Profession / Affiliation
I am Partner based in the UK, London office. I am leading ERM Sustainable Finance services globally. This is cross-practice service line which covers a range of ERM practices such as due diligence for lenders and impact assessments for developers who are looking for financing across various geographies, particularly in emerging markets; this involves the use of international financing benchmarks for social and environmental risk management such as the Equator Principles and IFC Performance Standards. These very exciting services require a lot of internal coordination to ensure consistency, service excellence and high quality delivery across the regions.
Social Systems Auditor/ Lead auditor in Social Accountability SA 8000. Member of Association of European Business and Minex Technical Committee
Definition of Responsible Investment Banking
Responsibility in investment and banking means making investments with greater sense of accountability and ownership, particularly regarding risk identification and management. It also means that decisions are made in dialogue and close cooperation with stakeholders especially with local population and aimed to contribute to sustainable development.
Areas of Expertise
I am providing advice to both financial institutions and developers mainly in Mining, Oil&Gas and Infrastructure on implementing bankable requirements in the local content to secure financing of the projects. These generally have a particular focus on social and environmental risk management including effective stakeholder engagement, alignment with requirements of EBRD, IFC and Equator Principles and involve managing multinational teams and working in different countries which I really engoy, e.g. I have worked in UK, Turkey, Bulgaria, Mongolia, Kazakhstan, Kyrgyzstan, France, Ukraine, Russia, Germany, Australia, Armenia, Guinea, South Africa and USA.
01.2012 – present, Environmental Resources Management (ERM UK), London
Sustainable Finance Services, Global Lead
01.2006 – 12.2011, Environmental Resources Management (ERM Eurasia), Moscow
Head of Impact Assessment and Planning Practice
• Team management and business development, planning, budget control, line management, team and contractors management, QA/QC, delivery, servicing mostly multinational companies and International Financial Institutions (Equator Principles, IFC, EBRD) on Mining, O&G and Infrastructure projects
• Environmental and social planning, scoping studies, field surveys, risk assessments, environmental and social impact assessments for Pre-Feasibility and Feasibility Studies, alignment of international and national requirements etc
• Complex EHSS review of O&G, mining, infrastructure and manufacturing projects in Project Finance for both Lenders and Developers (due diligences, assessments, IFC trainings, SLIP, ESIAs, ESAPs, monitoring).
• Environmental and social due diligences (M&A, Transaction services, pre-IPO EHSS assessments),
• Corporate review services (H&S Culture assessments, EHSS management reviews).
• Stakeholder engagement planning and implementation; community relations and development, social baseline surveys, social impact assessment, social risk management, social investments etc
• Managed around 70 projects in countries of former Soviet Union, Africa and Asia.
05.2005 – 01.2006, Trans-Siberian Gold Management, Moscow
Responsibility for environmental management in the course of the development of four gold mining projects at different stages (Field Surveys, Pre-Feasibility Study, Feasibility Study):
• Cooperation with Government Representatives and Authorities on permitting issues, forest lands reclassification etc.
• Supervision over Development of environmental documents and QA/QC for submission to Russian authorities,
• Supervision over Development of environmental and social documents in bankable format and QA/QC;
• Supervision over correspondence of Russian and bankable documents with each other;
• Management of contractors.
09.2004 – 04.2005, Hermitage Hospitality (Consulting Start-up Company for Hotel Construction and Management according to International Standards), Moscow
Market Analysis, search for potential partners, initiation/organization of meetings and negotiations with investors and developers, development of presentational materials, working with Mass Media (newspapers, magazines)
06.2003 – 09.2004, United Nation Development Program/Ministry of Nature Resources of Russian Federation: Project “Demonstrating Sustainable Conservation of Biological Diversity in Four Protected Areas in Russia’s Kamchatka Peninsula”, Moscow, Project Assistant
Liaison with Ministry’s representatives in the course of the Project Implementation, coordination of Environmental awareness activities in nature protected areas, audits of nature protected areas, development of press-releases and presentation materials, organization of conferences.
