EBRD requires proper environmental impact assessment for projects it finances

The European Bank for Reconstruction and Development (EBRD) applies tight environmental and social standards to projects it finances and encourages partners to do the same. However, its leverage is limited to the projects it finances. Dariusz Prasek, Director of Operations, Environment and Sustainability Department, EBRD discusses these and other issues pertaining to the EBRD’s new Environmental and Social Policy in an interview with Balkan Green Energy News.

Prasek, who has been with the EBRD for 27 years, also says that over the years, interaction with civil society groups on environmental issues has had clear benefits and that listening to civil society groups is an important aspect of appraising projects.

Following extensive public consultations, the EBRD has adopted its new Environmental and Social Policy, to apply from 2020. What do you think are the changes that will have the biggest impact on the way the EBRD is doing business with various partners?

The new policy, to apply as of January 2020, is not a revolution. It’s evolution from our previous policies, particularly the 2014 policy, reflecting the good international practice, developments environmental and social areas over the past five years, matching what other international financial institutions (IFIs) are doing, and matching the development at the international fora.

The process of adopting changes to the policies took more than a year. We had to walk the tight rope between maintaining our ability to deliver projects and addressing the desires of our shareholders and demands of civil society. But we think that we managed to strike a good balance.

But what are the key changes?

First of all, we have further improved the clarity of the Bank’s commitments and requirements in order to improve the understanding of what is the Bank’s responsibility and what is the Client’s responsibility. We have also aligned better with other IFIs. In particular, we took the most recent environmental and social framework by the World Bank, but we went further. We have also clarified in the policy the commitment to respecting human rights on projects that we finance. We are also the first IFI to reflect gender-based violence firmly in our policy and have strengthened requirements to avoid and to mitigate gender impacts. Furthermore, we have clarified impacts to vulnerable people likely to be affected disproportionately by projects.

We have also mainstreamed and strengthened requirements of mitigating the risks of climate change. The EBRD has the Green Economy Transition (GET) concept and tries to be proactive in its projects, targeting 40% of finance into green projects, but in light of the Paris Agreement, we are trying to go much faster and much further.

The Bank has mainstreamed and strengthened requirements of mitigating the risks of climate change

Going more to practice, we clarified criteria for categorizing projects and to respond to comments from civil society from our public consultations, we make much firmer the issue of considering cumulative environmental impacts in categorizing projects. We have clarified what are projects for us and what are associated facilities. At the same time, however, we have a growing number of capital market transactions, which are subject to capital market rules, which means we have to rely in our due diligence on publicly available information and have constraints meeting our policy requirements.

We are also the first IFI to introduce antimicrobial resistance requirement due to the concern that in agribusiness projects there is a growing use of antibiotics and the population is growing more resistant to antibiotic treatment. Finally, we have strengthened the approach and requirements related to our supply chains.

Environmental groups have welcomed the tightening of environmental and disclosure standards for all hydropower projects. What would you say this will entail for the EBRD’s financial intermediaries?

Probably the most substantial changes we introduced to our financially intermediated (FI) operations is that we re-introduced the requirement to FIs to refer to EBRD any activities associated with high environmental and social risks, including all hydropower projects regardless of their size, that they consider financing. I want to make a caveat here when we are talking about FI operations, we are talking about operations where FIs use EBRD funds.

We re-introduced the requirement to FIs to refer to EBRD any activities associated with high environmental and social risks, including all hydropower projects regardless of their size

For these projects our intermediaries need to prepare a set of documentation, properly appraise the project and send it to us for our review to proceed with the project. This serves as an incentive for our FIs to do a proper job. If they know that someone else will be looking at the appraisal, then we normally find this is an additional incentive to do it properly.

We have also asked FIs to disclose all projects they refer to us, subject to regulatory constraints and market sensitivity and consent of the sponsor of the project. This is again something that civil society pressed strongly, for more transparency by financial intermediaries. Referral List has a dual function: one is referring to us and the other one is ensuring that they are properly disclosed to the public.

Can you elaborate on why hydropower deserves to be under close scrutiny? How extensive is its environmental impact?

Hydro is not unique in this sense, because there are other projects that are considered high-risk projects and we said that they need to be referred to us as well.

We believe firmly that hydro projects have an important role in the blend of renewable energy projects and addressing climate change issues. But these projects are by definition located in beautiful areas – in areas with rivers and biodiversity – and obviously, their most important impact is on biodiversity.

