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Managing Environmental & Social Risk

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.

 

 

Learn More

    • 2007
    • International Finance Corporation (IFC)

    Good Practice Handbook: Stakeholder Engagement for Companies Doing Business in Emerging Markets

    This handbook aims to provide the reader with the good practice “essentials” for managing stakeholder relationships in a dynamic context, where unexpected events can and do occur, and facts on the ground change.

    • 2008
    • Compliance Advisor Ombudsman (CAO), International Finance Corporation (IFC)

    Advisory Note: Guide to Designing and Implementing Grievance Mechanisms for Development Projects

    Local people need a trusted way to voice and resolve concerns linked to a development project, and companies need an effective way to address community concerns. A locally based grievance resolution mechanism provides a promising avenue by offering a reliable structure and set of approaches where local people and the company can find effective solutions together. This Advisory Note offers practical guidance to assist in the design and implementation of effective project-level grievance mechanisms.

    • International Finance Corporation (IFC)

    IFC Environmental and Social Performance Standards

    IFC's Environmental and Social Performance Standards define IFC clients' responsibilities for managing their environmental and social risks. The 2012 edition of IFC's Sustainability Framework, which includes the Performance Standards, applies to all investment and advisory clients whose projects go through IFC's initial credit review process after January 1, 2012. Earlier versions of IFC's environmental and social policies, procedures, and standards are provided as reference material only. Note that in case of discrepancies between the original English text and the translated documents, the English text will prevail.

    • Equator Principles

    Equator Principles Website

    The Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. Currently 80 Equator Principles Financial Institutions (EPFIs) in 35 countries have officially adopted the EPs, covering over 70 percent of international Project Finance debt in emerging markets.

For legal and regulatory resources go to PPPIRC

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