10.2001 – 04.2002, Center for International Projects by UNEP, Caspian Environment Program, Moscow
Development of the Biodiversity Strategy and Action Plan for conservation of the Caspian Sea biodiversity.
2001 — Lomonosov Moscow State University, Geography, Bachelor Degree (with honor)
2003 — Lomonosov Moscow State University, Geography, Master Degree (with honor)
2003 — Psychology and Pedagogic, Lomonosov Moscow State University, Moscow, Two-years Education, Diploma
2004 — GIS- technologies in nature resources management, Wilkes University, Pennsylvania
2005 — Psychology of effective management and communication, Moscow University of Psychology/Academy of security, defense, law and order issues, One-year education
2006 — M&A Advisory Services (Lead Assessor) Training, ERM, Moscow
2007 — Project Management Fundamentals Training, ERM, Moscow
2007 — IFC Performance Standards Course, IFC, Moscow
2007 — Environment, Health & Safety Auditing for EHS Consultants, General Electric
2008 — Social Accountability Auditor SA 8000, SGS (IRCA), UK, London, Social Systems /Lead Auditor
2008 — Sales Skills Training, ERM, Frankfurt
2010 — Training on Impact Assessment and Planning, ERM, Moscow
2011 — Risk Management, TUV, Moscow
2012 — Group Facilitation, Citylit, London
06.2004 – 08.2004, US Fish and Wildlife Service, Division of International Nature Conservation, Washington D.C., USA, Environmental specialist (intern)
06.2002 – 08.2002, Berlin Technical University/ Biosphere Reserve “Schorfheide-Chorin”, Berlin, Intern
06.2001 – 08.2001, UNESCO, Environment and Energy Department, Moscow, Intern
Full Computer Literacy
About 25 publications in Scientific and Business magazines (e.g. AEB)
Multiple presentations at Metals&Mining, Infrastructure and Power conferences in Russia, Kazakhstan and UK.
Can you explain some of the history behind the IFC Performance Standards? Why they have become such a success story and what IFC is doing to keep them relevant?
The IFC developed its first formal procedure for environmental review of projects in 1989. This review process used the 1988 World Bank Guidelines for evaluating project-specific pollution prevention and control measures. This approach was probably reasonable as a starting point back then, with IFC being a part of the World Bank Group. Later, be-tween 1993 and 1998 the this process was revised and updated and IFC developed a new Environmental and Social Review Procedure. In 1998, the IFC Board of Directors also ap-proved a series of Safeguard Policies and a Pollution Prevention and Abatement Handbook. In 2006, the Safeguard Policies were replaced by the eight Performance Standards. In addi-tion to the Standards, the Environment Health and Safety (EHS) Guidelines were published in 2007, replacing the Pollution Prevention and Abatement Handbook.
In my opinion, the standards have become so successful because of a number of reasons. First, IFC was one of the earliest lending institutions to develop a set of standards that can be used across different industries and sectors worldwide. Secondly, the Standards can be applied even when there is no intention to receive project finance, as they are internationally recognised as essentially the “benchmark” for environmental and social requirements for project development. (And of course the IFC Performance Standards are a key aspect of the Equator Principles – to which meanwhile almost 80 Banks have committed). Thirdly, IFC puts a lot of effort into keeping the standards up to date. For example, the IFC revised the Performance Standards and published the new version in 2012, and currently is in the process of reviewing the EHS Guidelines, which are planned to be published in 2016; the process of review and update of course includes substantial comment and input by the public.
Are there any areas where the 2012 overhaul of the Performance Standards has left room for interpretation or improvement? Can any gaps be filled by emerging best practice?
The nature of the IFC Performance Standards assumes a degree of flexibility and inter-pretation. The idea behind the Standards is ongoing improvement of the projects through their lifetimes, rather than just “static” compliance. Although the IFC Performance Stand-ards are called “standards”, in reality they have been developed more as guidance for project development and implementation from environmental and social perspective rather than a set of very prescriptive requirements. Given that they are aimed to be used around the world in different sectors and regions, they are asking questions on environmental and social aspects rather than giving exact answers. As such, there is always a degree of flexibility on a project by project basis, in particular with regard to the extent that is required to assess certain risks, e.g. related to the project-associated facilities, involvement of third parties (especially government), human rights considerations, ecosystem services, biodiversity offsets, cumulative impact assessment and other topics.
