ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT Papua New …€¦ · finance by small- and medium scale...
Transcript of ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT Papua New …€¦ · finance by small- and medium scale...
ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT
OPERATIONS MANUAL
Papua New Guinea: Small and Medium Enterprise Access to Finance Project
World Bank Group Financed Risk Sharing Facility
7 October 2010
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
TABLE OF CONTENTS
Chapter 1: Introduction
1.1 Purpose and Objectives of this Manual
1.2 Rationale for a Risk Sharing Facility
1.3 Role of Participating Financial Institutions
1.4 Context for Risk Management
1.5 Objectives of Environmental and Social Screening and Assessment
Chapter 2: Environmental and Social Screening of Transactions
2.1 Loan Application
2.2 Screening and Categorization
2.3 Principles and Methods of Screening
2.4 Reference to World Bank Group Policies and Guidelines in Screening
Chapter 3: Categorization
3.1 Category A Transactions
3.2 Category B Transactions
3.3 Category C Transactions
3.4 Excluded Transactions
Chapter 4: Environmental and Social Review and Assessment
4.1 Context for the Risk Sharing Facility
4.2 Category C Transactions
4.3 Category B Transactions
4.4 Category A Transactions
4.5 Investments Requiring Land Acquisition or Change in Land Use
Chapter 5: Monitoring and Supervision
5.1 Monitoring and Supervision of the Portfolio by the Financial Institution
5.2 Financial Intermediary Reporting to the IFC and IDA
5.3 Grievance Mechanisms
Annex A Social and Environmental Management System
Annex B Environmental, Health and Safety Guidelines—Agribusiness Sector
Annex C IFC Performance Standards and World Bank Safeguard Policies
Annex D Relevant Differences between IFC Performance Standards and World Bank
Safeguards
Annex E National Environmental and Social Legislation
1
Chapter 1: Introduction
1.1 Purpose and Objectives of this Manual
The Government of Papua New Guinea (GoPNG) has requested the World Bank Group,
specifically the International Development Association (IDA) and the International Finance
Corporation (IFC), to support its efforts to remove the bottlenecks that constrain access to
finance by small- and medium scale enterprises (SMEs). By improving access to finance by
SMEs, the higher level objective is to foster SME growth and employment creation in Papua
New Guinea (PNG) through targeted intervention, which is a central objective in the GoPNG’s
Medium Term Development Strategy and Long Term Development Strategy. SME development
is notably important in view of low job market participation rate among women and youth
especially. These objectives are consistent with the World Bank’s 2007 Country Assistance
Strategy. They also are consistent with the IFC’s financial sector development strategy in PNG,
which focuses on improving the quality and availability of financial services to commercial and
retail customers by supporting the financial institutions that have the potential to provide such
services.
The joint IDA/IFC assistance will be carried out through the establishment of a Risk Sharing
Facility to encourage participating financial institutions (PFIs) to provide financing to SMEs, as
well as through technical assistance to PFIs, SMEs, and the GoPNG’s implementing agency.
IFC and IDA have previously partnered to develop a partial credit guarantee instrument, i.e., a
Risk Sharing Facility (RSF), in a few other countries. As discussed below, such an instrument,
managed by IFC, is an ideal solution to meet the objectives described above. The RSF is open to
all commercial banks and financial institutions that meet the eligibility criteria, provided that
they have interest in the facility’s objectives and agree to screening and assessing environmental
and social risks of transactions in accordance with this manual.
One of the prerequisites of the World Bank Group support for an RSF in PNG is that the PFIs
integrate into their lending operations the requirements of environmentally and socially sound
and sustainable development as identified in laws and regulations of PNG and the sustainability
policies and frameworks of the World Bank Group entities participating in the RSF.
Accordingly, the World Bank Group and the GoPNG have collaborated in producing this manual
for the staff of PFIs in the RSF to use as guidance in screening loan applications for
environmental and social risks and ensuring that appropriate risk management measures have
been identified for implementation by the loan applicant.
This manual, along with a Social and Environmental Management System (SEMS) that is
established by each PFI, also meets the requirement of the World Bank Group that a financial
intermediary has established an appropriate Environmental and Social Management Framework.
Participating financial institutions are required to establish or arrange for proper capacities to
duly implement their SEMS in a manner consistent with the guidance provided in this manual. If
a PFI does not have the capacity to implement such a Framework, the World Bank Group
members reserve the right of prior review and approval of all transactions that take place under
2
the RSF until such capacity is developed or satisfactory arrangements made for external
expertise to assist the PFI in implementing the Framework.
It is anticipated that the majority of transactions covered by the RSF will be in the services or
light manufacturing sectors and will have environmental or social risks associated with them that
are readily identified and addressed. However, it is recognized that there may be some business
activities in which the environmental and social risks and impacts are significant and require
commensurate assessment and management, e.g., land acquisition, labor and working standards,
inappropriate disposal of wastes, or unhealthy or hazardous working conditions. Procedures and
guidance are presented in this manual for screening, assessing, and managing these risks for
transactions under the RSF.
1.2 Rationale for a Risk Sharing Facility
The objective of the RSF is to accelerate commercial banks’ lending to SMEs. The facility could
cover a variety of loan types, including working capital, trade financing, or term loans for
productive assets, and will be subject to eligibility criteria to be agreed on between the IFC, IDA,
and commercial banks or other financial institutions that may participate in the RSF. The target
portfolio does not include enterprises engaged directly in extractive industries1, but it may
include SMEs that seek to provide goods or services to such businesses.
1.3 Role of Participating Financial Institutions
In agreeing to participate in the RSF, each PFI accepts responsibility to the World Bank Group
for mandatory screening, assessment, and management of the environmental and social risks and
impacts of proposed transactions it takes under the RSF in a manner that is consistent with IFC
Performance Standards and the World Bank Safeguard Policies as well as the financial
institution’s corporate practices and policies for Corporate Responsibility. In order to effectively
use this manual as a guidance to staff for managing environmental and social risk, each financial
institution will develop an internal SEMS (Annex A). The SEMS describes key features such as:
social and environment policies and procedures; current organization structure and staffing for
managing environmental and social risk; skills and competencies in social and environmental
areas; training and awareness of the institution’s investment, legal, and credit officers on the
organization’s SEMS; reporting systems to managers; and performance monitoring procedures.
1.4 Context for Risk Management
This manual is a tool for staff2 of the PFI to accompany other guidance tools for risk
management that have been developed and implemented by the institution or its corporate parent.
Examples of other risk management tools routinely used by a PFI could include Corporate
Responsibility Policies or Guidelines, Credit Risk Principles and Policy, or Country Lending
Guidelines.
1 Mining, extracting oil or gas, or logging in natural forests.
2 Including any expert consultants that may be hired or retained by the financial institution to fully implement the
procedures outlined in this manual.
3
In addition to these internal documents, the following World Bank Group resources will be
applied in managing environmental and social risks of RSF transactions:
IFC Performance Standards on Social and Environmental Sustainability, as found on the
IFC website3;
World Bank Group Environmental, Health and Safety Guidelines, as found on the IFC
website4;
World Bank Safeguard Policies as found on the World Bank website5.
1.5 Objectives of Environmental and Social Screening and Assessment
The productivity of land and waters and the sustainability of ecosystems are, together with a
socially acceptable livelihood, a prerequisite for sound development of communities and nations.
Almost all countries have therefore introduced environmental assessment (EA) procedures as an
instrument for protecting its environment and peoples from the adverse impacts of economic
activities of different kinds. EA is a process where a proposed activity is assessed with regard to
its impacts on the human, physical, and biological environment, worker and community health
and safety, social and cultural heritage, as well as transboundary and global effects. The
objectives are: to identify positive and negative impacts of the activity, and make sure that its
negative consequences are prevented, minimized or mitigated; and consider factors in project
design that improve sustainability of the project. Inadequate attention to environmental and
social issues might lead to serious failures in economic performance. Environmental charges,
fines, clean-ups, mitigation and other damage compensation costs might cause serious financial
risks to otherwise successful businesses. These risks are associated not just with direct financial
losses and degradation of common resources, but also with serious damage to the image and
reputation of the involved parties, including the financial institutions providing loans.
Following are among the key steps in the environmental assessment process:
Screening: If this activity is likely to cause environmental or social impacts, what are the
likely consequences of these impacts?
Scoping: What are the main issues for assessment? What is the project’s geographic
area of influence? At what stage of activity are the impacts likely to occur? Are there
directly affected people or local communities that may be impacted by the project and
whose views and concerns therefore should be considered in project design and
implementation?
