The Equator Principles, is the leading voluntary standard for managing social and environmental risk in project financing. The Principles were launched in Washington D.C. in mid 2003 and were revised in 2006 to connect to the IFC Performance Standards.

Currently there are 67 adopters of the Equator Principles. They have committed not to provide project finance to customers who are unable to meet the social and environmental standards described in Equator Principles (largely based on the IFC Performance Standards). The Principles apply where the Equator Principles Financial Institutions provide project finance loans or project finance advisory services for projects having a total capital cost of US$10million or more.

New elements introduced in the Governance Rules (17 pages) include the introduction of an ‘Associate’ category. These will include financial institutions that do not undertake project finance but may be utilizing the Equator Principles as a source of good practice and knowledge for transaction types beyond project finance. The Governance Rules also highlight the need for its members to maintain client confidentiality; comply with applicable law on agreements, concerted practices or exchange of information which may restrict competition; and introduces the usual liability waivers.

Except for the new delisting clauses related to lack of public reporting by Equator Principles Financial Institutions or Associate, none of the elements of the Governance Rules suggest any major changes to the Equator Principles. This is much to the disappointment of advocacy NGOs like BankTrack. To access the original press release issued by the Equator Principles Association click here.

I previously blogged about the ongoing Review of 3 years of IFC Performance Standards and provided an update about IFC/MIGA’s CAO’s contributions to the review process.

According to a summary by the Bank Information Center (BIC), which seeks to influence the World Bank and other international financial institutions to promote social and economic justice and ecological sustainability, more than 50 representatives from civil society organizations (CSOs) and industry convened in mid June to contribute to the IFC Policy and Performance Standards Review process. CSOs suggested that communities should be involved in all project phases. They requested that IFC clients should document “broad community support” (BCS) for projects on an annual basis and requested disclosure of loans to financial intermediaries. CSOs also highlighted a need for IFC to apply stringent international standards on biodiversity offsets and focus on its Carbon Footprint. The inclusion of specific human rights language was also requested to help prevent workplace discrimination and/or coercion. BIC’s summry note about the consultation meeting at IFC can be accessed here.

IFC will be conducting additional consultation meetings in Manila, Moscow, Brussels, São Paolo and close up the Phase II events in Washington DC. IFC expects to have the final version of its new policies in place by mid 2011. To learn more about and participate in IFC’s review, visit IFC’s dedicated webpage here.

Mehrdad Nazari (MBA, MSc, LEAD Fellow) is Senior ESIA, CSR & GRI Advisor at PRIZMA  

It seems that many in the audience – and perhaps even amongst those on the panel – were surprised to learn about the discovery-to-production value chain in the mining sector. PDAC’s presentation helped the audience appreciate the 98% failure rate and cash-flow negative status in the industry, with few discoveries ever leading to a producing mines. Probably for the first time, many in the audience realized that the largest numbers of companies in the mining sector are Micro/SME sized and not the big brands most people associate with this sector. It is also in this ‘upstream’ space where the seeds of good/bad community relations are planted which will continue to influence above ground (extra-financial) risks/opportunities and relationships for years to come.

Perhaps some also realized the sustainability reporting challenges faced by the exploration and junior segments. I wonder how much of that filtered into the discussions of the working group developing the GRI Metals and Mining Sector Supplement. The industry participation of that GRI working work, it becomes evident that it was heavily tilted towards the majors and members of the International Council on Metals and Mining or ICMM. And before sharing the list with you, let me pause to acknowledge and commend ICMM and all of their members (and other organizations) who all participated in GRI’s multi-stakeholder process. 

The participants of the GRI working group included the following companies (and I added a ‘*’ to denote ICMM membership): Ambatovy (major owners Sheritt and Sumitomo*); Anglo American*; BHP Billiton*; Newmont Mining*, European Nickel (recently merged with Rusina);  First Point Minerals Corporation; Placer Dome (now part of Xstrata*); Rio Tinto*; Sumitomo Metal Mining*; Teck* and Vale*.  Clearly, the majors (and their needs) were very well represented.

Outliers in the industry bunch on the GRI working group included European Nickel (recently merged with Rusina) and First Point Minerals. Perhaps these two and others in the exploration cum junior sector (including PDAC) can reach out to their peers to help make the business case and separate the misperceptions associated with the GRI framework from reality – or develop other workable approaches to help create more shareholder/sustainability value.

My own efforts in this realm include developing and offering the first GRI-certified training program in North America, providing more tailored boot camps and supporting junior/pre-production and mid-tier miners to develop their inaugural sustainability reports, and publishing articles and blogs to raise awareness (see also my article “Sustainability Reporting using GRI: Lessons Learned” which appeared in the November 2009 issue of the Mining.com Magazine), and highlighting convergance of GRI with other frameworks (such as IFC Performance Standards/Equator Principles) used by a variety of investors and political risk insurers. 

What do you think PDAC and others should do to help junior/mid-tier mining segment cross the reporting chasm and start their sustainability reporting journey?