In my experience, resolving these issues in practice requires using more specific meth-odologies that can actually vary from country to country. For example, greater attention to human rights in recent years has been driving the development of human rights due dili-gence tools, methodologies, and specific indicators to measure performance, etc. Just a few years ago not many people have heard of human rights due diligence, but now this is clearly an emerging best practice.
Has Environmental, Social and Governance Risk Identification and Management ac-cording to 2012 IFC Performance Standards become more convenient or more com-plex, is it more mainstream now or more effective?
IFC has clarified a lot of aspects, for example, in relation to stakeholder engagement, supply chain, security arrangements, etc to make them clearer and easier to implement and to address the demands of the changing world. At the same time, the Standards became more complex as there are a number of the so-called “cross-cutting issues”, such as human rights, water and ecosystem services, which require an integrated approach and deep knowledge of interrelations between different subject areas and topics. So we definitely see more clarity on one hand, and more complexity on the other.
You mention these cross-cutting issues now in the 2012 IFC Performance Standards. Can you explain which issues they cover?
A number of topics (such as climate change, gender, human rights, and water) impact more than one specific field or area and are generally affected by a series of interlinked fac-tors (that is why they are called “cross-cutting”). These issues cannot be addressed in isola-tion and require an integrated approach and actions in multiple fields or topics.
That is why IFC’s approach to cross-cutting issues is to integrate them into the existing Performance Standards and to address them across multiple Performance Standards, rather than developing standalone Standards on each topic.
And in our experience this multi-topic and multi-Standard approach is appropriate for such issues – and reflects the reality. For example, if we look at water there are clearly the natural/ecological factors to be considered as well as the social and economic aspects of how these resources are utilized – or not. The application of a single Performance Standard alone would not do justice to the multi-faceted aspects of such issues.
Let’s talk about one of the most relevant cross-cutting issues: human rights. Can you give us a view on how the work of Prof Ruggie has influenced the 2012 IFC Perfor-mance Standards?
Human rights is one of the most critical and fundamental issues because it is something that affected people will literally fight for. The greatest achievement of Prof John Ruggie and the UN Protect, Respect and Remedy Framework is that it recognises the relevance and importance of human rights in a business context and provides clarity on human rights is-sues for business and financial institutions.
IFC participated in the consultation process on the Framework and committed to support the responsibility of the private sector in the area of human rights. In the course of the 2012 Performance Standards update, the IFC analysed different approaches to strengthen the human rights requirements, reviewed the Performance Standards against various documents including the Ruggie framework, and reflected on some of the elements of the foundational principles in the Performance Standards and Guidance Notes. Furthermore, all the other cross-cutting issues are closely interlinked with human rights.
The new 2012 version of the Standards focuses on strengthening social and environmental issues, but also introduces human rights considerations and human rights language, eg, “Business should respect human rights and address adverse human rights impacts business may cause or contribute to”. IFC also requires clients to identify and address many relevant business human rights issues via social and environmental due diligence which can incorporate human rights due diligence.
The Guidance Note to the Performance Standard 1 suggests that the clients/project de-velopers should address the “respect” and “remedy” aspects of the Ruggie Framework by implementing a management system that assesses and mitigates human rights risks, and by introducing a grievance mechanism to allow the affected public (and employees) to freely address their concerns. It also uses the same logic as the Ruggie Framework and requires clients to “start from the top” and to establish an umbrella policy for their project organisa-tion that should cover all the social and environmental issues and drive performance.
In addition to the requirements built into the IFC Performance Standards, the Guidance Note forPerformance Standard 1 refers to the International Bill of Rights. Based on individ-ual circumstances, clients may need to consider these and other tools and requirements.