Assessment: Analyze the scope and nature of the impacts, the need for permits, public
perceptions of the impacts, measures to avoid or mitigate those impacts, and need for
monitoring how well the risks are being managed.
Consultation and disclosure: Share information on the project and its expected impacts
with directly affected people, local communities, or other stakeholders; and seek their
views and concerns about project design and implementation.
3 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B
4 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B
5 www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol; See also Annex C
4
Depending on the nature of the transaction and the associated environmental and social risks, a
range of instruments can be used to assess the risks and impacts. For example, existing
operations with moderate risks or impacts (e.g., food processing facilities) may best be assessed
with an environmental audit of the operations and an Environmental Management Plan for
correcting any problems and for future treatment and disposal of wastes. In some circumstances,
an Environmental Management Plan may be no more complex than the performance
specifications of a wastewater treatment system. The choice of instrument used to assess risks
and impacts should be commensurate to the magnitude and significance of the likely risks.
5
Chapter 2: Environmental and Social Screening of Transactions
2.1 Loan Application
The transaction must satisfy national, IFC, and World Bank environmental and social
requirements. The applicant for a loan will present to the financial institution a brief description
of the transaction and a brief description of what the applicant believes are likely to be
environmental or social risks and issues of concern with respect to the transaction. This
information will be used by the financial intermediary in the initial screening and categorization
process.
2.2 Screening and Categorization
The financial institution will categorize the proposed transaction (i.e., the activity which is the
subject of the loan application) in accordance with guidelines in this manual. The choice of
categorization will have the following implications:
Category A transaction: There are potential significant, controversial, or sensitive issues
associated with the transaction that go beyond compliance and require careful, expert
consideration of impacts, mitigation, and tradeoffs. Those transactions that will involve
large-scale acquisition of land or permanent loss of income or assets involving multiple
households, or directly impact indigenous peoples, will be included in this category. An
environmental and social impact assessment report will be required that focuses on the
key issues of concern. Category A transactions must comply with World Bank Safeguard
Policies and IFC Performance Standards. The financial institution will consult with
responsible national environmental authorities and IFC staff before processing the
transaction after initial screening.
For the target portfolio of the SME Access to Finance Project, Category A transactions
are not anticipated.
Category B transaction: The transaction may have some environmental or social risks,
but they are readily addressed through recognized good practices as described in IFC
Performance Standards and World Bank Group Environmental, Health and Safety
Guidelines (EHSGs). As it would also do for any Category A transaction, the financial
institution will verify that: (1) the supported activities comply with applicable national
environmental and social laws and regulations, and applicable World Bank Group
EHSGs; (2) appropriate environmental permits are obtained prior to lending; and (3)
investments do not contravene the Exclusion List presented in Section 3.4 of this manual.
Category B transactions are expected to be the bulk of SME activities in the light
manufacturing, agribusiness, or construction services sectors.
6
Category C transaction: The transaction is likely to have minimal or no environmental or
social risks associated with it. No further environmental and social assessment work is
required after screening.
Category C transactions are expected to be the bulk of SME activities in the services
sector such as light equipment leasing activities, provision of temporary personnel or
office support such as data processing, or trade and export/import services.
2.3 Principles and Methods of Screening
Screening is the first step in the environmental assessment process, which will assign the
transaction in question to one of the three categories. This categorization will decide the nature
of further environmental assessment and identify transactions to be excluded at an early stage to
save costly and time-consuming procedures and analysis. The significance of impacts may be
described in different ways. The simplest approach is the presence or absence of impacts and
qualification of degree of impact as minimal, moderate, significant, or highly significant. In
assessing degree of impact or risk, it is appropriate to take into consideration type, scale,
location, timing, and sensitivity of the impact. A key factor to consider is whether the impact is
reversible, and if so, the rate of recovery.
2.4 Reference to World Bank Group Policies and Guidelines in Screening
Given the purpose and objectives of the RSF to serve SMEs in the services sector, and the types
of investments that are expected to be in the RSF portfolio, the first and primary point of
reference for screening with respect to World Bank Group Policies and Guidelines will be:
IFC Performance Standards; and
World Bank Group Environmental, Health and Safety Guidelines (EHSGs).
This is because the IFC Performance Standards and the EHSGs are particularly suited to private
sector transactions; moreover, the IFC Performance Standards and the EHSGs are at the core of
the Equator Principles, and many commercial banks are familiar with or have adopted the
Equator Principles.
Considerable effort has been given to achieve high degree of harmonization between the IFC
Performance Standards and World Bank Safeguard Policies. The majority of differences
between them arise from differences in processes and procedures between the two institutions
and their respective internal project cycles, but there are also a few differences that reflect that
IFC’s client is a private sector enterprise whereas the World Bank’s borrowers typically are
governments and governmental agencies either at the national or sub-sovereign level. As
indicated in the previous paragraph, these differences are unlikely to surface in the
implementation of the RSF, especially in the context of Category B and Category C transactions,
but emerging risks and issues regarding expansion of SME in the PNG economy do not entirely
eliminate the need to verify this during the screening process. For screening purposes, Annex D
provides an overview of the few instances of divergence that in rare cases may arise during
7
implementation of the RSF. Those rare cases likely would arise in Category A transactions, or
transactions involving acquisition of land, resettlement of people, or that have a direct affect on
vulnerable ethnic groups as defined by IFC Performance Standard 7 (Annex C) and the
comparable World Bank Safeguard Policy on Indigenous Peoples.
8
Chapter 3: Categorization
3.1 Category A Transactions
The transaction and its operative setting must be explained to be able to determine the
appropriate environmental category. The following characteristics of possible impacts of the
transaction typically trigger Category A designation .
The location of the project enterprise or activity may be:
Near sensitive and valuable ecosystems, protected areas and habitat of endangered species;
Near areas with archaeological and/or historic sites or existing cultural and social institutions;
Near or in areas occupied by vulnerable ethnic minorities or indigenous peoples, or lands to which they
are collectively attached;
In densely populated areas, where resettlement may be required or potential pollution impacts and other
disturbances may significantly affect communities;
In regions where there are conflicts in natural resources allocation;
Near watercourses, aquifer recharge areas or in reservoirs used for potable water supply; or
In or close to lands or waters containing valuable resources. Examples of sensitivity issues are those where the transaction can:
Cause adverse global or regional environmental impacts;
Concern the rights of indigenous people or vulnerable ethnic minorities;
Require large scale land acquisition6 or subsequent change in land use that produces loss or damage of
assets or income for local residents;
Lead to involuntary settlements or displacement of people from their livelihoods;
Impact protected or otherwise recognized areas of high biodiversity or cultural value; or
Lead to toxic waste disposal.
Examples where the nature of the transaction may:
Cause irreversible degradation or unsustainable exploitation of natural resources; or
Pose serious risks of significant harm to human health and safety.
Examples of the magnitude of the transaction where:
A high amount of scarce resources may be put at risk;
The timing and duration of the negative impacts are long; or
The cumulative effects of many similar, but individually small transactions together lead to serious
impacts.
Category A transactions are perceived to have significant adverse environmental and/or social
impacts, and comprehensive mitigation measures will be necessary to allow for such a
transaction to be supported. Transactions with effects as described above must be subject to a
full EA (see Section 1.5) carried out by an independent expert/entity that is not affiliated with
the applicant. For highly risky projects, a Panel of Experts may be required to advise the
financial institution.
Category A transactions are not anticipated to form part of the target portfolio, but due to their
risk profile, the financial institution will consult with IFC staff as soon as category A potential
6 Acquisition of small parcels of land, even if obtained on a negotiated basis with property owners or those with
recognized rights to the land, should be considered as sensitive if expropriation or other compulsory measures would
have resulted upon the failure of negotiation. In such cases, the loan application should be discussed with IFC
counterparts as soon as possible.
9
has been identified. For any confirmed Category A transaction, the financial institution would
need to engage qualified, reputable environmental and social experts to advise on relevant
aspects of the due diligence and structuring.
3.2 Category B Transactions
Transactions with a limited number of potentially adverse environmental or social impacts that
are generally site-specific, largely reversible, and readily addressed through mitigation measures
that reduce the risk to moderate or low levels are normally classified as Category B. The
following characteristics indicate a Category B transaction.
Environmental and social risks for the most part are mostly limited to and readily mitigated through
application of good industry practice as described in relevant Environmental, Health and Safety
Guidelines;
Labor and working conditions are unlikely to include harmful child labor, involuntary or compulsory
labor, or significant occupational health and safety issues;
Significant land acquisition or significant land use change is not expected7, nor is there expectation of
displacement of people or significant loss of livelihoods due to project activities; and
Socially or economically disadvantaged groups, such as tribal or ethnic groups or similar communities,
are not known to occur in the project’s area of direct impact, nor does the activity involve use of lands
to which they are collectively attached.
