Managing environmental and social (E&S) risk and mitigating negative impacts is key to ensure and enhance the successful outcome of a public-private partnership (PPP) project.
Examples of environmental impacts related to PPPs include:
- Pollution emissions
- Destruction of habitat
- Introduction of invasive species
Examples of social impacts related to PPPs:
- Resettlement of individuals living in the project area
- Loss of livelihoods for project-affected individuals
- Limited or reduced access to previously available resources, including water
- Impacts on workers, including retrenchment, occupational health and safety issues, child labor, or discrimination
Integrating E&S issues to a PPP process is not only risk management best practice, but can also result in:
- enhanced development outcomes of the project, through increased benefit sharing, sustainable results, and long-term buy-in from stakeholders
- significantly increased project bankability (as well as being a standard requirement from both bilateral and multilateral donor institutions, as well as commercial banks that apply the Equator Principles)
- increased likelihood of attracting reputable bidders to the project by ensuring a level playing field
Poor E&S risk management can lead to project delays due to protests from affected communities and reputational damage to the client and the supporting institutions if public attention is raised against the project.
Management and mitigation
In PPPs, managing and mitigating the E&S risks can be done by the public entity or the new private investor, depending on the nature of the risks, the timing of the project's implementation and risk allocation model.
Often, PPP projects must be developed according to applicable environmental and social legislation for the country and region. However, in many instances, a country's legal and regulatory framework does not integrate or reflect good international industry practice (GIIP) for addressing and managing E&S risks.
GIIP standards represent a globally recognized benchmark for environmental and social risk management in the private sector and are often prerequisites for companies to raise funds, particularly from international markets and other financial institutions reference them in their policies—including 16 European Development Finance Institutions and 34 Export Credit Agencies from countries belonging to the OECD.
Departures from GIIP should be closed prior to and as part of project construction and operation.