How big is the impact of the human rights cross-cutting issues on the financing and in-vestment markets? Can you identify already some regional differences in terms of up-take, level of due diligence and implementation? What are the main challenges?
It’s still early days in the application of these requirements, but we can definitely say that human rights considerations form now an integral part of any social impact assessment developed to meet IFC standards.
Also, human rights due diligence is becoming more common in some jurisdictions and, in some cases, financial institutions do decide to step away from projects because of identi-fied risks related to human rights abuse. The challenge is that IFC Performance Standards are not prescriptive with regard to when, where and how human rights due diligence should be conducted. Given that this specific human rights due diligence is still new to the project developers and banks, and due to implementation uncertainties, there is certain resistance with regard to its execution. What we also see is that banks play an important role and influ-ence (positively!) on how developers are approaching this issue.
This is a very fair question about regional differences. Due to different political situa-tions, legislative regimes and governance procedures (for example, the extent of use of gov-ernment security forces varies in Europe, Latin America and Africa), such issues as employ-ee rights, safety, resettlement procedures, women rights or rights of indigenous people will also be approached very differently within the framework of local legislation and the wider cultural-historical context of a country or region.
Another challenge is the practical difficulty in identifying and reporting human rights is-sues to lenders in the course of the due diligence, as the process may often require additional data gathering or even legal investigation that is not always possible for an outside party or within the available scope or timeframe of the overall due diligence. Furthermore, both de-velopers and lenders are often still “uncomfortable”.in the use of “human rights “ language and terminology in the reporting.
In what cases is a human rights impact assessment as per IFC Performance Standards required? Is there any emerging best practice?
Although there is no direct requirement to conduct a specific human rights impact as-sessment, the IFC does require businesses to take responsibility to respect human rights. So in reality, human rights form an integral part of many lenders’ social impact assessments as this is a cross-cutting issue relevant to all aspects of the operation: from provision of potable water to workers to the rights of migrant workers, from prevention of negative impacts to lo-cal communities and restoration of livelihoods of displaced people, to mitigation of wider impacts on water and land in long-term perspective. The key here is to make sure that all the impacts and risks have been assessed from a human rights perspective and using an appropriate terminology.
There is an emerging best practice in this regard. For example, the International Busi-ness Leaders Forum and IFC, together with the UN Global Compact, developed a Guide to Human Rights Assessment and Management in 2010.
There are also some specific tools developed in different countries. For example, the Human Rights Impact Assessment for Security Measures was issued by the Canadian Hu-man Rights Commission in 2011, which provides guidance for Canadian organisations with responsibilities for national security to help them create and maintain security measures that respect human rights.
Also, we are seeing that many large oil and gas and mining corporations are developing internal procedures and Key Performance Indicators to identify human rights impacts and risks and assess performance on local project levels.
Another cross-cutting issue is gender. Can you explain to us the main issues that need to be addressed? When is a gender assessment required?
Gender is one of the most sensitive issues to address. It is multidimensional and is close-ly linked to different impacts on women and men due to social norms or legal barriers.
The gender issues include creating opportunities for women, promoting equality under the law, analysing risks, impacts and opportunities in relation to gender, ensuring non-discrimination in areas such as working conditions, terms of employment, avoidance of sex-ual harassment, exposure to communicable diseases, protection of women rights in the course of resettlement – particularly in respect to compensation and benefits because the le-gal systems in some countries do not recognise the rights of women to hold or contract in property. Livelihood losses often affect men and women differently, and this has even big-ger implications when we deal with indigenous peoples and cultural heritage, i.e, cultural heritage values can be seen differently by men and women.
Gender aspects are normally included in the impact assessment or due diligence process, but the degree of their consideration would vary depending on the region, particular area and nature of the project. Given the complexity of the issue it is sometimes challenging to identify and assess all the various gender-related impacts, and so we have to be creative in how we approach it. For example, the consultation process should include full participation and influence by both men and women, and to achieve this in certain countries we sometimes have to organize separate meetings or focus groups by and for women because in mixed meetings the men will dominate.
