Do we evaluate environmental and social risks of non-project related transactions?
Yes. For non-project related transactions we conduct an environmental risk review, where we look at factors such as country, track record, scale, sector and environmental management capacity of the client, to provide an overall assessment of environmental and social risk. For these reviews we use information sources such as subscription databases, public information and corporate environmental reporting. The outcome of the environmental risk review is risk rating (e.g. high, medium or low) which helps guide the decision making process for the transaction.
How do we categorize projects?
Early in the project review process, we categorize projects based on their potential for adverse environmental effects, which then determines the nature and scope of the environmental review and the documentation required. Categorization can depend on many factors, including the scale and nature of the project and its potential impact. Factors include whether the project: is greenfield or an expansion of existing facilities; is encroaching on environmentally sensitive areas; could result in the loss of a natural habitat; will affect vulnerable or indigenous groups or involve resettlement; or will affect a cultural heritage site. During the initial stages of the review we may change the original categorization if new information becomes available however this is not common. We follow common international practice and categorizes projects as follows:
- Category A: Likely to have significant adverse environmental effects that are sensitive, diverse or unprecedented. Effects may extend beyond the project site and may be irreversible, or the project may be planned to be carried out in a sensitive location.
- Category B: Environmental effects are less adverse than the potential effects of Category A. Effects are usually site-specific; few if any are irreversible; and in most cases mitigation measures can be designed more readily than for Category A.
- Category C: Likely to have minimal or no adverse environmental effects and an environmental review beyond categorization is not required.
How do we benchmark projects against international standards?
Our Environmental Advisory Services department benchmark projects to international standards. They review the potential environmental and social impacts of a project and determine whether the impact is at acceptable levels, based on their judgment and in accordance with international standards. We refer to the World Bank Group's standards and guidelines to conduct project reviews. Project finance transactions are benchmarked against the IFC Performance Standards as referenced in the Equator Principles and the OECD Common Approaches. Non-project finance transactions are benchmarked against World Bank Safeguard Policies and related guidelines. If other International Financial Institutions (IFIs) are involved in a project we are reviewing, we may also use the standards of these institutions as benchmarks. If a transaction meets international standards, it can be supported by EDC.
Does EDC ever turn down transactions for environmental reasons?
Yes. If a transaction poses an unacceptable environmental risk, we will decline support. These transactions are most often screened out early in the business development cycle.
Many projects have a legal obligation to conduct public consultation. Do we evaluate public consultation?
Yes. Our Environmental and Social Risk Management Review Directive spells out what we expect in terms of public consultations. For Category A projects, we require that culturally appropriate consultations are conducted with communities that might be affected by a project, and that the results of these consultations are taken into account during the environmental assessment of the project. We then evaluate the documentation of these public consultations to ensure our expectations and international standards are met.
How do we review projects located within G7 countries?
We consider projects located in G7 countries to meet or exceed international standards. The main focus of these reviews is to ensure that the project is designed in compliance with host country environmental requirements.
What types of environmental covenants (legal obligations in financing and insurance documents) do we require for projects?
Recommended covenants that establish the project’s environmental commitments vary on a case-by-case basis, depending on the nature of the project and the outcome of the environmental review. We normally confirm that a project is in compliance with the host-country laws and regulations through warranties and representations. Examples of other project requirements include conformance to international standards, timely reporting of environmental incidents and accidents, and submission of annual monitoring reports. Generally, environmental monitoring requirements are expected for Category A projects but may also be recommended for Category B.
How does EDC monitor the projects that it supports?
The Sponsor (borrower) is responsible for providing project reporting. To ensure projects are constructed and operated as designed, project monitoring generally involves reviewing the sponsor’s annual monitoring reports and relevant project environmental documentation such as quarterly project reporting and any updated environmental management/action plans. We, or an independent consultant, may also perform a site visit. After reviewing these reports, our Environmental Advisory Services department provides its opinion on the project’s environmental compliance or identifies potential environmental issues that may have arisen.
Where non-compliance with a reporting requirement occurs, or where we are made aware of environmental non-compliance issues, we first seek to resolve the issues through the borrower/client by having them undertake corrective actions.