to be aware of is that a lack of capacity in local regulators can cause delays in approvals beyond statutory determination.
Alongside such challenges, there is the risk of generating a “two-tier” study. Practitioners must avoid the temptation to do a “local” study to get things moving. Such an approach creates a risk of delays with design and cost implications when upgrading to international standards.
Often the inclusion of local consultants within the ESIA team is required to promote capacity building and/or a regulatory requirement for locally approved experts. Managing inexperienced consultants can be challenging; however, their relationships with local regulators can be beneficial.
A further difficulty can be the inexperience of sponsors or clients. Without guidance on ESIA and particularly lenders’ due diligence processes, clients can be unaware of ESIA or environmental mitigation and monitoring plan (EMMP) obligations, which are require prior to financial close and during construction/operation.
Finally, one of the biggest challenges in ESIA in developing countries is the contentious social issues involved, such as land acquisition, resettlement and customary rights. These are often the primary focus of financial institutions and require experienced handling.
The SKM approach:
In order to combat the challenges listed above SKM’s team ensure that all ESIA’s are focused on the individual project’s risks and timings. Every project is different; not all requirements must be met for every project at the ESIA stage – some may only be applicable at implementation. Assessments should focus on project risks, rather than “routine” ESIA components, and when these need to be addressed. Key project risks must be considered in the ESIA. Others can be addressed as actions in the EMMP, at pre-financial close or even post-financial close, depending on nature of risk or the agreement reached with the lender.
Key actions for practitioners include:
- offering clients guidance on the ESIA process, responsibilities and EMMP obligations;
- planning well for all discussions; and,
- ensuring you are aware of the local cultural norms.
When working with the local regulator, early and respectful consultation is crucial. You must agree an approach and understand “soft” issues, such as resource and technical capacity, as well as the timeframe for approvals.
While being respectful, practitioners must drive communications with the regulator and be politely firm when onerous activities are requested. Regular engagement to build rapport and buy-in also contributes to capacity building.
The timing of discussions is key. Early agreement of the local approach is needed to inform lender discussions and robust negotiations. Practitioners must develop their ESIA approach sufficiently to avoid onerous requirements, while allowing flexibility for positive and proactive input from the lender’s experts.
Regulatory and operating environments within developing countries present significant project risks and associated challenges to ESIA practice. SKM manages these challenges with an approach that focuses on key risks in the context of lender approvals. This allows projects to proceed without unnecessary delays, while protecting communities and the environment, and managing social and environmental risks for our clients and their investors.
This article was written as a contribution to the EIA Quality Mark’s commitment to improving EIA practice.
John-Paul Wale is a senior ESIA project manager at SKM Enviros. +44 (0)207 969 6364 | firstname.lastname@example.org.
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