Could you give us an example of a complex project with issues related to resettlement or indigenous people, and how you managed to solve them?
One of our recent projects is being run by ERM Peru to review a resettlement process in a rural area of Peru against the Equator Principles – and thus including the IFC Standards – as part of development plan for a mine for Northern Peru Copper Corp – NPC. Such third-party reviews as we performed are prescribed by the Equator Principles (benchmarks to manage environmental and social issues in global development finance). NPC is keen to comply with the Equator Principles, as it will likely seek Equator Bank financing in the fu-ture. ERM performed a conformance/gap analysis to check whether the local Peruvian con-tractor working for NPC was completing the resettlement in line with both Peruvian laws and international best practice/IFC Standards, and we proposed ways to close the identified gaps. ERM also liaised with the community to review their involvement in the resettlement process and the degree to which the process implementation was in fact consistent with agreed plans. With this information ERM created an action plan that NPC is now imple-menting to achieve conformance with the Equator Principles and IFC Standards. ERM will return to the project later periodically to verify whether the action plan recommendations have been implemented. Another recent example is the development of an Environmental and Social Impact Assessment (ESIA) for a project planned by the Mongolian company Energy Resources LLC (ER) to develop Mongolia’s most advanced coking coal operations.
To develop the coal mine and build essential infrastructure, ER needed to obtain international financing from the European Bank for Reconstruction and Development (EBRD) and other international financial institutions. The ESIA needed to be completed within a tight timeframe and meet the company’s financing needs. The proposed mine and railway was planned for an area of the Mongolian Gobi Desert where nomadic herders still live and which is a migratory path for several endangered species. Against this backdrop the project had an ambitious schedule which relied upon the ESIA being completed in time to take the environmental and social topics off the “critical path” for the project.
ERM mobilised a large in-country field team of Mongolian specialists supported by ex-perienced ERM staff from across the world to carry out all the various ESIA activities, in-cluding impact assessment, public consultation, resettlement action, planning, and monitor-ing and evaluation processes, and provision of corporate level advice on best practice in resettlement and compensation procedures for nomadic peoples. ERM’s team worked closely with ER to provide “real-time” inputs into the planning and decision making process for the project, so that impacts could be avoided or investigated in the design stages. Resettlement was a key impact of the project, which needed to be managed carefully from a risk perspective; also, we should remember that “resettlement” from an IFC perspective includes not only physical displacement of people’s homes or businesses, but also impacts on livelihoods… such as farmland or pasture land being used for a railway. These risks were managed through a combination of early engagement with herders as well as through a strategic approach to public consultation and disclosure. By mobilising the right team, and focusing on the client’s needs, ERM delivered the ESIA ahead of schedule, and to a quality that was judged by the EBRD to be “world class”. The success of key project features – such as hosting a “mitigation workshop” early on in the ESIA process – worked so well that they have now been integrated as a best practice within ERM’s internal Impact Assessment and Planning procedures.
Many problems with the cross-cutting issues arise when governments get involved, such as resettlement of people, use of indigenous resources, meeting energy demand with large hydrodams. What are the most complicated issues you have experienced in this respect and how did you manage to solve them?
We face a number of common challenges working on projects when governments are involved. First of all, difficulty in identifying who is responsible and accountable for meeting the lenders’ requirements, as normally there might be completely different parties involved at different stages of project implementation. Secondly, very limited flexibility in terms of finding alternative solutions to the project designs that have been developed and often fully approved already by the governments. Thirdly, communication and interaction presents a particular challenge. Of course, in many cases, we have to also consider and address political factors or lobbying interests of certain groups.
Another challenge is linked to the requirement of IFC to consider not only the project it-self, eg, proposed plant, factory, or mine, but the entire associated infrastructure that will be linked to the project and will depend on the project. Often government takes responsibility to build a road or supply energy for the project, and it is often difficult to access the infor-mation about such “associated facilities” and how they were carried out because the data does not belong to our clients – who are usually private companies.