In the agribusiness sector, the issue of supply chains for raw materials can be complex and, in
some instances, this issue poses a significant reputational risk. In screening a transaction, the
financial institution will consider the matter of supply chains, especially under the following
three circumstances: (a) the source of the raw materials is clearly defined and dedicated; (b)
there is recognized risk with respect to harmful child labor, involuntary or compulsory labor, or
significant occupational health and safety issues associated with the supply chain; or (c) the
source of raw materials are lands occupied by or traditional lands of indigenous peoples as
defined in IFC Performance Standard 7 (Annex C) and the comparable World Bank Safeguard
Policy on Indigenous Peoples.
3.3 Category C Transactions
Transactions that are perceived to have minimal or no adverse environmental or social impacts
are classified as Category C, and no further environmental or social assessment work needs to be
done after initial screening and categorization.
3.4 Excluded Transactions
Following transactions are excluded from consideration in the RSF:
7 If small parcels of land are acquired as part of the proposed transaction, the loan applicant must provide
satisfactory evidence that the land was acquired on an negotiated basis with property owners or those with
recognized rights to the land, and that there was no risk of expropriation or other compulsory process upon failure of
negotiations.
10
Production or trade in any product or activity deemed illegal under host country laws or
regulations or international conventions and agreements, or subject to international bans,
such as pharmaceuticals, pesticides/herbicides, ozone depleting substances, PCBs,
wildlife or products regulated under CITES.
Commercial logging operations for use in primary tropical moist forest.
Production or trade in wood or other forestry products other than from sustainably
managed forests.
Drift net fishing in the marine environment using nets in excess of 2.5 km in length.
Production or activities involving harmful or exploitative forms of forced labor8 or
harmful child labor9.
Production or trade in weapons and munitions.
Production or trade in alcoholic beverages (excluding beer and wine).
Production or trade in tobacco.
Gambling, casinos and equivalent enterprises.
Production or trade in radioactive materials. This does not apply to the purchase of
medical equipment, quality control (measurement) equipment and any equipment where
IFC considers the radioactive source to be trivial and/or adequately shielded.
Production or trade in unbonded asbestos fibers. This does not apply to purchase and use
of bonded asbestos cement sheeting where the asbestos content is less than 20 percent.
8 Forced labor means all work or service, not voluntarily performed, that is extracted from an individual under threat
of force or penalty. 9 Harmful child labor means the employment of children that is economically exploitive, or is likely to be hazardous
to, or to interfere with, the child’s education, or to be harmful to the child’s health, or physical, mental, spiritual,
moral, or social development.
11
Chapter 4: Environmental and Social Review and Assessment
4.1 Context for the Risk Sharing Facility
Environmentally sound and sustainable and socially responsible investments are critical elements
of the World Bank Group’s developmental mandate, and both IFC and IDA need to ensure the
proper implementation of its mandate in its financial intermediary (FI) operations including the
principle of delegated responsibility, which characterizes such operations. The financial
institution participating in the WBG funded RSF therefore, at a minimum, will adhere to the
following basic requirements:
The financial institution will implement its SEMS (Annex A) in a manner satisfactory to
the World Bank Group and integrate it as fully as possible into its credit application
appraisal and monitoring procedures.
The financial institution will comply with the Environmental and Social Exclusion List
for FI’s (Section 3.4). This list includes activities prohibited by international
environmental agreements or where the World Bank Group considers indirect financing
inappropriate because of the significance of associated environmental and social risks.
The financial institution will take measures as deemed necessary to validate that the loan
applicant has appropriately identified in its loan application (Section 2.1) the
environmental and social risks and measures needed to manage them in project
implementation.
The financial institution will submit to the World Bank Group periodic reports on the
implementation of its SEMS and the environmental and social performance of the RSF
portfolio.
Within five business days of becoming aware, the financial institution will notify the
World Bank Group of any significant social, labor, health and safety, security or
environmental incident, accident, issue, or circumstance with respect to any financing
activities covered by the RSF.
It is the loan applicant’s responsibility to ensure that the proposed activity covered by the
loan complies with all national environmental legislation and regulations. If an applicant
states that the necessary permits or licenses have not yet been issued, the financial
institution will advise the applicant to obtain the licenses and permits before loans can be
disbursed.
As noted above, it is anticipated that the majority of transactions covered by the RSF will be
loans to SMEs that would be classifiable as Category C or Category B, Category A transactions
are not anticipated, but cannot be entirely ruled out.
12
4.2 Category C Transactions
If the likely environmental and social risks and impacts are determined through the screening
process to be very low or negligible, the transaction is a Category C and no further
environmental review and assessment is required except that it must be confirmed that the
proposed transaction is in compliance with applicable PNG laws and regulations (Annex E).
4.3 Category B Transactions
For Category B transactions, the environmental and social risks and impacts are perceived to be
limited, site specific, not irreversible and with established remedial and good practice measures
as described in the appropriate Environmental Health and Safety Guidelines.
If the activity is one that is subject to preparation of an Environmental Inception Report (EIR) or
Environmental Impact Statement (EIS) under PNG legislation (see Annex E), the financial
institution may proceed to process the loan application, but will not disburse the loan until the
applicant provides a notice of approval from the responsible PNG environmental authority for
review and approval of the EIR.
An environmental audit is carried out on existing facilities and focuses on two elements: (a)
compliance of existing facilities and operations with relevant environmental (including
occupational health and safety) and social laws, regulations, and applicable World Bank Group
requirements (Section 2.4); and (b) the nature and extent of environmental impacts, including
contamination to soils, groundwater, and structures, as a result of past activities. A Corrective
Action Plan is often an outcome of an environmental audit. Such environmental reviews or
assessments might however take many forms, depending on the type of transaction proposed.
It is recognized that SMEs may have limited capacity for assessing environmental and social
risks or carrying out necessary studies, such as environmental audits. Flexibility will be applied
and efforts made to find the best instruments and procedures for the transaction in question. In
accordance with its SEMS, the financial institution will assure itself that environmental and
social risks and impacts have been adequately identified and appropriate managed in a manner
commensurate to the risk. In some instances, the financial institution may opt to arrange for an
appropriate environmental review on its own behalf using outside expertise. At minimum, for all
Category B transactions, the financial institution will prepare for the record a brief summary
report or memorandum identifying sources of information and relevant facts and findings that
allow a determination that the transaction is consistent with applicable environmental and social
benchmarks (see Section 2.4).
4.4 Category A Transactions
In the event a Category A transaction is identified for lending under cover of the RSF, the
applicant will be required to prepare a full EIS as per PNG regulations and consistent with World
Bank Safeguards Policies and IFC Performance Standards and submit it to the financial
institution.
13
In the event that the applicant has already prepared an EIS in accordance with PNG regulations
and processes, the financial institution must review the report and make a determination whether:
it is adequate and accurate in identification of environmental and social impacts; that appropriate
measures have been identified to avoid, minimize, or mitigate those impacts; that the applicant
has the commitment and the capability to manage the impacts as proposed. Moreover, the
financial institution will assure itself that the records show that timely and appropriate
consultation with directly affected people, local communities, and interested stakeholders has
taken place on the findings and recommendations of the EIS. If the applicant has prepared the
EIS on his/her own project proposal using its internal technical resources, the financial institution
will arrange for an independent expert to assist in the review and assessment of the quality of the
EIS and its findings.
For any prospective Category A transaction, the financial institution as soon as possible will
contact IFC counterparts responsible for involvement in the RSF in order to seek advice and
counsel from IFC environmental and social specialists regarding the proposed loan. The IFC
specialists will engage with relevant World Bank environmental and social specialists to ensure
the appropriate standard is met, especially with respect to involuntary resettlement or impacts on
local ethnic groups.
4.5 Investments Requiring Land Acquisition or Change in Land Use
Proposed SME investments that involve the acquisition of land or change in use of lands under
traditional ownership or use by local PNG clans or associations require additional scrutiny in
environmental and social review of the loan application. The SME loan applicant must
demonstrate to the satisfaction of the participating financial institution that the applicant has
carried out free, prior, and informed consultation with the local community associated with the
subject land and has broad support from that community to undertake the investment as
proposed. The consultation between the loan applicant and the local community must have been
carried out in the local language and in accordance with customs of the local community with
respect to an informed community-level decision-making process. The loan applicant must
agree that terms of payment or compensation to the local community for occupation or use of the
land must approximate the replacement value of the affected land and other affected assets and
must be transparent to the local community. Prior to approving the loan application, the
participating financial institution as soon as possible will contact IFC counterparts for
involvement in the RSF in order to notify them of the proposed transaction and present a brief
summary of: the magnitude and socioeconomic impacts on affected persons; the evidence
regarding consultations with and broad support of the local community for the investment; and
the planned mitigation measures for displacement, if any. The IFC counterparts will engage with
relevant World Bank environmental and social specialists to ensure the appropriate standard is
met, especially with respect to involuntary resettlement or impacts on the local clans or
associations.