Capital project sponsors seeking project finance and political risk insurance from IFC, EBRD, Equator Banks and Export Credit Agencies (such as Export Development Canada or EDC) sometimes feel the need to reach for headache pills when they commit to meeting the IFC Performance Standards and, its derivative, the Equator Principles. Heartburn treatment is sometimes added when they try to meet the associated monitoring requirements for quarterly and annual monitoring reports. The associated systems and data cost lots of time and money to produce. Given focus (tunnel vision?) on compliance with loan or subscription agreements, the systems and data sets have not been recognized as a tool to create more shareholder value for the company. But this is about to change.

When asked, I jumped at the opportunity to lead a conference break out session on sustainability reporting during IFC’s Corporate Responsibility Forum on Strategies for a Competitiveness and Shared Value (held in mid June 2010 in Washington DC). IFC distributed the fresh-off-the-press guidance note on “Getting More Value Out of Sustainability Reporting” and we had an opportunity to explore concrete case studies with the help of IFC clients, a GRI approved trainer on sustainability reporting (yours truly), and other sustainability report makers and users. Some of the examples discussed included the following:

IFC investee Dialogue, which operates in the mobile telephony sector in Sri Lanka, leveraged the systems and information being collected based on the IFC Performance Standards to generate its A-level inaugural sustainability report. Dialogue topped the country’s corporate accountability ratings for the Year 2009, in its inaugural year of publication and is recognized as Sri Lanka’s most coveted brand.

Manila Water, a public private partnership which provides water and wastewater services to 5.6 million people from 23 cities and municipalities in the Philippines, used its sustainability reporting process to better articulate its sustainability strategy and performance. In 2009, the Interfaith Center on Corporate Responsibility (ICCR), a coalition of nearly 300 faith-based institutional investors representing over $100 billion in invested capital evaluated the adequacy of environmental, social and governance (ESG) disclosure of 12 water utility companies and assessed how well they met investor needs. Manila Water outranked privately owned companies in the UK and US, coming third in the benchmark study -and collected other awards and recognition along the way.

Gold Reserve Inc (supported by Prizma) became the first pre-production, junior mining company listed in Canada to use and leverage its environmental and social impact assessment studies designed to meet IFC Performance Standards and Equator Principles to create an inaugural sustainability report.

Getting a ‘bigger bang for the buck’ creates shareholder value. Leveraging systems and data designed to meet IFC Performance Standards and Equator Principles can be used to produce sustainability reports. It may surprise you how little extra efforts is involved in this process…!

In her latest blog entitled “Is any report better than no report ?”, Elaine Cohen expertly dissected Perenco’s first CSR report. I will not add to that but prefer to speculate about drivers behind Perenco’s first  CSR report. As some of you will know, Perenco has been in the NGO advocacy news over the past couple of years, particularly with regard to its activities in Peru (see for example of article in the Guardian here). Some of Perenco’s activities appear to be linked to indigenous blockades in rainforest of Peru and heavy handed response by the Peruvian army – you get the picture. But my guess is that this may not have been the trigger of Perenco’s CSR reporting.

My money is on Perenco’s recent creation of a $2.8 billion reserve-based lending facility. This was set up to enable Perenco’s growth strategy, including completion of the above noted oil pipeline in Peru’s rainforests. According to an article in Legal Week,  law firms Herbert Smith and Allen & Overy have been advising on the creation of this lending facility, which is the largest ever of its kind. It is designed to enable the company to grow its business with new acquisitions and develop its current assets.

The Legel Week articles lists some of the banks involved in this lending facility. They include Societe Generale, Bank of Scotland, and a number of so called Equator Principles Financial Institutions:  Bank of Tokyo-Mitsubishi UFJ , BNP Paribas , Credit Agricole Corporate & Investment Bank, Citibank, ING, Natixis, RBS, and Standard Chartered.

Many of these banks have adopted the Equator Principles, which means that they have adopted a set of voluntary standards for determining, assessing and managing social and environmental risk in project financing and are based on the IFC Performance Standards.

It would be interesting to hear how far these Equator Banks applied their environmental and social due diligence (including some of the banks’ own sector/topic policies) to look at Perenco’s projects which will be financed from the proceeds of the reserve-based lending facility.

I also wonder if the involvement of Equator Banks along with a likely and probably sustained barrage of advocacy NGO complaints (targeted at the banks) ‘pump primed’ Perenco’s CSR reporting journey. A look at Talisman Energy http://www.talisman-energy.com/, a Canadian independent oil company with operations in Peru which had its CSR reporting ‘wake up call’ in Sudan many years ago, may show some of the steps ahead. An example of their recent activities is research comissioned by Talisman is “Implementing a Corporate Free, Prior, and Informed Consent Policy: Benefits and Challenges report,” which can be accessed here. Today, Talisman is generally viewed as fully engaged with a variety stakeholders and has been producing excellent CSR reports (using GRI framework at A+level) for many years (along with underlying good performance).

What do you think were the main drivers of Parenco’s first CSR report?

Mehrdad Nazari (MBA, MSc, LEAD Fellow) is a Senior ESIA, CSR & Sustainability Reporting Advisor at PRIZMA  www.prizmasolutions.comand blogger http://www.prizmablog.com

A few days ago, I was listening to a session of NPR’s All Things Considered about the devastation of the Ixtoc One oil spill disaster and felt an unpleasant sense of déjà vu.

