ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT OPERATIONS MANUAL. Cambodia: Agribusiness Access to Finance Project

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1 Public Disclosure Authorized E2535 rev Public Disclosure Authorized ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT OPERATIONS MANUAL Cambodia: Agribusiness Access to Finance Project World Bank Group Financed Risk Sharing Facility Public Disclosure Authorized 28 October 2010 Public Disclosure Authorized

2 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 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 Annex B Annex C Annex D Annex E Social and Environmental Management System Environmental, Health and Safety Guidelines Agribusiness Sector IFC Performance Standards and World Bank Safeguard Policies Relevant Differences between IFC Performance Standards and World Bank Safeguards National Environmental and Social Legislation

3 Chapter 1: Introduction 1.1 Purpose and Objectives of this Manual The Royal Government of Cambodia (RGC) 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 agribusiness access to finance. By improving agribusiness access to finance and targeting in particular small- and medium-scale enterprises (SMEs), the higher level objective is to foster SME growth and employment creation in Cambodia, which are keys to achieving the RGC s overall objectives of spurring economic growth and poverty reduction. These objectives are consistent with the World Bank s 2005 Country Assistance Strategy. They also are consistent with the IFC s financial sector development strategy in Cambodia, 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. Furthermore, the project supports IFC s strategy for the development of the agribusiness sector in Cambodia. 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 in principle 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 Cambodia is that the participating financial institutions integrate into their lending operations the requirements of environmentally and socially sound and sustainable development as identified in laws and regulations of Cambodia and the sustainability policies and frameworks of the World Bank Group entities participating in the RSF. Accordingly, the World Bank Group and the RGC have collaborated in producing this manual for the staff of participating financial institutions 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 the participating financial institution, also meets the requirement of the World Bank Group that a financial intermediary have 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 participating commercial bank 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 the RSF until such capacity is developed or satisfactory arrangements made for external expertise to assist the participating financial institution in implementing the Framework. It is anticipated that the majority of transactions covered by the RSF will have environmental or social risks associated with them that are readily identified and addressed. However, it is 1

4 recognized that there are agribusiness processing 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 from food processing facilities, 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 immediately accelerate commercial banks lending to agribusiness SMEs. Agribusiness activities are defined as a broad spectrum of activities ranging from storing, processing, packaging, exporting, and related logistical support needs. Agriculture and agribusiness sector represent a significant component of SMEs in Cambodia. The sector is made up mostly of informal agricultural enterprises such as wholesalers, rice millers, corn dryers, animal feed producers, rubber processors, food and beverage manufacturers, and others. 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 primary production of agricultural commodities. 1.3 Role of Participating Financial Institutions In agreeing to participate in the RSF, each commercial bank or financial institution 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 staff 1 of the participating financial institution 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 could include Corporate Responsibility Policies or Guidelines, Credit Risk Principles and Policy, or Country Lending Guidelines. 1 Including any expert consultants that may be hired or retained by the financial institution to fully implement the procedures outlined in this manual. 2

5 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 website 2 ; World Bank Group Environmental, Health and Safety Guidelines, as found on the IFC website 3 ; World Bank Safeguard Policies as found on the World Bank website 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. 2 See also Annex B 3 See also Annex B 4 See also Annex C 3

6 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. 4

7 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 private land or permanent loss of income or assets involving multiple households, or impact ethnic minorities, 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 Cambodian environmental authorities and IFC staff before processing the transaction after initial screening. For the target portfolio of the Agribusiness 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 anticipated to be the bulk of the target portfolio. 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. 5

8 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 agribusiness 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 sustainable development in the agribusiness sector 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 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. 6

9 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 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 acquisition of private land 5, and subsequent change in land use and/or loss of or damage to assets and income; 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 5 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. 7

10 has been identified. For any confirmed Category A transaction, the financial institution would need to engage internationally recognized environmental and social specialists 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 expected, 6 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. 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 ethnically vulnerable groups 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: 6 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 a 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. 8

11 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 labor 7 or harmful child labor 8. 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. 7 Forced labor means all work or service, not voluntarily performed, that is extracted from an individual under threat of force or penalty. 8 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. 9

12 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 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 B, Category A transactions are not anticipated, but cannot be entirely ruled out. Category C transactions are possible, but unusual for agricultural processing operations (as there are raw materials and waste streams to manage). 10

13 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 Cambodian 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 Initial Environmental Impact Assessment (IEIA) or full Environmental Impact Assessment (EIA) under Cambodian 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 Cambodian environmental authority for review and approval of the IEIA or EIA. An environmental audit is carried out on existing plants 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 EIA as per Cambodian regulations and consistent with World Bank Safeguards Policies and IFC Performance Standards and submit it to the financial institution. 11

14 In the event that the applicant has already prepared an EIA in accordance with Cambodian 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 EIA. If the applicant has prepared the EIA 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 EIA and its findings. If the large-scale acquisition of private land, or loss of income or assets for multiple households is anticipated as a result of land acquisition, the financial institutions will first advise the applicants to revise the proposed investment to avoid such impacts. Should such impact be inevitable, then the financial institution will contact IFC counterparts for advice. Similarly, where ethnic minority communities are known to reside in or near where investments occur, IFC counterparts will be duly informed at the earliest stage of transaction appraisal. For any prospective Category A transaction, especially those that may involve land acquisition, physical displacement of people or restrictions on their livelihoods, or direct impacts on vulnerable ethnic groups, 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 vulnerable ethnic groups. In some cases, the loan applicant may be required to prepare a Resettlement Action Plan or an Ethnic Minority Development Plan as part of the EIA process. 12

15 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 participating financial institution will regularly monitor the media in order to screen the news for any reports that relate to environmental and social aspects of the loans covered under the RSF. The institutions will retain records of all findings regarding any such loans that may have been found to have adverse environmental or social impacts. 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 EIA; 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. 13

16 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 addresses below: IFC N o 70, Norodom Boulevard Sangkat Chey Chom Neas Phnom Penh, Cambodia Telephone: (855-23) World Bank 113 Norodom Boulevard Phnom Penh, Cambodia Telephone: (855-23) , , ,

17 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 ( 15

18 Annex B: Environmental, Health & Safety Guidelines Agribusiness Sector 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: ( 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. In addition to the General Environmental, Health & Safety Guidelines, the following Industry Sector Guidelines have been developed for the Agribusiness/Food Production sector: Mammalian Livestock Production Poultry Production Plantation Crop Production Annual Crop Production Aquaculture Sugar Manufacturing Vegetable Oil Processing Dairy Processing Fish Processing Meat Processing Poultry Processing Breweries 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. 16

19 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: ( 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: ( 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. 17

20 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. 18

21 Text from World Bank OP Text from IFC Performance Standards and Policies Comparison & Guidance EIA: 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 EIA 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 EIA 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. 19

22 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. 20

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