14
Chapter 5: Monitoring and Supervision
5.1 Monitoring and Supervision of the Portfolio by the Financial Institution
For all Category A and B projects in the portfolio, the participating financial institution will
monitor the management of environmental and social impacts in a manner consistent with this
Manual and the financial institution’s SEMS, including the environmental management plan and
corrective actions identified/agreed during the transaction screening and assessment stages.
Category A transaction clients will be required to fund certified independent audits to evaluate
whether environmental and social risks are being managed in a manner satisfactory to the
financial institution.
In addition, the financial institution will regularly (i.e., every month) screen for any negative
media/NGO coverage/reports on environmental and social aspects of its portfolio clients, and
retain records of all findings.
The financial institution agrees to make its monitoring and supervision reports available on a
business confidential basis to IFC or IDA counterparts upon request.
5.2 Financial Intermediary Reporting to the IFC and IDA
The commercial bank or financial institution, acting as financial intermediary for IFC and IDA
involvement in the RSF, will prepare an annual report for IFC and IDA counterparts on
environmental and social performance of the portfolio as follows:
Listing of all transactions approved during the reporting period, listing environmental
category (A, B, or C) and the name and location of SME receiving the loan;
For Category A projects approved during the reporting period, copies of the internal
determination of adequacy or the independent expert review as described in Section 4.4;
For Category A projects, a summary report on implementation progress of follow-up
actions mandated by the project’s EIS;
For Category B projects approved during the reporting period, a copy of the summary
report or memorandum noted at the end of Section 4.3;
A brief listing of anticipated Category A and B projects that are being processed or with a
pending loan application;
A brief summary regarding how this Manual and/or the participating financial
institution’s SEMS has been implemented in transactions covered by the RSF, including
any material changes (e.g., to staffing, procedure); and
Details of any negative media/NGO coverage and reports on portfolio clients regarding
environmental and social aspects that have come to the attention of the financial
institution and are deemed to produce reputational or credit risk to the participating
financial institutions, including the World Bank Group participation in the RSF.
15
5.3 Grievance Mechanisms
If local communities or directly affected stakeholders approach the financial institution with
reasonable and responsible claims that an activity by an SME funded by a loan from the
financial institution as part of the RSF has caused harm to them, their livelihoods, or their
environment, the financial institution will work with the borrowing SME to try to address the
concerns in a reasonable and responsible manner. The financial institution will report as soon as
possible such complaints to the IFC. In addition, the financial institution shall inform the
aggrieved parties that if efforts by the borrower (SME) to resolve the issue are unsatisfactory,
the aggrieved parties have the right to bring their complaints to staff in the local IFC or Bank
offices, at the address below:
The World Bank Group
Level 13, Deloitte Tower
P.O. Box 1877
Port Moresby, National Capital District
Telephone: (675) 321-7111
Fax: (675) 321-7730
16
Annex A: Social and Environmental Management System
In order to effectively use this manual as a guidance to staff for managing environmental and
social risk, each participating financial institution shall develop its own internal Social and
Environmental Management System (SEMS). In addition to a policy outlining the commitment
to meet the requirements of this EOM and other standards the institution may wish to follow, the
SEMS shall describe key features including: social and environment policies and procedures;
organization structure and staffing for managing environmental and social risk; skills and
competencies in social and environmental areas; training and awareness of the institution’s
investment, legal, and credit officers on the organization’s SEMS; reporting systems to
managers; and performance monitoring procedures. The SEMS shall also include supporting
tools such as checklists, templates and guidance notes to assist the loan/credit officers and other
relevant staff to assess and manage environmental and social risks.
Upon application by a commercial bank or financial institution to participate in the RSF,
environmental and social specialists from IFC and IDA will engage with the institution and
convey IDA and IFC’s social and environmental requirements as embodied in this EOM. The
applying institution will be responsible for developing the required SEMS and integrating it into
the institution’s lending operations to screen loan applications and mange environmental and
social risks in a manner consistent with this manual. Once the SEMS is developed, the applying
institution shall send it to IFC and IDA for review. A satisfactory SEMS, approved by the
applying institution’s own management and accepted by IFC/IDA, will be a condition of
effectiveness for the RSF agreement between the IFC and the participating institution.
IFC/IDA’s requirements for participating institutions to implement a satisfactory SEMS for
managing environmental and social risk consistent with the EOM will be disclosed in a
Summary of Proposed Investment (SPI) on IFC’s website (www.ifc.org).
17
Annex B: Environmental, Health & Safety Guidelines
As of August 2010, the World Bank Group has produced 64 Environmental, Health & Safety
Guidelines (EHSGs) for various industrial sectors, as well as General Environmental, Health &
Safety Guidelines which covers a wide range of issues and is applicable to all industrial in
addition to the sector-specific guidelines. The full set of Industry Sector EHSGs and the
General EHSGs can be most readily accessed on IFC’s website:
(www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards).
The IFC website is also the location where updates of the EHSGs will be posted, as new
examples of good practice are identified, or as new guidelines are prepared. These EHSGs are
also part of the Equator Principles. As required by the Equator Principles, the most recent
version of the respective applicable guidelines should be used in the screening and review of new
transactions.
For most investments in the services industry, the General Environmental, Health & Safety
Guideline is most likely the only applicable EHSG. However, for some investments possible
under the Risk Sharing Facility, there are specific industry sector guidelines that also would
apply in addition to the General EHSG. A few examples of some of these are:
Tourism and Hospitality Development
Telecommunications
Mammalian Livestock Production
Poultry Production
Plantation Crop Production
Annual Crop Production
Aquaculture
Fish Processing
Meat Processing
Poultry Processing
Food and Beverage Processing.
It should be noted that these Industry Sector EHSGs and the General EHSG are intended to
identify recognized good practice, particularly in the absence of comparable national or local
legislation. Moreover, they are designed to cover a wide range of topics, especially in the case
of the General EHSG, some or many of which specific topics may not be relevant or applicable
to the project enterprise seeking a loan under the RSF. The EHSGs will be used by the financial
institution as useful tools in the screening and review process to determine whether
environmental and social risks associated with the project enterprise have been appropriately
identified and managed.
18
Annex C: IFC Performance Standards and World Bank Safeguard Policies
The IFC has produced eight Performance Standards which cover a wide range of issues and is
considered applicable to all transactions that would be classified as Category B or Category A.
The eight Performance Standards are also considered part of the Equator Principles. The eight
Performance Standards can be most readily accessed on IFC’s website, and are listed below:
(www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards).
Performance Standard 1: Social and Environmental Management Systems
Performance Standard 2: Labor and Working Conditions
Performance Standard 3: Pollution Prevention and Abatement
Performance Standard 4: Community Health, Safety and Security
Performance Standard 5: Land Acquisition and Involuntary Resettlement
Performance Standard 6: Biodiversity Conservation and Sustainable Natural Resources
Management
Performance Standard 7: Indigenous Peoples
Performance Standard 8: Cultural Heritage
The World Bank has ten Safeguard Policies (Operational Policies [OPs]) that in most
environmental and social matters are similar in coverage to the IFC Performance Standards:
OP 4.01: Environmental Assessment
OP 4.04: Natural Habitats
OP 4.09: Pest Management
OP 4.10: Indigenous Peoples
OP 4.11: Physical Cultural Resources
OP 4.12: Involuntary Resettlement
OP 4.36: Forests
OP 4.37: Safety of Dams
OP 7.50: Projects on International Waterways
OP 7.60: Projects in Disputed Areas.
These can be found on the World Bank website:
(www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol).
In the context of the kinds of Category B transactions that are envisioned for cover under the
RSF, it is expected that screening and determination of consistency with relevant IFC
Performance Standards will also allow a determination of consistency with relevant World Bank
Environmental and Social Safeguard Policies. However, there may be rare instances, primarily
in the context of Category A transactions, where there may be minor differences in policy
requirements. These few differences are summarized in Annex D.
