Mining projects in emerging markets seeking commercial and bi/multi/lateral finance and political risk insurance need to ensure that their development plans conform to the IFC Performance Standards (and its derivative, the Equator Principles). These guidelines tend to be incorporated in bankable feasibility studies and social and environmental assessments (better known as ESIAs or SEAs). And conformance of project plans and performance against these guidelines are typically reviewed by Independent Engineers on behalf of financiers. Now, GRI has integrated keyIFC Performance Standards into the GRI Metals and Mining Sector Supplement . Specific references have been identified further below.

How do you think will the publication of the new GRI Mining and Metals Sector Supplement and/or linkage with IFC Performance Standards influence sustainability reporting amongst mining companies (juniors, mid-tier, majors)? How will these new Sector Supplements relate to PDAC’s e3plus, A Framework for Responsible Exploration, and MAC’s Towards Sustainable Mining (TSM) frameworks?

Indicator Protocols – Society (SO)

SO1 (Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting) lists IFC Performance Standard 1 (Social and Environmental Impact Assessment and Management Systems) as its reference.

MM6 (Number and description of significant disputes relating to land use, customary rights of local communities and Indigenous Peoples) and MM7 (The extent to which grievance mechanisms were used to resolve disputes relating to land use, customary rights of local communities and Indigenous Peoples, and the outcomes) both use as their references IFC Performance Standard 1 (Social and Environmental Assessment and Management System) and IFC Performance Standard 7 (Indigenous Peoples).

MM9 (Sites where resettlements took place, the number of households resettled in each, and how their livelihoods were affected in the process) uses IFC Performance Standard 5 on Land Acquisition and Involuntary Resettlement as its reference.

Indicator Protocols Environment (EN)

 MM2 (The number and percentage of total sites identified as requiring biodiversity management plans according to stated criteria, and the number (percentage) of those sites with plans in place) refers to IFC Performance Standard 6 on Biodiversity Conservation and Sustainable Natural Resource Management.

EN20  (NOx, SOx, and other significant air emissions by type and weight) includes as one of its references IFC’s Environmental, Health and Safety Guidelines.

Indicator Protocols Set on Human Rights (HR)

 MM5 (Total number of operations taking place in or adjacent to Indigenous Peoples’ territories, and number and percentage of operations or sites where there are formal agreements with Indigenous Peoples’ communities) uses IFC’s Performance Standard 7 (pertaining to Indigenous Peoples) as one of its references.

Genesis

Responding to continued criticism by NGOs, the World Bank Group (WBG) launched its Extractive Industry Review in 2001. One outcome of this review was a major overhaul of the procedures and standards of the International Finance Corporation (IFC), a member of the WBG focused on private sector developments. IFC’s Performance Standards were published in 2006.

 Significance

The IFC Performance Standards replaced the World Bank’s Safeguard Policies for private sector operations. Also, the Equator Principles  emerged as a derivative of the IFC Performance Standards. To date, the Equator Principles have been adopted by over 60 financial institutions involved in project finance. This includes key Export Credit Agencies, such as Export Development Canada (EDC), which reported a business volume in the extractive sector exceeding CAN$27 billion in 2008 (IFC: US$1.34 billion).

Chapter & Verse

The IFC Performance Standards (PS) are organized in eight chapters (46 pages). Their self-explanatory headings are listed below:

• PS 1: Social and Environmental Assessment and Management Systems
• PS 2: Labor and Working Conditions
• PS 3: Pollution Prevention and Abatement
• PS 4: Community Health, Safety and Security
• PS 5: Land Acquisition and Involuntary Resettlement
• PS 6: Biodiversity Conservation and Sustainable Natural Resource Management
• PS 7: Indigenous Peoples
• PS 8: Cultural Heritage

Extractive projects often trigger most if not all of the above listed Performance Standards, requiring comprehensive environmental and social impact assessment (ESIA) studies. The IFC Performance Standards are complemented by additional tools. These include detailed Guidance Notes on the IFC Performance Standards (178 pages, updated in July 2007), generic and sector specific Environmental, Health & Safety (EHS) Guidelines, and a series of valuable Good Practice Documents. Selected topics which typically result in major discussions during my workshops and course are highlighted below.

FPIC & BCS

The IFC Performance Standards require a very participative approach in terms of stakeholder engagement. This approach should ensure Free (of intimidation and coercion), Prior (timely and relevant disclosure), and Informed Consultation (understandable and accessible) – together commonly referred to as FPIC – with project affected communities. Project developers are further expected to secure Broad Community Support (BCS). This can be present and demonstrated even if some individuals or groups object to a project. IFC’s guidelines provide a series of tests to help examine and demonstrate if a project has met FPIC and secured BCS.

