No net loss

4th September 2014


Biodiversity

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  • Biodiversity

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Amy Scoins

Richard Sobey considers how biodiversity performance standards are influencing decisions to finance projects

The eight performance standards on environmental and social sustainability from the International Finance Corporation (IFC), the global development arm of the World Bank group, came into force on 1 January 2012. The sixth standard (IFC6) focuses on biodiversity conservation and the sustainable management of living natural resources.

It recognises that protecting and conserving biodiversity, maintaining ecosystem services and sustainably managing living natural resources are fundamental to sustainable development. Since its introduction, IFC6 has become the de facto industry standard to which major international projects requiring credit are being designed.

However, the EU is considering a new “no net loss” (NNL) initiative to help achieve its Aichi biodiversity targets. This could introduce a mandatory element into what is currently a voluntary approach.

A common approach?

Lenders, especially export credit agencies, such as UK Export Finance, typically apply IFC6 when deciding on whether to fund projects. The “common approaches” adopted by the OECD in June 2012 recommend the application of IFC6 by such agencies.

Similarly, on the commercial side, IFC standards are included in the Equator principles III, to which most major banks are signatories.

Both require conformance checks – known as environmental and social due diligence (ESDD) – to be undertaken on behalf of the lenders. These checks are usually applied to a project’s environmental and social impact assessment and its environmental and social management system or plan.

There are, however, still some projects that do not use IFC6. For example, UK Export Finance responded to an OECD survey in 2013, stating that it did not fund a refinery in India because it could not meet IFC standards.

When it comes to applying IFC6, environmental consultancy URS has found the required level of conformance depends on points of interpretation, technical understanding and the client’s perspective.

These all need to be considered and underpinned by robust ecological evidence. Often, a bespoke approach works best; this can be a combination of international, regional and local level standards and legislation – not just IFC, but EU and national regulations.

For example, in determining receptor sensitivities on habitat and species levels, a report may need to be consistent with a combination of these for permitting consents.

Difficulties arise

There is evidence that a full description of, and follow-up on, biodiversity commitments can be limited under IFC6. For example, if a mine in a desert is going to have a significant drawdown on aquifers and groundwater, one would expect the environmental and social impact assessment to have reported on likely impact; and not, as was the case on this occasion, to simply make a commitment to “count the number of palm trees and regularly monitor them”.

A situation may also exist where the biodiversity “value”, particularly the indirect benefits to human beings, is not well known by local stakeholders. Although it can be acknowledged in the assessments that local stakeholders have been consulted, the more important point should be a commitment to engage with them so that they can increase their ownership of the project.

Good practice does exist in following a precautionary approach – both IFC and EU standards recommend this. Difficulties arise, however, when the compliance with a commitment can only be measured over time or cannot be assessed until the net gain has been reached. In the case of biodiversity offsets, this time period may be significant.

Although good practice may be presented in the environmental and social impact assessment and the environmental and social management plan, the lender’s monitoring audits may reveal that commitments are not being kept. One report on a mine in pastureland, for example, disclosed that the impacts on water, vegetation and pasture quality were not being measured. This illustrates not only the importance of monitoring ecological functioning, but also the impacts on ecosystem services.

For locally prepared environmental and social impact assessments, another issue can be understanding relevant standards with regard to the International Union for Conservation of Nature (IUCN) red list of threatened species, as well as follow-up biodiversity actions. A lack of ongoing audits is also a problem.

EU plans

While international lenders and developers have become familiar with following the Equator principles and voluntary IFC performance standards, EU countries are likely to soon find themselves following a new NNL framework Directive.

This is likely to combine compliance not only with the directives on environmental impact assessment (EIA – 2014/52/EU), environmental liability (2004/35/EC), wild birds (2009/147/EC) and habitats (92/43/EEC), but also to require mandatory biodiversity offsets to compensate for residual impacts. This would be more in line with the voluntary IFC6, but with regulatory clout.

In 2011, the European commission adopted its biodiversity strategy 2020. It has set NNL targets for biodiversity and ecosystem services. As part of the agreement on strategy, the European parliament passed a resolution in 2012 requiring mainstream biodiversity protection to be applied for all other EU policies, resulting in greater use of environmental impact assessments and sustainability impact assessments.

As part of the 2020 strategy, the commission is also reviewing its commitments under the convention on biological diversity (CBD) and directives 2009/147/EC and 92/43/EEC.

In early 2014, the commission reported on its policy options for an EU NNL initiative (a consultation is open until 17 October at lexisurl.com/iema25908).

Two of the four options recommend a new NNL Directive; the others focus on voluntary offsetting and amendments to existing legislation to achieve no net loss. As amendments to the EIA Directive were only agreed after a lengthy process, there may be limited political willpower for an NNL Directive.

COP 12 in Korea in October will be the mid-term assessment towards achieving the Aichi targets, the international biodiversity goals agreed in 2010 and set out in the CBD. The EU agreed at Aichi to restore at least 40% of habitats and species to a favourable conservation status by 2020 (100% by 2050).

Yet, in 2012, the commission conceded that only 17% of habitats and species protected under EU legislation were in a favourable state. This gap is one reason why the commission is reviewing its systems.

In combination

Almost three years on, IFC performance standards have been shown to be robust and relatively effective at the front-end design stages of projects. There is too little evidence so far, however, to determine whether the standards will be successful over a project’s lifecycle.

For developers and the finance sector, IFC standards will remain at the forefront of preferred standards. However, the European commission is likely to press ahead with its NNL initiative, including developing framework legislation, not least because the EU wishes to realise its 2020 biodiversity conservation targets.

That will mean that firms conducting the necessary assessments, plans and reviews will be required to comply with both approaches.

Richard Sobey is principal ecologist at URS.

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