19
Annex D: Relevant Differences between IFC Performance Standards and World Bank
Safeguards
IFC Performance Standards and the World Bank Operational Policies relating to environment
and social safeguards are generally equivalent in scope, but sometimes realized in slightly
different ways in practice. The differences are mostly in form and process, and do not represent
major differences in policy content. This matrix provides a side-by-side comparison of the
related text in Bank and IFC safeguard policies, along with guidance on how the two systems’
policy requirements should be applied together.
20
Text from World Bank OP
Text from IFC Performance Standards and Policies Comparison & Guidance
EIS:
Responsibility
for Drafting
The borrower is responsible for carrying out the
EA. For Category A projects, the borrower retains
independent EA experts not affiliated with the
project to carry out the EA. [Footnote 6 states:
However, the borrower ensures that when
individuals or entities are engaged to carry out EA
activities, any conflict of interest is avoided. For
example, when an independent EA is required, it
is not carried out by the consultants hired to
prepare the engineering design.] (OP 4.01)
The Assessment will be an adequate, accurate,
and objective evaluation and presentation of the
issues, prepared by qualified and experienced
persons. (IFC PS 1 para 7)
Qualified and experienced external experts are
required in the circumstances referenced in PS 6
paragraph 7; PS 7 paragraph 11; and PS 8
paragraph 4.
Comparison: The Bank requires the EIS for
Category A projects to be carried out by an entity
independent of the borrower. In addition, IFC
policy requires the client to retain qualified and
experienced external experts to verify monitoring
information for Category A.
Guidance: For Category A projects, the EIS
should be carried out by an external consultant
not connected with the project.
EA Advisory
Panel
For Category A projects that are highly risky or
contentious or that involve serious and
multidimensional environmental concerns, the
borrower should normally also engage an
advisory panel of independent, internationally
recognized environmental specialists to advise on
all aspects of the project relevant to the EA. The
role of the advisory panel depends on the degree
to which project preparation has progressed, and
on the extent and quality of any EA work
completed, at the time the Bank begins to
consider the project. (OP 4.01 para 4)
For Category A projects with significant impacts
that are diverse, irreversible, or unprecedented,
the client will retain qualified and experienced
external experts to verify its monitoring
information. (PS 1 para 24)
In addition, external experts are required in
certain defined circumstances on issues
concerning biodiversity (as provided in paragraph
4 of Performance Standard 6), Indigenous
Peoples (as provided in paragraph 11 of
Performance Standard 7), and cultural heritage
(as provided in paragraph 4 of Performance
Standard 8).
Comparison: The Bank requires an independent
panel of experts for Category A projects that are
very complex and precedent-setting; this is also
mandatory for larger dams. IFC requires a panel
based on project-specific issues, and considers
the contribution of other project experts, such as
the Lenders’ Independent E&S Specialists (if
used) in determining the need for an EA advisory
panel.
Guidance: A decision on whether a panel is
required should take into account all EA work that
has already been undertaken and mindful of Bank
policy.
21
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Dam Safety
Panel
The Bank’s OP 4.37—Safety of Dams—includes
the following requirement: (para 3, 4)
For large dams, including tailings dams and ash
ponds, the Bank requires:
(a) reviews by an independent panel of experts
throughout investigation, design, and
construction of the dam and the start of
operations;
(b) preparation and implementation of detailed
plans: a plan for construction supervision and
quality assurance, a plan for instrumentation,
an operation and maintenance plan, and an
emergency preparedness plan;
(c) prequalification of bidders during procurement
and bid tendering; and
(d) periodic safety inspections of the dam after
completion.
The independent review panel consists of three or
more experts, appointed by the borrower and
acceptable to the Bank, with expertise in the
various technical fields relevant to the dam safety
aspects of the particular dam. The number,
professional breadth, technical expertise, and
experience of panel members are appropriate to
the size, complexity, and hazard potential of the
dam under consideration. For high-hazard dams,
in particular, the panel experts should be
internationally known experts in their field.
With IFC implementation of the Performance
Standards, dam safety is now part of PS 4—
Community Health, Safety and Security. PS 4
includes the following text (in para 6):
When structural elements or components, such as
dams, tailings dams, or ash ponds, are situated in
high-risk locations, and their failure or malfunction
may threaten the safety of communities, the client
will engage one or more qualified experts with
relevant and recognized experience in similar
projects, separate from those responsible for the
design and construction, to conduct a review as
early as possible in project development and
throughout the stages of project design,
construction, and commissioning.
Comparison: The Bank requires an independent
panel (3-5 members) of dam safety experts for
large dams. IFC takes a risk-based approach:
where risks are high, it will require one or more
external experts not connected to the project. IFC
will also consider the contribution of other project
experts, such as the Lenders’ Independent
Engineer, in determining need for a panel.
Guidance: In the event a transaction involves a
large dam, the financial intermediary should
immediately seek guidance from the World Bank’s
Lead Dam Safety Specialist. The composition of
any panel should be a joint decision, sufficient to
cover the specialized issues involved, and taking
into account all existing arrangements for
independent input into the project.
22
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Associated
Facilities
OP 4.01 Annex A includes associated facilities
indirectly:
Project area of influence: The area likely to be
affected by the project, including all its ancillary
aspects, such as power transmission corridors,
pipelines, canals, tunnels, relocation and access
roads, borrow and disposal areas, and
construction camps, as well as unplanned
developments induced by the project (e.g.,
spontaneous settlement, logging, or shifting
agriculture along access roads). The area of
influence may include, for example, (a) the
watershed within which the project is located; (b)
any affected estuary and coastal zone; (c) off-site
areas required for resettlement or compensatory
tracts; (d) the airshed (e.g., where airborne
pollution such as smoke or dust may enter or
leave the area of influence; (e) migratory routes of
humans, wildlife, or fish, particularly where they
relate to public health, economic activities, or
environmental conservation; and (f) areas used
for livelihood activities (hunting, fishing, grazing,
gathering, agriculture, etc.) or religious or
ceremonial purposes of a customary nature.
Risks and impacts will be analyzed in the context
of the project’s area of influence. This area of
influence encompasses, as appropriate: (i) the
primary project site(s) and related facilities that
the client (including its contractors) develops or
controls, such as power transmission corridors,
pipelines, canals, tunnels, relocation and access
roads, borrow and disposal areas, and
construction camps; (ii) associated facilities that
are not funded as part of the project (funding may
be provided separately by the client or by third
parties, including the government), and whose
viability and existence depend exclusively on the
project and whose goods or services are essential
for the successful operation of the project; (iii)
areas potentially impacted by cumulative impacts
from further planned development of the project,
any existing project or condition, and other
project-related developments that are realistically
defined at the time the Social and Environmental
Assessment is undertaken; and (iv) areas
potentially affected by impacts from unplanned
but predictable developments caused by the
project that may occur later or at a different
location. The area of influence does not include
potential impacts that would occur without the
project or independently of the project. (IFC PS 1
para 5)
IFC seeks to ensure that the projects it finances
achieve outcomes consistent with the
Performance Standards, even if the outcomes are
dependent upon the performance of third parties.
When the third party risk is high, and when the
client has control or influence over the actions and
behavior of the third party, IFC requires the client
to collaborate with the third party to achieve
outcomes consistent with the Performance
Standards. Specific requirements and options will
vary from case to case. (IFC PPS para 25)
Comparison: IFC defines Associated Facilities as
those ―whose viability and existence depend
exclusively on the project and whose goods or
services are essential for the successful operation
of the project.‖ IFC may also apply a narrower,
two-way dependency test. The Bank OP does not
mention ―Associated Facilities‖ directly, but
includes ―all ancillary aspects‖ as part of the
project area of influence, which is typically
interpreted as broader in scope.
23
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Natural Habitats Natural habitats are land and water areas where
(i) the ecosystems' biological communities are
formed largely by native plant and animal species,
and (ii) human activity has not essentially
modified the area's primary ecological functions.
(OP 4.04 para 1(a))
Critical natural habitats are:
(i) existing protected areas and areas officially
proposed by governments as protected areas
(e.g., reserves that meet the criteria of the World
Conservation Union [IUCN] classifications), areas
initially recognized as protected by traditional local
communities (e.g., sacred groves), and sites that
maintain conditions vital for the viability of these
protected areas (as determined by the
environmental assessment process); or
(ii) sites identified on supplementary lists
prepared by the Bank or an authoritative source
determined by the Regional environment sector
unit (RESU). Such sites may include areas
recognized by traditional local communities (e.g.,
sacred groves); areas with known high suitability
for biodiversity conservation; and sites that are
critical for rare, vulnerable, migratory, or
endangered species. Listings are based on
systematic evaluations of such factors as species
richness; the degree of endemism, rarity, and
vulnerability of component species;
representativeness; and integrity of ecosystem
processes. (OP 4.04 Annex A Definitions)
The Bank does not support projects that, in the
Bank's opinion, involve the significant conversion
or degradation of critical natural habitats. (OP
4.04 para 4)
Under Section ―Protection and Conservation of
Biodiversity‖ of PS 6 paragraphs 5–13 cover
Habitat, Modified Habitat, Natural Habitat, Critical
Habitat and Legally Protected Areas, Invasion
Alien Species.