Health, Safety & Security

Project developers are expected to evaluate and mitigate the risks to health and safety of affected communities during the design, construction, operation, and decommissioning of a project. Safeguarding of personnel and property should be carried out in a legitimate manner that minimizes risks to the community’s safety and security, and safeguards human rights. Here, the Voluntary Principles on Security and Human Rights provides an internationally accepted framework relevant to the extractive sector. Dealing with these issues in post-conflict states or large-scale artisanal mining context can be particularly challenging.

 Biodiversity & GHG

In view of risks and vulnerability of biodiversity and natural resources, mitigation measures may be required even if project-impacted habitats have been previously disturbed or are not legally protected. Additional requirements include the need to evaluate greenhouse gas (GHG) emissions (threshold: 100,000 tons CO2 equivalent per year). Importantly, the concept of offsets has been introduced. This expands the strategic options available to project developers to address specific issues of concerns (see also Mining Magazine article Biodiversity Offsets in Mining).

Involuntary Resettlement (Resettlment Action Plan)

In addition to risks to livelihood of affected communities, resettlement programs can also be associated with significant costs, delays and reputational damage to project developers. Related IFC Performance Standards are complex and triggered by both physical displacement of people and by adverse livelihood impacts (economic displacement). Eligibility for resettlement assistance and compensation may exist even in the absence of lack of legal titles, such as the case with customary land use and communal ownership by Indigenous Peoples. 

Revisions in Progress

In September 2009, the IFC launched a revision process of the IFC Performance Standards. An updated framework is expected to be released by early 2011. Expectations for clarification and changes are contained in the IFC’s Progress Report on Phase I of Consultation, published in January 2010.

In addition to changes related to human rights, Indigenous People, FPIC, climate change and water, I would also expect to see the references to and integration of other important tools and guidelines related to the extractive sector. Those which have also been included in the Canadian Government’s March 2009 CSR Strategy include the Voluntary Principles on Security and Human Rights, the Extractive Industry Transparency Initiative, and the GRI’s Sustainability Reporting Framework (see also related Mining Magazine article ‘Sustainability Reporting using GRI: Lessons Learned’).

Readiness Assessment

The introduction of the IFC Performance Standards has been a fairly recent phenomenon. ‘Local EIAs’ (environmental impact assessments), designed primarily to satisfy local permitting requirements, may fall short of being ‘bankable.’ Learning from CFOs, Readiness Assessments are being used as a tool to help identify gaps, improve processes and documentation, and provide training to key staff in order to simplify and shorten the due diligence process applied by lenders and investors. 

Acknowledgement

I would like to thank contributors and co-presenters of my courses on IFC Performance Standards and Equator Principles: Jamila Abassi, John Aronson, Dr. Helena Barton, Dr. Martin Birley, Kevin Bortz, Kevin D’Souza, Art Fitzgerald, Wayne Forman, Dr. William Kennedy, Timothy Murphy, Dr. Don Proebstel – and all the course participants who generously shared their own knowledge and insights.

Note: This article was published in the March 2010 issue of the Mining.com Magazine and can be downloaded here: IFC Performance Standards – Mining Magazine March 2010 (PDF, 120 KB).

About Author

Mehrdad Nazari is Senior ESIA & CSR Advisor at Prizma, providing training and advisory services related to IFC Performance Standards, Equator Principles and Sustainability Reporting. He was previously a Principal Environmental Specialist at the European Bank, CSR Research Director at CoreRatings (now DNV/Innovest/Riskmatrics) and Project Manager with Dames & Moore (now URS).

IFC’s new framework came into effect in April 2006. IFC’s review captured statistics and lessons from three years of implementation. For the period covered in IFC’s report, approximately 560 projects had been presented to IFC’s Board for approval, amounting to more than $25 billion in investments.

In IFC’s client surveys, over 60 percent of respondents said the cost associated with meeting IFC Performance Standard requirements is higher than the average cost of meeting social and environmental requirements for their sector. But only 21 percent said the cost of PS implementation might negatively influence future decisions to work with IFC.

In IFC’s report, the key challenges identified with regard to the IFC Performance Standards include management of global environmental issues such as climate change and biodiversity protection; and social development issues, including  consultation, broad community support and human rights.  

Of particular relevance to the mining and oil and gas sector are probably these two topics and related commentary:

Meeting the full requirements of Performance Standard 5 (Land Acquisition and Involuntary Resettlement) on resettlement continued to be very challenging. Meeting the requirement related to displaced people who have no recognizable legal right or claim to the land remains a difficult area for private sector clients.

IFC Performance Standard 6 (Biodiversity Conservation and Sustainable Natural Resource Management) seem to pose significant challenges. Here, the challenge of collection of, or access to, biodiversity baseline information (multi-seasonal, geographical coverage) was highlighted. IFC will be re-examining its critical habitat definition.

What is your experience working with IFC and the IFC Performance Standards? Helpful, headaches or dealbreaker? IFC’s 3 year review report can be found here. Links to tow of my recent blog posts about IFC Performance Standards are copied below.

• Equator Principles – Progress or Failure?
• Revise or Mainstream the IFC Performance Standards?