High environmental and social standards add value to projects and to local communities, as well as enhance business opportunities
Managing environmental and social (E&S) risks is an integral part of Norfund’s investment process.
During appraisal, Norfund assesses E&S risks related to the investment. Effective E&S due diligence reduces risks to:
- the environment
- local communities
- other stakeholders
Norfund also evaluates the capability to manage E&S risks of those involved in the project. This includes the project partner, the project company and when we invest through funds, the fund manager.
IFC Performance Standards
The environmental and social standards of the World Bank’s International Finance corporation (IFC) provide a basis for all assessments Norfund makes before and during the investment process. The IFC Performance Standards are globally recognised benchmarks for environmental and social risk management in the private sector. The standards are used by development finance institutions, commercial banks and other similar institutions. They cover the following aspects:
Assessment and Management of E&S Risks
Environmental and social responsibility is critically important in today’s global economy. An environmental and social management system (ESMS) helps companies integrate plans and standards into their core operations—so they can anticipate environmental and social risks posed by their business activities and avoid, minimize, and compensate for such impacts as necessary. A good management system provides for consultation with stakeholders and a means for complaints from workers and local communities to be addressed.
Labor and Working Conditions
For any business, its workforce is its most valuable asset. A sound worker-management relationship is key to the success of any enterprise. Performance standard 2 asks that companies treat their workers fairly, provide safe and healthy working conditions, avoid the use of child or forced labor, and identify risks in their primary supply chain.
Resource Efficiency and Pollution Prevention
Industrial activity and urbanization can increase levels of pollution that may threaten people’s health and the environment. PS3 guides companies to integrate practices and technologies that promote energy efficiency, use resources—including energy and water—sustainable, and reduce greenhouse gas emissions.
Community Health, Safety and Security
Business activities and infrastructure projects may expose local communities to increased risks and adverse impacts related to worksite accidents, hazardous materials, spread of diseases, or interactions with private security personnel. PS4 helps companies adopt responsible practices to reduce such risks including through emergency preparedness and response, security force management, and design safety measures.
Land Acquisition and Involuntary Resettlement
When companies seek to acquire land for their business activities, it can lead to relocation and loss of shelter or livelihoods for communities or individual households. Involuntary resettlement occurs when affected people do not have the right to refuse land acquisition and are displaced, which may result in long-term hardship and impoverishment as well as social stress. PS5 advises companies to avoid involuntary resettlement wherever possible and to minimize its impact on those displaced through mitigation measures such as fair compensation and improvements to and living conditions. Active community engagement throughout the process is essential.
Biodiversity Conservation & Resource Mgmt
Biodiversity loss can result in critical reductions in the resources provided by the earth’s ecosystems, which contribute to economic prosperity and human development. This is especially relevant in developing countries where natural resource-based livelihoods are often prevalent. PS6 recognizes that protecting and conserving biodiversity, maintaining ecosystem services, and managing living natural resources adequately are fundamental to sustainable development.
Indigenous Peoples Rights
Indigenous peoples (IPs) may be particularly vulnerable to the adverse impacts associated with project development, including risk of impoverishment and loss of identity, culture, and natural resource-based livelihoods. PS7 seeks to ensure that business activities minimize negative impacts, foster respect for human rights, dignity and culture of indigenous populations, and promote development benefits in culturally appropriate ways. Informed consultation and participation with IPs throughout the project process is a core requirement and may include Free, Prior and Informed Consent under certain circumstances.
Cultural heritage encompasses properties and sites of archaeological, historical, cultural, artistic, and religious significance. It also refers to unique environmental features and cultural knowledge, as well as intangible forms of culture embodying traditional lifestyles that should be preserved for current and future generations. PS8 aims to guide companies in protecting cultural heritage from adverse impacts of project activities and supporting its preservation. It also promotes the equitable sharing of benefits from the use of cultural heritage.
Requiring Effective E&S Plans
Although Norfund does not expect the investment companies to be compliant to international standards at the time of investment, we require a plan and a genuine interest to become compliant to the IFC Performance Standards over time. The initial E&S risk categorization determines the depth of our environmental & social due diligence.
Each investment agreement is tailored, e.g. we include the applicable performance requirements, the relevant reporting and, when needed, an action plan to ensure that best practices and responsible operations are reached over time. Norfund’s requirements are made legally binding to ensure that the company complies with expected standards and practices.
In addition to reducing risks, the E&S plans often contribute to improved impact and business benefits. Examples are reduced staff turnover, cost efficiency in production, improved stakeholder relations and increased access to markets.