Critical habitat is a subset of both natural and
modified habitat that deserves particular attention.
Critical habitat includes areas with high
biodiversity value, including habitat required for
the survival of critically endangered or
endangered species; areas having special
significance for endemic or restricted-range
species; sites that are critical for the survival of
migratory species; areas supporting globally
significant concentrations or numbers of
individuals of congregatory species; areas with
unique assemblages of species or which are
associated with key evolutionary processes or
provide key ecosystem services; and areas
having biodiversity of significant social, economic
or cultural importance to local communities. (PS 6
para 9)
In areas of critical habitat, the client will not
implement any project activities unless the
following requirements are met:
There are no measurable adverse impacts on
the ability of the critical habitat to support the
established population of species described in
paragraph 9 or the functions of the critical
habitat described in paragraph 9
There is no reduction in the population of any
recognized critically endangered or
endangered species
Any lesser impacts are mitigated in accordance
with paragraph 8 (PS 6 para 10)
Comparison: IFC policy applies a quantitative
test of measurable impacts; the Bank test is more
qualitative. Both require baseline data.
24
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Grievance
Mechanism
Accessible procedures appropriate to the project
to address grievances in the affected Indigenous
Peoples’ communities arising from project
implementation. When designing the grievance
procedures, the borrower takes into account the
availability of judicial recourse and customary
dispute settlement mechanisms among the
Indigenous Peoples. (OP 4.10 Annex B para 2
(h))
Displaced persons and their communities, and
any host communities receiving them, are
provided timely and relevant information,
consulted on resettlement options, and offered
opportunities to participate in planning,
implementing, and monitoring resettlement.
Appropriate and accessible grievance
mechanisms are established for these groups.
(OP 4.12 para 13 (a))
If the client anticipates ongoing risks to or adverse
impacts on affected communities, the client will
establish a grievance mechanism to receive, and
facilitate resolution of, the affected communities’
concern and grievances about the client’s
environmental and social performance. (PS 1
para 23)
Workers: The client will provide a grievance
mechanism for workers (and their organizations,
where they exist) to raise reasonable workplace
concerns. The client will inform the workers of the
grievance mechanism at the time of hire, and
make it easily accessible to them. The
mechanism should involve an appropriate level of
management and address concerns promptly,
using an understandable and transparent process
that provides feedback to those concerned
without any retribution. The mechanism should
not impede access to other judicial or
administrative remedies that might be available
under law or through existing arbitration
procedures, or substitute for grievance
mechanisms provided through collective
agreements. (PS 2 para 13)
Land acquisition: The client will establish a
grievance mechanism consistent with
Performance Standard 1 to receive and address
specific concerns about compensation and
relocation that are raised by displaced persons or
members of host communities, including a
recourse mechanism designed to resolve disputes
in an impartial manner. (PS 5 para 10)
Indigenous Peoples: The client will establish an
ongoing relationship with the affected
communities of Indigenous Peoples from as early
as possible in the project planning and throughout
the life of the project. In projects with adverse
impacts on affected communities of Indigenous
Peoples the consultation process will ensure their
(continued)
Comparison: The Bank’s requirement for a
grievance mechanism is triggered for projects
which affect Indigenous Peoples and which cause
involuntary resettlement. IFC requires establishing
a grievance mechanism if the client anticipates
ongoing risks to, or adverse impacts on, affected
communities in general.
Guidance: The IFC’s broader standard should
apply.
25
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Grievance
Mechanism
(cont.)
free, prior, and informed consultation and facilitate
their informed participation on matters that affect
them directly, such as proposed mitigation
measures, the sharing of development benefits
and opportunities, and implementation issues.
The process of community engagement will be
culturally appropriate and commensurate with the
risks and potential impacts to the Indigenous
Peoples. In particular, the process will include the
following steps :
Ensure that the grievance mechanism
established for the project, as described in
Performance Standard 1 paragraph 23, is
culturally appropriate and accessible for
Indigenous Peoples (PS 7 para 9)
26
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
FPIC/Broad
Community
Support
This policy contributes to the Bank's mission of
poverty reduction and sustainable development
by ensuring that the development process fully
respects the dignity, human rights, economies,
and cultures of Indigenous Peoples. (OP 4.10
para 1)
For all projects that are proposed for Bank
financing and affect Indigenous Peoples, the Bank
requires the borrower to engage in a process of
free, prior, and informed consultation. The Bank
provides project financing only where free, prior,
and informed consultation results in broad
community support to the project by the affected
Indigenous Peoples. Such Bank-financed projects
include measures to (a) avoid potentially adverse
effects on the Indigenous Peoples’ communities;
or (b) when avoidance is not feasible, minimize,
mitigate, or compensate for such effects. Bank-
financed projects are also designed to ensure that
the Indigenous Peoples receive social and
economic benefits that are culturally appropriate
and gender- and intergenerationally inclusive. (OP
4.10 para 1)
IFC is committed to working with the private
sector to put into practice processes of community
engagement that ensure the free, prior, and
informed consultation of the affected
communities. Building on this commitment, when
clients are required to engage in a process of
free, prior, and informed consultation, IFC will
review the client’s documentation of the
engagement process, and in addition, through its
own investigation, assure itself that the client’s
community engagement is one that involves free,
prior, and informed consultation and enables the
informed participation of the affected
communities, leading to broad community support
for the project within the affected communities,
before presenting the project for approval by IFC’s
Board of Directors. Broad community support is a
collection of expressions by the affected
communities, through individuals or their
recognized representatives, in support of the
project. There may be broad community support
even if some individuals or groups object to the
project. After the Board approval of the project,
IFC will continue to monitor the client’s community
engagement process as part of its portfolio
supervision. (Sustainability Policy, para 20)
For projects with significant adverse impacts on
affected communities, the consultation process
will ensure their free, prior and informed
consultation and facilitate their informed
participation. Informed participation involves
organized and iterative consultation, leading to
the client’s incorporating into their decision-
making process the views of the affected
communities on matters that affect them directly,
such as proposed mitigation measures, the
sharing of development benefits and
opportunities, and implementation issues. The
client will document the process, in particular the
measures taken to avoid or minimize risks to and
adverse impacts on the affected communities.
Comparison: The Bank applies BCS for all
projects that affect Indigenous Peoples,
regardless of anticipated impact.
IFC applies BCS for all projects that require the
process of free, prior, and informed consultation
(FPIC). The process of FPIC is a client obligation
under the Performance Standards, and applies to
all projects with significant adverse impacts on
affected communities. In addition, IFC also
applies the FPIC requirement in projects with
adverse impacts on affected communities of
Indigenous Peoples. The requirement to ascertain
Broad Community Support is an IFC obligation in
its Sustainability Policy. It is a validation by IFC to
its Board of Directors of the impact of the client's
FPIC process. It is not predetermined by the
category of project, or sector, or by classification
of peoples affected, but is based on risks.
27
(PS 1, para 22)
The client will establish an ongoing relationship
with the affected communities of Indigenous
Peoples from as early as possible in the project
planning and throughout the life of the project. In
projects with adverse impacts on affected
communities of Indigenous Peoples, the
consultation process will ensure their free, prior,
and informed consultation and facilitate their
informed participation on matters that affect them
directly, such as proposed mitigation measures,
the sharing of development benefits and
opportunities, and implementation issues. (PS 7,
para 9)
28
Text from World Bank OP Text from IFC Performance
Standards and Policies Comparison & Guidance
Land
Acquisition and
Involuntary
Resettlement
This policy covers direct economic and social
impacts that both result from Bank-assisted
investment projects, and are caused by (a) the
involuntary taking of land resulting in (i) relocation
or loss of shelter; (ii) loss of assets or access to
assets; or (iii) loss of income sources or means of
livelihood, whether or not the affected persons
must move to another location; or (b) the
involuntary restriction of access to legally
designated parks and protected areas resulting in
adverse impacts on the livelihoods of the
displaced persons. (OP 4.12 para 3)
This policy applies to all components of the
project that result in involuntary resettlement,
regardless of the source of financing. It also
applies to other activities resulting in involuntary
resettlement that in the judgment of the Bank, are
(a) directly and significantly related to the Bank-
assisted project, (b) necessary to achieve its
objectives as set forth in the project documents;
and (c) carried out, or planned to be carried out,
contemporaneously with the project. (OP 4.12
para 4)
To address the impacts covered under paragraph
3(a) of this policy, the borrower prepares a
resettlement plan or a resettlement policy
framework (see para 25-30) that covers the
following:
(a) The resettlement plan or resettlement policy
framework includes measures to ensure that the
displaced persons are (i) informed about their
options and rights pertaining to resettlement; (ii)
consulted on, offered choices among, and
provided with technically and economically
feasible resettlement alternatives; and
(iii) provided prompt and effective compensation
at full replacement cost for losses of assets
attributable directly to the project.
