PERFORMANCE STANDARDS APPROACHwww.ifc.org/mekonghydro

9 November 2015

We aim to increase the share of new private sector investments in the hydropower sector that adhere to

good international industry practice on environmental and social standards by 2020

Since 2012, IFC’s Hydro E&S Advisory Program has been working in the Mekong Region

Supported by Australian and

Japan Governments

www.ifc.org/mekonghydro

Our Services

Improve Policies and Regulations

Build capacity on cumulative

impacts from

hydropower cascades

Engage and advise

hydropower companies

www.ifc.org/mekonghydro

Support financial

institutions adopt E&S standards

SUSTAINABILITY:ONE OF IFC’S STRATEGIC PRIORITIES

1. Strengthening the focus on frontier markets – IDA countries, fragile and conflict-affected situations, and frontier regions of middle-income countries

2. Addressing climate change and ensuring Environmental and Social sustainability and good corporate governance

3. Addressing constraints to private sector growth in infrastructure, health, education, and the food supply chain

4. Developing local financial markets

5. Building long-term client relationships in emerging markets

IFC’s Private Sector Clients

• 88% of clients believe the IFC standards in E&S risk management are helpful

• Return on equity (ROE) and return on assets (ROA) improve with better environmental performance

• Clients value our expertise in E&S Risk Management over competitors

Our Development Mandate

• Successful companies are important for long term growth, jobs, development—impacting the poor

• Good risk management has a positive impact on the environment, society, and business

• There is a positive correlation between good E&S risk management and our financial performance

WHY ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT IS IMPORTANT TO IFC?

The integration of sustainability into management systems and practices

brings tangible benefits, including new lines of business, new clients,

greater access to financing, greater shareholder value, and improved

reputation and goodwill.

• 75% of the commercial banks reported a reduction in risk as a result of

considering environmental and social issues.

• Another 48% noted improved access to international capital

• 39% percent benefited from improved brand value and reputation

• 35% developed new business

• 26% benefited from improved community relations.

IFC’s 2007 report Banking on Sustainability

THE BOTTOM LINE

IFC’S SUSTAINABILITY FRAMEWORK

IFC

Investment CLIENT

Responsibilities Implementation Tools

Sustainability Policy

Access to Information

Policy

8 Performance Standards on Environmental and Social

Sustainability

Guidance NotesEnvironmental, Health &

Safety Guidelines

Good Practice Materials

Environmental and Social Review Procedure

DISCUSSES AND DEFINES:

• Roles, responsibilities of IFC & clients

• Categorization

• Broad Community Support

• Role of the CAO

SUSTAINABILITY POLICY

A BALANCED APPROACHPERFECTION

MINIMALISM

PRINCIPLESPRESCRIPTIONS

RealismClarity

Flexibility

• A principles-based approach, not a licensing approach Less front loaded and prescriptive than legal

tradition in many countries Agreement on core principles: client commitment

and capacity Environmental and Social Action Plans to fill gaps Engagement and implementation support

throughout project cycle

• Progressive realization of Performance Standards objectives

PRINCIPLES AND PERFORMANCE

• CLIMATE CHANGE

• ECOSYSTEM SERVICES

• HUMAN RIGHTS

• GENDER

• WATER

CROSS CUTTING ISSUES

REAL SECTOR

EXAMPLES FIS EXAMPLES

A: -Potential, significant adverse risks and impacts

• Large hydro projects w potential cumulative impacts

• Large Agri projects

FI-1: High risk

• Universal banks with significant exposure to project finance and long-term corporate loans

• Private equity funds w high risk portfolios, i.e., infra

B: Potential limited adverse risks and impacts

• Agri projects, small hydros, hotels, hospitals

FI-2: Medium risk

• Private equity and investment funds where the fund invests in low- and medium-risk sub-projects

C: Minimal or no adverse impacts

• Telecom, IT companies

FI-3: Low risk

• Microfinance; Retail, consumer finance; Student loans

IFC’S CATEGORIZATION OF E&S RISK

• Performed by IFC, when clients engage in Informed Consultation Participation

• BCS is a collection of expressions in support of the activity

• Is not a veto right

• BCS may wax and wane during life of activity

BROAD COMMUNITY SUPPORT

• Independent grievance mechanism for project affected people including a dispute resolution mechanism

