Presentation on theme: "Climate Change Mitigation - The role of Financial Institutions"— Presentation transcript:
1 Climate Change Mitigation - The role of Financial Institutions Roy Ovbiagele,Principal Corporate and Institutional Clients
2 Climate ChangeClimate change is a change in the statistical distribution of weather patterns over an extended period of time. The negative impacts of global warming caused by climate change on agriculture, health and the environment are significant.What are the benefits of mitigating climate change compared to the cost of implementing the strategies to check climate change? i.e. What is the Value proposition of implementing policies to check climate change?Sustainability: Although Sustainability is a much broader concept that includes the environment. Environmental sustainability is becoming a key topic of consideration for many.The ability to sustain; the ability or capacity to endure. The capacity to endure while meeting the basic quality of life expectations for all humans. The concerns here are that existing activities of man if left unchecked will not allow for the earth to continue to sustain man in the future.
3 The Role of financial Institutions in climate change The mandate to transform businesses to respect environmental limits while fulfilling social wants and needs has become an unparalleled platform for innovation on strategy, design, manufacturing and brand, offering massive opportunities to compete and to adapt to a rapidly evolving world. The financial institutions are playing an increasingly active role in this fight.Broad strategies, tactics and programs include awareness, education, encouragement, milestones, monitoring, industry and regulatory policies, engagement with policy makers, supporting renewable energy projects and application of the Equator principles.Equator Principles: is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.The Equator Principles are a global benchmark for managing Environmental &Social (E&S) risks in projects.The Equator Principles seek to ensure good environmental and social risk management in projects, where the Bank has influence over this through the provision of financial products and services.
4 The 10 Equator Principles Review and CategorisationEnvironmental and Social AssessmentApplicable Environmental and Social StandardsE&S Management System and EP Action PlanStakeholder EngagementGrievance MechanismIndependent ReviewCovenantsIndependent Monitoring and ReportingReporting and Transparency
5 P1: Review and Categorisation Categorise the project as A, B or C based on E&S risks and impacts.Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented.Category B – Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site specific, largely reversible and readily addressed through mitigation measures.Category C – Projects with minimal or no adverse environmental and social risks and/or impacts.
6 P2: Environmental and Social Assessment Category A and BRequire an assessment of the E&S risks and impacts, which includes an E&S Impact Assessment (ESIA). An ESIA is a comprehensive document of E&S risks and impacts related to a project.Specialist studies may be required, e.g. biodiversity impact study.Assessment documents should propose measures to minimise, mitigate, and offset adverse impacts in a manner relevant and appropriate to the nature and scale of the proposed Project.All projectsIf combined Scope 1** and Scope 2*** GHG emissions will ≥ 100,000 tonnes CO2 equivalent annually, conduct an alternatives analysis.In some high risk circumstances, specific human rights due diligence may be appropriate.**Scope 1 – direct emissions from the facilities owned or controlled within the physical Project boundary.**Scope 2 – indirect emissions associated with off-site production of energy used by the Project.
7 P3: Applicable Environmental and Social Standards Project assessment processes must comply with the following:For Designated Countries*:Evaluate compliance with host country laws, regulations.Host country legal framework meets the requirements of Principles 2 – 6 on E&S assessments, management systems, stakeholder engagement and grievance mechanisms.For Non-Designated Countries:Evaluate compliance with relevant host country laws, regulations and permits pertaining to E&S issues.In addition, evaluate compliance with IFC Performance Standards and World Bank Environment, Health and Safety Guidelines.The EPFI may, at their sole discretion, apply additional requirements.*A list of Designated Countries is provided on the Equator Principles website.
8 P4: E&S Management System and EP Action Plan Category A and BRequire an Environmental and Social Management System (ESMS)* and Environmental and Social Management Plan (ESMP)**Where applicable standards are not met to the EPFI’s satisfaction, agree an Equator Principles Action Plan with the client. The EP Action Plan outlines commitments to meet EPFI’s requirements in line with the applicable standards.*ESMS – An overarching environmental, social, health and safety management system designed to identify, assess and manage these risks on an ongoing basis. It is developed and prepared by the client and applicable at corporate or Project level.**ESMP – Prepared by the client to address E&S risks and impacts raised in the assessment process. It identifies actions to avoid, minimise, mitigate or offset impacts in line with the applicable standards.
9 P5: Stakeholder Engagement Category A and BRequire an effective stakeholder engagement process with Affected Communities and other relevant stakeholders.Process should be commensurate with the risks and impacts of the project.An Informed Consultation and Participation process is required. This should be culturally appropriate, tailored to the risks and impacts of the project and phase of development, use language preferences of the Affected Communities, their decision-making processes and consider needs of disadvantaged and vulnerable groups.The client should take account of and document the results of the Stakeholder Engagement process, including any actions agreed.Disclosure should occur early, prior to construction and on an ongoing basis.Specific adverse impacts on Indigenous Peoples will require their Free, Prior, Informed Consent (FPIC):Impacts on lands and natural resources subject to traditional ownership or under customary useRelocation of Indigenous Peoples from lands and natural resources subject to traditional ownership or under customary useImpacts on critical cultural heritage
10 P6: Grievance Mechanism Category A and, as appropriate BEPFI require clients to establish a grievance mechanism as part of the ESMS.The grievance mechanism is designed to receive and facilitate resolution of concerns and grievances about the Project’s E&S performance.The grievance mechanism should be scaled to the risks and impacts of the Project and have the Affected Communities as its primary user.The client should inform the Affected Communities about the mechanism in the course of the stakeholder engagement process.
11 P7: Independent ReviewProject Finance Category A and as appropriate, Category BCommission an independent review to assist the EPFI’s due diligence and assess EP III compliance.Project-related corporate loansCommission an independent review for projects with potential high risk impacts, including but not limited to: adverse impacts on indigenous peoples, critical habitat impacts, significant cultural impacts, large scale resettlement.For other projects, the EPFI may determine whether an independent review is appropriate. This may take into account any due diligence by other financial institutions or an OECD Export Credit Agency, if relevant.
12 P8: Covenants Incorporate covenants related to E&S compliance: Compliance with relevant E&S laws, regulations and permitsCompliance with the ESMPs and Equator Principles Action Plans as relevant (Category A and B projects only)Report periodically to the EPFI (Category A and B projects only)Decommission facilities with an agreed decommissioning planEP Association has provided guidance on the key components of loan agreements and commonly used E&S clauses on the EP website.
13 P9: Independent Monitoring and Reporting Project Finance Category A and as appropriate, Category BAppoint independent E&S consultant (or require client to do so) to verify monitoring information reported to the Bank.Project-related Corporate LoansRetain independent consultants only where an independent review was required under P7.
14 P10: Reporting and Transparency Public reporting requirements of clientsFor all Category A and, as appropriate, Category B Projects:Summary of the ESIA is accessible and available online.Report GHG emissions during the operational phase for Projects emitting over 100,000 tonnes of CO2 equivalent annually.Public reporting requirements of EPFIsReport on the implementation of EP annually.Report on transactions that have reached financial close. Details required vary by financial product.For Project Finance only, submit project name data to the EP Association Secretariat. This requires client consent and is subject to laws and regulations. This data is not publicly reported. No reporting requirements for bridge loans.