The key factor to success is to identify the potential risks and gaps as early as possible, identify (or even nominate!) responsible parties and to initiate a negotiation process to find and implement solutions when it is not yet too late. We have multiple examples when pres-sure from lenders played a crucial role in improving some elements of projects, for example, changing design of a mine to meet up-to-date health and safety standards or implementing offsets and creating a nature protected area as a biodiversity compensation measure in the course of a road construction. Although these measures might be seen as spending extra time and money, but effectively they create a better outcome longer term. And in any case the IFC Standards allow some flexibility for the fact that there can be cases where government constraints exist that prevent the project from fully achieving the Standards; the objective is to work as closely as possible with the governments – but obviously the project developers and their consultants cannot undertake any actions that are not sanctioned by the responsible authorities.
Another complex, cross-cutting issue is ecosystems services. While “ecosystem” itself is an environmental issue, “ecosystems services” is considered a social issue: How can the two go together?
You are right that ecosystem services is a complex issue. In reality, it has social and en-vironmental components as it is based around products or socio-economic benefits people obtain from ecosystems and natural processes.
The ecosystem services approach was designed to look at the holistic and more sustain-able management of natural resources and to ensure that they are available in the long term, for example, that the habitats these ecosystems support remain viable and are able to support biodiversity for future generations.
The objectives behind the use of ecosystem services concept is to ensure a more inte-grated approach to the identification, assessment and mitigation of environmental and social risks that go together hand in hand.
A good example is water, which provides a wide range of essential ecosystem services upon which people heavily depend. Such issues as water quality, access to water and water pollution not only affect quality of life for people, but all the other organisms from microbes to plants and animals. In 2009, one of the global surveys revealed that public concerns over water were ranked ahead of climate change, depletion of natural resources, air pollution and biodiversity destruction. In addition, in July 2010, the UN General Assembly recognised access to safe drinking water and sanitation as a human right.
An ecosystem services approach is aimed to look at surface and ground water as an in-terlinked system, it needs to understand the sources and end points of water use, and the link these have to natural systems, ecological function, and biodiversity and human wellbeing. Lastly it needs to look at all of these issues in the context of other activities (mining, industry, farming, etc) that are taking place in the region. An integrated water management program should include the more traditional issues of water use, discharge, pollution, storm water and flooding as well as impacts on regional and local water resources, cumulative issues, and the relationship between surface and ground water systems. And of course gender issues need to be considered as well.
In a nutshell, what are the trickiest issues when dealing with biodiversity and ecosystems services?
Ecosystem services and biodiversity-related issues are well known to scientists and pol-icymakers, but they are new for people from financial institutions and developers, particularly those without an environmental or social background. The idea that ecosystem services are the benefits that people, including businesses, derive from ecosystems is well understood, but how to manage impacts and risks related to ecosystem services is not clear and requires additional explanation.
Given that biodiversity is linked to the habitat loss or degradation, invasive alien spe-cies, overexploitation, hydrological changes, or pollution, it is traditionally viewed from a holistic rather than practical perspective and it is challenging to explain the practical impli-cations as to why their consideration is important for companies and how they can affect sustainability of their business in the future. For example, unsustainable use of water may cause shortage of resources not only for local populations, but for local companies as well; environmental protests may result in months of delays and hundreds of millions in direct and indirect costs due to the delays. Building this understanding requires time and effort from consultants, lenders and all the interested parties.
The mitigation hierarchy used by IFC – namely to avoid, minimize, mitigate, manage- is still new for many developers. It requires a shift in thinking and a change in mindset from the use of natural resources at any cost to thorough consideration of all the alternatives and even refusal to implement the project or some elements of the project, which will neverthe-less be more beneficial long-term – for everyone, including the developer.
IFC suggest a number of practical measures that we have seen implemented in practice, such as measures to achieve “no net loss” of biodiversity when project-related impacts on biodiversity are balanced by measures taken; the identification and protection of land areas under developer’s control that are excluded from development and are targeted for conservation; establishment of biological corridors to minimise habitat fragmentation; restoring habitats during operations and/or after operations; and some others. The challenge is that practical implementation of these measures requires high-quality professional advice and should be underpinned by studies and in many – or probably even most – cases there is not a single solution that can address all the issues.