• Project-level audits of IFC environmental and social performance

COMPLIANCE ADVISOR/OMBUDSMAN

ACCESS TO INFORMATION POLICY

IFC DISCLOSURE PORTAL

www.ifc.org/disclosure

IFC PS STANDARD SETTER

CG Development Framework – 31 Institutions• Based on IFC's system of evaluating

corporate governance risks and opportunities

• CGFIs have combined assets of $852 billion

Equator Principles– 78 Institutions• Based on IFC’s Performance

Standards• EPFIs cover > 70 percent of

international Project Finance debt in emerging markets

PERFORMANCE STANDARDS OVERVIEW

PS1: Assessment and Management of E&S

Risks and Impacts

PS2: Labor and Working Conditions

PS3: Resource Efficiency and

Pollution Prevention

PS4: Community Health, Safety and Security

PS5: Land Acquisition and Involuntary Resettlement

PS6: Biodiversity Conservation and

Sustainable Management

of Living Natural Resources

PS7: Indigenous Peoples

PS8: Cultural Heritage

THE PERFORMANCE STANDARDS

PS2

PS3

PS4

PS6

PS5

PS7

PS8

PS

1

Labour and Working Conditions

Resource Efficiency and Pollution prevention

Community, Health, Safety and Security

Land Acquisition and Involuntary Resettlement

Biodiversity Conservation and Sustainable Management of Living Natural Resources

Indigenous Peoples

Cultural Heritage

ARE ALL 8 STANDARDS TRIGGERED IN EVERY INVESTMENT PROJECT?

Do clients need to achieve 100% compliance with triggered Performance Standards before we do business with them?

PS1-100%

PS2-100%

PS3-95%

PS6-27%

PS4-87%PS7-5%

PS5-44%

PS8-16%

21

PS1:

ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS

WHY PS 1?

Applies to 100% of our investment

projects

A documented, systematic approach to identifying and managing environmental and social risks … … and for maximizing value addition

The “umbrella” PS

THE “MUST HAVES” OF PS1

A MANAGEMENT SYSTEMPolicy

Identification of risks &impacts

Management programs

Organizational capacity &competency

Emergency preparedness and response

Stakeholder engagement,

transparency, and grievance redress

Monitoring and review

Analysis:Identification of

issues

Stakeholderengagement

Managementsystem:

Integration into decision-making

CREATION OF HYDROPOWER DEVELOPERS’ WORKING GROUP

(HDWG)

Established by IFC and the Lao National Chamber of Commerce and Industry in December 2013

A platform to for the private sector to have a collective voice on policies that impact the sustainable development of hydropower in Lao PDR; to help companies channel their concerns to the government, tackle business challenges, and gain exposure to good international industry practices and network with other companies operating in the country.

100 members

Representing 10+ different countries

Providing hydropower companies the tools, skills and expertise to develop and implement E&S management systems for their operations.

BUSINESS MEETINGS AND SEMINARS

Business Meetings Seminars

December 2013 Launch/MOU signing

HDWG 1: Feb 2014 E&S Risk Management and Business Case for Sustainability, IFC

HDWG 2: May 2014 Hydropower Fiscal Policy Options, Ministry of Finance

HDWG 3: Sept 2014 Standard Environmental and Social Obligations in the CA

HDWG 4: Dec 2014 Dialogue with commercial banks operating in Lao PDR

HDWG 5: Feb 2015 ICEM: Catchments and Reservoir ManagementSYKE: Integrated modelling

HDWG 6: Sept 2015 Consultant presentations: DFDL, Hatfield, ESL/Accent, CNR, FishBio, GIZ/NUOL

HDWG 7: Dec 2015 Oxfam: Gender Impact Assessment Tool

THE ISSUES

1) Standard Environmental and Social Obligations, Annex to Concession Agreement

2) Small Hydro Decree

• Sub-committees formed

• High-level meetings with Vice Ministers

• Inter-ministerial meetings with line agencies

• Presentation at Lao Business Forum

• Consultation workshops, inputs into drafts

• Representation at workshops/forums/conferences

WHAT THE MEMBERS SAY

“In our region, access to information is limited: Networks are life-support”

“The working group gives us a chance every few months to catch up on what others are doing. It’s a valuable social enterprise.”

“This is a working group that offers something new and addresses its members’ interests,”

“We present to the government what we feel is feasible and what areas of the policy need improvement,”

“We hope our input will encourage dialogue between developers and the government, leading to improved policy.”

 Next Steps: Moving to develop an association

For more information:

www.ifc.org/mekonghydro