(b) If the impacts include physical relocation, the
resettlement plan or resettlement policy
This Performance Standard applies to physical or
economic displacement resulting from the
following types of land transactions:
Type I: Land rights for a private sector project
acquired through expropriation or other
compulsory procedures;
Type II: Land rights for a private sector project
acquired through negotiated settlements with
property owners or those with legal rights to land,
including customary or traditional rights
recognized or recognizable under the laws of the
country, if expropriation or another compulsory
process would have resulted upon the failure of
negotiation. (PS 5 para 5)
The applicability of this Performance Standard is
established during the Social and Environmental
Assessment process, while implementation of the
actions necessary to meet the requirements of
this Performance Standard is managed through
the client’s Social and Environmental
Management System. The assessment and
management system requirements are outlined in
Performance Standard 1. (PS 5 para 4)
In the event of adverse economic, social, or
environmental impacts from project activities other
than land acquisition (e.g., loss of access to
assets or resources or restrictions on land use),
such impacts will be avoided, minimized,
mitigated, or compensated for through the
process of Social and Environmental Assessment
under PS 1. If these impacts become significantly
adverse at any stage of the project, the client
should consider applying the requirements of PS
5, even where no initial land acquisition was
involved. (PS 5 para 6)
In the case of Type I transactions (acquisition of
land rights through the exercise of eminent
domain) or Type II transactions (negotiated
settlements) that involve the physical
displacement of people, the client will develop a
Comparison: The approaches of the two policies
are complementary. IFC policy requires that when
land acquisition and resettlement are the
responsibility of the host government, the client
should collaborate with the responsible
government agency, to the extent permitted by
the agency, to achieve outcomes consistent with
the objectives of PS 5. In addition, where
government capacity is limited, the client should
play an active role during resettlement planning,
implementation, and monitoring.
29
framework includes measures to ensure that the
displaced persons are (i) provided assistance
(such as moving allowances) during relocation;
and (ii) provided with residential housing, or
housing sites, or, as required, agricultural sites for
which a combination of productive potential,
locational advantages, and other factors is at least
equivalent to the advantages of the old site.
(c) Where necessary to achieve the objectives of
the policy, the resettlement plan or resettlement
policy framework also include measures to ensure
that displaced persons are (i) offered support after
displacement for a transition period based on a
reasonable estimate of the time likely to be
needed to restore their livelihood and standards of
living; and (ii) provided with development
assistance in addition to compensation measures
described in paragraph 6(a); (iii) such as land
preparation, credit facilities, training, or job
opportunities. (OP4.12 para 6)
The borrower is responsible for preparing,
implementing, and monitoring a resettlement plan,
a resettlement policy framework, or a process
framework (the "resettlement instruments"), as
appropriate, that conform to this policy. The
resettlement instrument presents a strategy for
achieving the objectives of the policy and covers
all aspects of the proposed resettlement.
Borrower commitment to, and capacity for,
undertaking successful resettlement is a key
determinant of Bank involvement in a project.
(OP4.12 para 18)
The full costs of resettlement activities necessary
to achieve the objectives of the project are
included in the total costs of the project. The costs
of resettlement, like the costs of other project
activities, are treated as a charge against the
economic benefits of the project; and any net
benefits to resettlers (as compared to the
"without-project" circumstances) are added to the
benefits stream of the project. Resettlement
components or freestanding resettlement projects
need not be economically viable on their own, but
resettlement action plan or a resettlement
framework based on a Social and Environmental
Assessment that covers, at a minimum, the
applicable requirements of this Performance
Standard regardless of the number of people
affected. The plan or framework will be designed
to mitigate the negative impacts of displacement,
identify development opportunities, and establish
the entitlements of all categories of affected
persons (including host communities), with
particular attention paid to the needs of the poor
and the vulnerable (see Performance Standard 1
paragraph 12). The client will document all
transactions to acquire land rights, as well as
compensation measures and relocation activities.
The client will also establish procedures to
monitor and evaluate the implementation of
resettlement plans and take corrective action as
necessary. A resettlement will be considered
complete when the adverse impacts of
resettlement have been addressed in a manner
that is consistent with the objectives stated in the
resettlement plan or framework as well as the
objectives of this Performance Standard. (PS 5
para 12)
Where land acquisition and resettlement are the
responsibility of the host government, the client
will collaborate with the responsible government
agency, to the extent permitted by the agency, to
achieve outcomes that are consistent with the
objectives of this Performance Standard. In
addition, where government capacity is limited,
the client will play an active role during
resettlement planning, implementation and
monitoring, as described below in paragraphs 23-
25. (PS 5 para 22)
In the case of Type I transactions (acquisition of
land rights through expropriation or other legal
procedures) involving physical or economic
displacement, and Type II transactions
(negotiated settlements) involving physical
displacement, the client will prepare a plan (or a
framework) that, together with the documents
30
they should be cost-effective. (OP 4.12 para 20)
The borrower's obligations to carry out the
resettlement instrument and to keep the Bank
informed of implementation progress are provided
for in the legal agreements for the project. (OP
4.12 para 23)
The borrower is responsible for adequate
monitoring and evaluation of the activities set forth
in the resettlement instrument. The Bank regularly
supervises resettlement implementation to
determine compliance with the resettlement
instrument. Upon completion of the project, the
borrower undertakes an assessment to determine
whether the objectives of the resettlement
instrument have been achieved. The assessment
takes into account the baseline conditions and the
results of resettlement monitoring. If the
assessment reveals that these objectives may not
be realized, the borrower should propose followup
measures that may serve as the basis for
continued Bank supervision, as the Bank deems
appropriate (see also BP 4.12 para 16). (OP4.12
para 24)
prepared by the responsible government agency,
will address the relevant requirements of this
Performance Standard (the General
Requirements, except for paragraph 13, and
requirements for Physical Displacement and
Economic Displacement above).
The client may need to include in its plan: (i) a
description of the entitlements of displaced
persons provided under applicable laws and
regulations; (ii) the measures proposed to bridge
any gaps between such entitlements and the
requirements of this Performance Standard; and
(iii) the financial and implementation
responsibilities of the government agency and/or
the client. (PS 5 para 23) In the case of Type II
transactions (negotiated settlements) involving
economic (but not physical) displacement, the
client will identify and describe the procedures
that the responsible government agency plans to
use to compensate affected persons and
communities. If these procedures do not meet the
relevant requirements of this Performance
Standard (the General Requirements, except for
paragraph 12, and requirements for Economic
Displacement above), the client will develop its
own procedures to supplement government
action. (PS 5 para 24)
If permitted by the responsible government
agency, the client will, in collaboration with such
agency: (i) implement its plan or procedures
established in accordance with paragraph 23 or
24 above; and (ii) monitor resettlement activity
that is undertaken by the government agency until
such activity has been completed. (PS 5 para 25)
31
Annex E: National Environmental and Social Legislation
Note: This summary is provided for information purposes only, and is not necessarily an exhaustive
or World Bank Group approved list of all relevant environmental and social legislation.
Environmental Legislation
The Papua New Guinea Department of Environment and Conservation (DEC) is the national agency
tasked with environmental management of projects within Papua New Guinea. The primary
legislation for the management of natural resources is the Environment Act 2000, as amended in
2002, and which became fully effective in 2004. The Environment Act 2000 incorporated and
replaced three pieces of earlier legislation: Environmental Planning Act 1978, Environmental
Contaminants Act 1982, and Water Resources Act 1982. The Environment Act 2000 is
comprehensive, but the focus is clearly on large scale projects, with limited provision for managing
the effects of small scale activities.
Environmental Impact Assessment Process
The EIS process in Papua New Guinea is established by the Environment Act 2000 and the
Environmental Regulatory Framework (ERF) as outlined by DEC 1996. The Act specifies three
levels of activities, which is a categorization of the degree and magnitude of environmental impacts:
Level 1activities refer to those that require a minimum level of environmental protection.