Another challenge is to make sure that these measures are identified and included in the design at early stages of the project development. This requires consultation with affected stakeholders and joint efforts of governments, financial institutions and companies. In any case, if these measures are built into the project design soon enough, then they are not that costly and implementation is more manageable.
The last, but not least, important cross-cutting issue is climate change. IFC has been accused of doing too little as a standard-setter to effectively address climate change and is said to be blind on the subject. What measures do the new IFC Performance Standards offer and how do they combat climate change?
Climate change is indeed a tricky issue, not only for IFC, but for the World Bank and other multilateral lending institutions and all the policymakers because the external context has evolved rapidly in this area.
In 2008 the World Bank issued its policy paper “Development and Climate Change: Strategic Framework for the World Bank Group”. This document has set the stage for IFC Performance Standards through commitment to support low-carbon economic development and to address climate change impacts and impacts on ecosystem services through implementation of risk-appropriate climate adaptation measures.
The Performance Standards address climate change in a number of direct and indirect ways, including environmental and social assessments, commitment to reduce emissions that contribute to climate change on a policy level, greenhouse gas (GHG) emissions reporting and reporting on land use change resulting from projects. The Standards also look at climate change risks and impacts on the health and safety of local communities, including the increased risks of natural hazards, climate-related risks for workers, and increased focus on the identification of energy efficiency measures. IFC has expanded the scope of direct GHG emissions accounting to include not only purchased electricity, but also steam, heating and cooling and requires conducting an overall assessment of options for low-carbon technologies.
It is also important to note that IFC has streamlined the wording on climate change is-sues. This includes, for example, clearer requirements concerning resource efficiency, in-corporating an ecosystems approach to increase analysis and protection of water, and clari-fying potential impacts on communities such as exposure to diseases, impacts on natural waterways and effects of natural hazards.
One of the key challenges is to build better understanding of project-specific climate change risks which are still unclear to project developers, for example risks to workers’ health, safety, and working conditions. Many developers still do not believe that climate change may affect existing practices and increase costs of undertaking conservation and sustainable resource management.
The updated Equator Principles III have adopted the new (2012) IFC Performance Standards. How does that multiply the impact of those standards? Are there any alter-natives to the IFC Standards in emerging markets?
The Equator Principles do multiply the impact of IFC Performance Standards in a num-ber of ways.
All the financial institutions that adopt the Equator Principles ultimately take the re-sponsibility to ensure that the borrowers apply IFC Performance Standards to their projects. Given that there are meanwhile 78 Equator Principles Financial Institutions (the so-called “Equator Banks”) (as of December 2013), this significantly increases the use of the IFC Standards by the potential borrowers. And it is important that these 78 Equator Banks to-gether provide a huge portion of the international project financing; interestingly, there is a leverage effect, too, because many of the larger project deals include a whole club of financing banks – and so even if there is just one Equator Bank in a club, then the project must comply with the Equator Principles and hence the IFC Standards. As mentioned before, these Standards are also being used by some companies/developers that are not seeking project finance, but still want to make sure their projects would meet international requirements if needed for future financing and/or simply to protect their reputations. Quite often these companies have already some experience of using Equator Principles and IFC Performance Standards and are aware that these standards are applicable to many sectors and industries internationally, while most of the other standards are more region or country focused.
Initially, the Equator Principles were applied to project finance only, but then their scope was expanded to include advisory services. Some Equator Banks were applying the principles to a limited number of projects each year, while others were voluntarily applying them to other forms of financing and wider range of projects. The EP III have now formally added bridge loans and project-related corporate loans to the mix, and many Equator Banks expect that this expanded scope will increase the number of projects requiring formal review. However, it is still a bit early to make any conclusions, as EP III formally became effective only from January 2014.