These projects are by definition located in beautiful areas – in areas with rivers and biodiversity

We firmly believe that these projects should be developed, but they should be developed properly, with proper attention to site selection, addressing biodiversity issues, social issues, appropriate consultations with various stakeholders.

We are also working on various Guidance Notes. For larger hydropower projects we issued them several years ago. At the Balkan summit in Belgrade in March, we launched Good Practice Note for small hydropower projects. We know that many other IFIs are working on those and we are working with them to harmonize our approaches.

You said the EBRD requires proper consultations concerning hydropower projects. How would you describe a good public consultation process?

That’s a good question. Public consultations have to be meaningful. It doesn’t mean that we need to agree with all the comments about projects, but there has to be fair and open information about the aspects of the projects that affect people in the project area, which is important for interested stakeholders campaigning for certain type of issues.

There has to be fair and open information about the aspects of the projects that affect people in the project area

So, there has to be sufficient information, about how the project is going to be developed, how the project is going to mitigate the impacts or avoid impacts and how actually to consult. The information also needs to be disclosed timely to allow for adequate time for stakeholders to review and comment on it. Public consultations have to be culturally appropriate. In some places, it’s good to have public meetings, in some places people are not that eager to express themselves at public meetings, so there have to be other means, like focus groups, open houses, or individual consultations…

What is important is for the public consultation to be open, transparent, timely, based on sufficient information, and willingness of project developers to provide the clarifications and address concerns – not necessarily always agree to implement all the suggestions, but explain how the concerns will be addressed.

Environmental activists often find it easier to talk to international finance institutions (IFIs) such as the EBRD than to their own governments. And the EBRD listens. Why is it important to listen to them? Perhaps they know something that the government or the lender doesn’t know?

Yes, you actually partly answered the question. We always listen. We have these policies and we want to implement them in practice. This is probably why some civil society groups find it easier to talk to us, because they know that when they approach us, it will be properly registered, acknowledged and dealt with, which may not always be the case with the local, regional or even national authorities.

It is a paradox, because these national governments are our shareholders, so they all approved these measures, but sometimes they don’t fully implement them. Obviously, we can do something if we are involved. If we are not involved, sometimes the policy dialogue is limited as we are very much a project-driven organization. But we believe listening to civil society groups is a very important aspect of appraising projects. As you already mentioned, civil society groups may know more sometimes or something that we may not be fully aware of, and this is normally taken into account.

We believe listening to civil society groups is a very important aspect of appraising projects

Part of EBRD mandate is to promote the principles of multiparty democracy, pluralism and market economics, of which civil society is a crucial part. I’ve been with the EBRD for 27 years and I can vouch that over the years, interaction with civil society groups has had clear benefits. If we carried out a cost-benefit analysis of involvement with the civil society sector, I would say that it resulted in numerous benefits.

Are there certain limitations as to what the EBRD can do in terms of environmental concerns, given its wide range of shareholders, which don’t only come from the EU?

Our policy says that irrespective of locations, we have to structure our projects in a way that they meet European Union standards. This sometimes creates challenges – we have projects in countries like Mongolia, Egypt, Tunisia, Turkey… some of them are talking to the EU and have agreed to transpose EU environmental acquis in their national laws, some of them don’t and never contemplate adopting EU environmental standards.

Irrespective of locations, we have to structure our projects in a way that they meet EU standards

We have clear policies, which require that these standards are applied on the projects that we finance. It’s challenging sometimes because national legislation is not always fully convergent. Particularly regarding social standards, we sometimes have problems. But we have to implement our policies everywhere when we finance our projects. If it is our project, we will try to push it on associated facilities as well, but when we are not involved in a project, we cannot impose these standards, we cannot ask Clients to do something which goes beyond our projects.

This is what we face sometimes in the Balkans – the expectation that, for example, if the EBRD is involved in a project with a city that the city will do everything according to the EBRD standards. The city has their own policy, their own requirements and we have limited influence beyond the projects that we finance.

Could you provide an example of that? Could Belgrade be one of such cities?

Yes, Belgrade is a wonderful example. The whole issue of, for example, bicycle lanes in a boulevard. We are engaged with the city, but we cannot force the city to do something which they haven’t planned, and which wasn’t approved. So, we respect the opinion of some citizens who are concerned about this or wanted this to be different, and encourage them to engage in the city planning processes going forward, such as the Green City Action Plan process, but our leverage is limited to the projects that we finance.