Regulation of such activities will be based on standards, codes, and regulations that set
benchmarks for environmentally acceptable activities, for example, maximum discharge
levels, ambient quality standards for the receiving environment, codes of practice, or
guidelines for best or acceptable practice. In cases of non-compliance, environmental
protection orders, clean-up orders, and emergency directives may be issued.
Level 2 activities are those that require a framework of environmental approvals allowing for
water discharge permits, licensing for importation, sale and use of environmental
contaminants (hazardous chemicals), and for site-specific environmental conditions to be set
for these activities which have more significant potential impacts. Level two activities will be
regulated by means of conditions in environmental permits, environmental improvement
plans, and environmental management programs.
Level 3 activities cover those with the potential of major environmental impact and are
projects of national significance or of large scale. Such activities will be subject to a process
of public and detailed considerations of environmental implication through the
Environmental Impact Assessment process.
Level 2 and 3 activities require proponents to prepare information in accordance with the
Environment (Prescribed Activities) Regulation 2002 to meet their legal obligations under Section
48 of the Environmental Act 2000.
Several documents are submitted to DEC for the Level 3 project, normally beginning with an
Environmental Inception Report (EIR). This is assessed and feedbacks made to the proponent to
adjust or expand on the environmental impact assessment process. This is then followed through
32
with a full Environmental Impact Statement (EIS). Guidelines for the EIR and the EIS are provided
by DEC. Upon submittal of the EIS to DEC, the following steps occur:
Reviewing the EIS: An Environment Council established by DEC reviews the EIS and
decides whether the EIS is acceptable or not.
Decision-making: A decision is made as to whether a proposal is approved or not; a record
of decision explains how environmental issues were taken into consideration.
Issuing the relevant permits: If the EIS is approved, DEC issues the necessary
environmental permit that confirms the EIS has been satisfactorily completed and the project
may proceed.
Monitoring project implementation: The operator prepares and executes an appropriate
monitoring program (i.e., an environmental management program).
Monitoring the project: DEC undertakes periodic and independent compliance monitoring of
the project. It will provide a report which will be given back to the developer for discussions
and amendment to its operation, should there be an environmental concern.
Decommissioning the project upon its completion: A decommissioning report is prepared at
the end of the project life. This report outlines the restoration/rehabilitation activities to be
carried out by the operator and is lodged with DEC.
Extent of public participation
Public consultation and participation is required during the EIS scoping stages and while fulfilling
the terms of reference for the impact assessment of the EIS process. The operator is responsible for
identifying interested and affected parties and ensuring that all parties concerned are given adequate
opportunity to participate in the process. A public information program is initiated, and public
notices are issued during the scoping and EIS stages. Whenever a strong public concern over the
proposed project is indicated and impacts are extensive and far-reaching, DEC is required to
organize a public hearing.
Legislation regarding Land Acquisition and Involuntary Resettlement
The land tenure and land use system in PNG is based on customary land ownership. Approximately
97 percent of the land is owned by traditional landowners who have the right to decide what happens
on their land. The remaining approximately 3 percent of the land (alienated land) is controlled by
the State.
The land tenure system in PNG ensures that the customary owners of the land are involved in the
decision whether to exploit the resources and are involved in the benefit from the use of those
resources. While the national government has the power to acquire lands for public purposes under
the Land Act 1996, it is politically unpopular because land ownership and tenure is a very sensitive
social issue. To acquire the land means to purchase the land from the traditional landowners under
Section 15 of the Land Act 1996.
The procedure to acquire land is enforced under the Land Act 1996 by the Department of Land and
Physical Planning. The process is typically very complicated, takes considerable time, and often
triggers social conflict within and between communities.
33
Annex F: Guidance on World Bank’s Social Safeguards (OP4.10 and OP 4.12)
Introduction:
Safeguards policies help to avoid or minimize adverse impacts and manage risks. It is formulated to
support sustainable development. Sustainability is achieved when positive effects are enhanced
particularly for the poor and the other vulnerable groups so that they may receive benefits that help
support efforts against poverty. When social safeguards principles are not taken into account in the
project design and implementation it may unwittingly result not only in further aggravating the
poverty of project affected persons but also project delays and sometimes abandonment. On the
positive side, adequate engagement of the project affected persons result in the incorporation of their
concerns, ideas and suggestions that supports effective and efficient project implementation and
achievement of project objectives.
Operational Policy on Indigenous Peoples (OP 4.10)
The World Bank defines indigenous people as having the following characteristics in varying
degrees: a) self-identification as members of a distinct indigenous cultural group and recognition of
this identity by others; (b) collective attachment to geographically distinct habitats or ancestral
territories in the project area and to the natural resources in these habitats and territories, (c)
customary cultural, economic, social, or political institutions that are separate from those of the
dominant society and culture; and (d) an indigenous language, often different from the official
language of the country or region.
By this definition, many are agreed that Papuans in PNG is considered a member of an Indigenous
Peoples group. Therefore, the Bank projects generally would not require an IPPF or an IPP, rather,
the project itself would need to be designed in a manner consistent with OP 4.10. This means that
the development process must respect the dignity, human rights, economies and culture of affected
indigenous peoples. This is most relevant in the light of many SMEs being owned by people of other
ethnicities (like Australian, Chinese, or Filipino).
Applicant SMEs may not be required to develop Indigenous Peoples Plans if they are able to
demonstrate in their proposals that relevant IPs have been sufficiently consulted for the scope of
investments and measures to ensure that the IPs benefits from project investments are fully
integrated in the investment designs. Either way, if the screening process determines that particular
SME investment plans would trigger OP 4.10, then sufficient and meaningful consultation should be
conducted with relevant IPs, and comments received during consultation meetings and actions to be
taken to address them should be documented, filed and disclosed.
The IFC and the Bank teams should be called upon to advise the PFI on how (and whether) to
process the application when the subproject involves acquisition of lands under traditional ownership
or tenure, or have potentially direct impacts on an IP community (which in most cases involves land
tenure issues), then. In a manner commensurate to the risk (and likely impact), the Bank shall
identify the compliance requirement. It is however underscored that the Bank shall ensure the
presence of a culturally accepted First and Prior Informed Consultation and broad community
support for the proposed SME activity in such cases.
34
Operational Policy on Involuntary Resettlement (OP 4.12)
Land acquisition is not expected under this project since the predominant enterprise to be covered is
in construction service. Even the light manufacturing and agribusiness enterprises are mostly
existing already and any expansion is expected to be very limited in scope of land acquisition. To
confirm this, a screening tool shall be developed to ensure that the proposed investment plans can be
completed without (i) any additional acquisition of private land; and (ii) eviction of, partial damage
to structure and/ or restriction of access to income generating activities for, private individuals
including land users and squatters. Legacy issues uncompensated taking of land and damages to
other assets ) on land transaction that was conducted in the past would still trigger the policy and that
compensation has to be paid as per OP 4.12, if the conduct constitutes an integral part of the
investment plan without which the objective cannot be achieved. The following screening matrix
shall be used to check on presence/absence of potentially displaced persons.
SSppeecciiffiicc
IInnvveessttmmeenntt
ppllaann
NNaammee ooff
PPootteennttiiaallllyy
DDiissppllaacceedd
PPeerrssoonnss
AAsssseettss
AAffffeecctteedd
BBrriieeff ddeesscc..
EEssttiimmaatteedd CCoosstt AAggrreeeemmeennttss oonn
ccoommppeennssaattiioonn SSiiggnnaattuurree
It is noted that 97% of land in PNG are traditional lands and compensations may need the
involvement of traditional IP leaders.
On Capacity Building for Social Safeguards
The joint bank team for safeguards shall provide technical assistance to help develop the capacity of
the particular PFIs when needed. The SMEs will be assisted by the PFIs in the formulation of and
management of its social safeguards operations.
On Grievance Mechanism
Each participating PFI shall identify its specific focal person and his/her alternate for grievance and
redress. It shall also clearly state all official means of contacts with them. He or she will accept the
complaint from local communities or directly affected stakeholders with reasonable and responsible
claims that an activity by an SME funded by a loan from the financial institution as part of the RSF
has caused harm to them, their livelihoods, or their environment. The financial institution will work
with the borrowing SME to try to address the concerns in a reasonable and responsible manner. The
financial institution will report such complaints to the IFC immediately. An update on the case shall
be submitted to IFC no later than two weeks after its receipt. In addition, the financial institution
shall inform the aggrieved parties that if efforts by the borrower (SME) to resolve the issue are
unsatisfactory, the aggrieved parties have the right to bring their complaints to staff in the local IFC
or Bank offices.