Although IFC Performance Standards are sometimes challenging to implement, they are very widely used in emerging markets. In fact, for most projects located in the EU, North America, Australia, Japan and other higher-income countries, the EPs can be satisfied by more or less applying the national legislation – which is assumed to be sufficiently robust to address the key environmental and social topics, as well as public participation etc. The IFC Standards are mainly intended to be applied in those countries where the regulations are not as stringent (or not uniformly enforced) and where there is a higher risk that project-affected people may not otherwise have sufficient legal rights or practical means to voice their opin-ions and help shape the project. So for evaluating and implementing projects in emerging markets, the IFC Performance Standards remain the “standard benchmark” from an envi-ronmental and social perspective. Depending on the project location and which banks are involved with the financing, there may of course be additional lender standards applicable to the project. In our experience, many of the standards used by other banks are somehow based on the IFC Standards, and so the requirements in the end are similar. One differentiating factor can arise, however, if certain European-based banks are involved, such as EBRD or European Investment Bank (EIB): their lending policies and standards require that the project must comply with comparable legislation, directives, etc of the European Union – and these can be quite stringent.
At the current time, there is much talk about consistency of standards and of their ap-plication. A further layer of complexity is added as the standards have a different scope. IFC applies its standards to all its financing products. The Equator Principles Financial Institutions apply them only to project finance, project related corporate loans, bridge to project finance and advisory, in short to those activities that constitute structured finance business. The OECD has various standards, which do apply only for companies situated within the OECD, and so on. What needs to be done to achieve better consistency in standards, application and scope?
In our work we use multiple international standards developed by different financial in-stitutions. The first impression might be confusing, as there are standards developed by IFC, EBRD, EIB, Asian Development Bank (ADB), various export credit agencies (ECAs), etc. Detailed comparison of the standards shows that they are mainly in line with each other, with the IFC standards serving as a type of common thread. There are still some aspects to be specially considered if the company is dealing with multiple financial institutions, but overall principles are very similar as most of the standards have been recently updated and they are in line with IFC Performance Standards. As mentioned above, if EBRD or EIB are also on board, then the project should aim to also comply with EU legislation.
Could you give us an example of a project where multiple requirements were success-fully used?
ERM was undertaking an Equator Principle environmental and social assessment of the Tangguh Liquid Natural Gas (LNG) project, which is located in the Bintuni Bay area of Pa-pua Province, Indonesia, some 3,200km from Jakarta. Papua is a tropical area that is biologically rich, physically dynamic and sparsely populated by indigenous communities. We were commissioned to carry out our assessment on behalf of a consortium of international commercial banks, the Asian Development Bank and the Japanese Bank for International Cooperation (JBIC), as well as several ECAs. The study’s objectives included providing technical support and advice to the project lenders and to liaise with the Tangguh LNG project in satisfying the objectives and concerns of the lenders to ensure the environmental and social compliance met with the international standards and best practice. So we prepared a compilation of the “most stringent“ requirements based on the Equator Principles/IFC Standards, JBIC and ADB Guidelines, and the World Bank Safeguard Policies, as the basis for our evaluation. In this way, we could give comfort to all the various lending consortium members that their respective standards (at a minimum) were reflected within the assessment.
If you had to draw a conclusion on the 2012 IFC Performance Standards, what would it be?
The 2012 IFC Performance Standards represent an important step in updating the ap-proaches to the “classic” environmental and social topics, whilst incorporating the new top-ics, such as the several cross-cutting issues we have been discussing. When the revised standards were announced by the IFC, after the lengthy reviews and public input process, the typical echo from some industry corners was that the Standards are too stringent, whilst from NGO side the typical opinion was that the Standards did not go far enough… so on balance it seems the IFC probably reached an appropriate middle ground.
In summary, there are so many interlinked and complex issues that have implications in wider geographical, environmental, social and economic context and in long-term perspective, but these must then be considered in relation to specific projects in certain locations. At the risk of repeating an already widely-used phrase, the key conclusion for successful application of the Standards would nevertheless be: “Think globally, act locally”.
Hobbies & Social Engagement
As I travel often for work, I enjoy spending my free time with family and friends, both in Moscow and London, I love modern art, ballet, enjoy painting and yoga.