The NPR interview detailed the impact of the drilling platform explosion in the Gulf of Mexico some 30 years ago. The platform was located in the Bay of Campeche in the southern portion of the Gulf of Mexico, about 50 miles from shore. The wellhead began spewing thousands of barrels of crude each day into the sea. It took 10 months to cap the well, and the oil tainted more than 150 miles of Texas coastline.

In 2003, I wrote an article entitled “The transboundary EIA convention in the context of private sector operations co-financed by an International Financial Institution,” which was published in the Environmental Impact Assessment Review. The paper was based on two case studies involving offshore oil field developments in Azerbaijan and Turkmenistan, both littoral states of the Caspian Sea. The projects’ Environmental Impact Assessments (EIAs) indicated that major and unmitigated oil spills could potentially result in trans-boundary impacts.

At the time of project/financing review, neither Azerbaijan nor Turkmenistan were Parties to the 1991 Convention on EIA in a Transboundary Context, better known as the Espoo Convention.This UN Convention lays out the obligation of states to consult each other on all major projects under consideration that are likely to have significant environmental impact across boundaries. So, somewhat unconventional approaches were taken to follow ‘the spirit’ of the Espoo Convention and bring about information sharing and collaboration between littoral states of the Caspian Sea to also deal with potential for large scale oil spills. Both countries have since also become parties to the Espoo Convention and have been in regional environmental programs, including those related to oil spill response planning.

So how does this all relate to the Transocean’s Deepwater Horizon disaster – now more popularly known as the BP spill? The size and duration of the oil spill, the apparent presence of surface and deep, underwater oil plumes, and presence of strong water currents means that the conditions for creating trans-boundary impacts are all in place (Mexico, Cuba and Caribbean nations). Also, the US never fully adopted the Espoo Convention.

Dr. William Kennedy, Former Executive Director of the North American Commission for Environmental Cooperation (CEC), described in a recent paper prepared for the Environmental Norms, Institutions and Policy Workshop at Stanford University, that the North American governments pursued an Espoo-like agreement through the CEC. Among the areas specifically identified by the North American Agreement on Environmental Cooperation (NAAEC), were firm commitment to “consider and develop” recommendations with respect to an agreement on trans-boundary environmental impact assessment. In 1997, a “Draft North American Agreement on Trans-boundary Environmental Impact Assessment” was published. However, the negotiations fell apart in 1999.

I wonder if the scale, impact and outrage associated with the on-going spill will revive some of the stalled efforts to bring about better trans-boundary EIAs. This could contribute to better , notification, public consultation and collaboration and probably improve response to large scale emergencies with potential for trans-boundary impacts.

Similarly, I wonder if the International Petroleum Industry Environmental Conservation Association (IPIECA) and similar local, national and regional “oil clubs” may need to step it up a notch. They may need to consider pooling significant additional resources to seriously update and scale up technologies and equipment to deal with the sorts disastrous events we are witnessing in the Golf of Mexico today.

When IFC launched its new Sustainability Framework in April 2006, it defined expectations of IFC’s clients – and clients of Equator Principles Financial Institutions – towards a more outcome oriented approach and more effective community engagement.

The CAO’s review focused on IFC’s implementation in areas relating to community-company relationships and community impacts. As part of its study, CAO reviewed 30 IFC projects, commissioned field work and stakeholder perception surveys for five projects, and conducted outreach to obtained feedback from civil society.

The CAO’s findings acknowledge general improvement of community engagement but identified also variability and gaps and around impact mitigation activities and Action Plans, as well as in reporting on development impact. The CAO report is critical of IFC’s implementation of its Broad Community Support commitment (seel also an earlier blog) and describes IFC’s approach as highly restrictive and not transparent. Also, the Note highlights that IFC’s Advisory Services are not readily available to support lower capacity companies who need extra support to upgrade their management systems.

 In terms of IFC’s Financial Intermediaries, the CAO Note identifies improvements but laments substantial gaps between theoretical environmental and social requirements and their practical application. The CAO Note also suggests that IFC’s environmental and social due diligence is affected by inconsistent support by investment staff in different investment department.

Paging through the CAO’s Advisory Note, I wondered how supported the few environmental and social specialists feel at many of the Equator Principles Financial Institutions and the Export Credit Agencies. Most of them will not have access to the depth of experience and expertise, nor the policy framework and associated mandate available within a multilateral financial institution like the IFC…

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).

CFB website contains a lists or proposed and/or closed deals since October 2009. The mining list contains over 250 entries. The 35 entries which exceed $10 million are listed further below (sorted by deal size and company name). An interesting question to pursue further would be if all the projects underlying these finance deals are aligned with Equator Principles and the IFC Performance Standards. Perhaps an opportunity for value-added research and advocacy efforts…

The original list, which includes addition information such as regions, mining can be accessed for mining here and its equivalent for oil and gas is posted here. Are these sources of information being used? Are you aware of similar other sources of information which could be used?

Proposed and/or closed deals > ca $10 million, sorted by deal size

Proposed and/or closed deals > ca $10 million, sorted by company name