ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT

OPERATIONS MANUAL

Papua New Guinea: Small and Medium Enterprise Access to Finance Project

World Bank Group Financed Risk Sharing Facility

7 October 2010

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TABLE OF CONTENTS

Chapter 1: Introduction

1.1 Purpose and Objectives of this Manual

1.2 Rationale for a Risk Sharing Facility

1.3 Role of Participating Financial Institutions

1.4 Context for Risk Management

1.5 Objectives of Environmental and Social Screening and Assessment

Chapter 2: Environmental and Social Screening of Transactions

2.1 Loan Application

2.2 Screening and Categorization

2.3 Principles and Methods of Screening

2.4 Reference to World Bank Group Policies and Guidelines in Screening

Chapter 3: Categorization

3.1 Category A Transactions

3.2 Category B Transactions

3.3 Category C Transactions

3.4 Excluded Transactions

Chapter 4: Environmental and Social Review and Assessment

4.1 Context for the Risk Sharing Facility

4.2 Category C Transactions

4.3 Category B Transactions

4.4 Category A Transactions

4.5 Investments Requiring Land Acquisition or Change in Land Use

Chapter 5: Monitoring and Supervision

5.1 Monitoring and Supervision of the Portfolio by the Financial Institution

5.2 Financial Intermediary Reporting to the IFC and IDA

5.3 Grievance Mechanisms

Annex A Social and Environmental Management System

Annex B Environmental, Health and Safety Guidelines—Agribusiness Sector

Annex C IFC Performance Standards and World Bank Safeguard Policies

Annex D Relevant Differences between IFC Performance Standards and World Bank

Safeguards

Annex E National Environmental and Social Legislation

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Chapter 1: Introduction

1.1 Purpose and Objectives of this Manual

The Government of Papua New Guinea (GoPNG) has requested the World Bank Group,

specifically the International Development Association (IDA) and the International Finance

Corporation (IFC), to support its efforts to remove the bottlenecks that constrain access to

finance by small- and medium scale enterprises (SMEs). By improving access to finance by

SMEs, the higher level objective is to foster SME growth and employment creation in Papua

New Guinea (PNG) through targeted intervention, which is a central objective in the GoPNG’s

Medium Term Development Strategy and Long Term Development Strategy. SME development

is notably important in view of low job market participation rate among women and youth

especially. These objectives are consistent with the World Bank’s 2007 Country Assistance

Strategy. They also are consistent with the IFC’s financial sector development strategy in PNG,

which focuses on improving the quality and availability of financial services to commercial and

retail customers by supporting the financial institutions that have the potential to provide such

services.

The joint IDA/IFC assistance will be carried out through the establishment of a Risk Sharing

Facility to encourage participating financial institutions (PFIs) to provide financing to SMEs, as

well as through technical assistance to PFIs, SMEs, and the GoPNG’s implementing agency.

IFC and IDA have previously partnered to develop a partial credit guarantee instrument, i.e., a

Risk Sharing Facility (RSF), in a few other countries. As discussed below, such an instrument,

managed by IFC, is an ideal solution to meet the objectives described above. The RSF is open to

all commercial banks and financial institutions that meet the eligibility criteria, provided that

they have interest in the facility’s objectives and agree to screening and assessing environmental

and social risks of transactions in accordance with this manual.

One of the prerequisites of the World Bank Group support for an RSF in PNG is that the PFIs

integrate into their lending operations the requirements of environmentally and socially sound

and sustainable development as identified in laws and regulations of PNG and the sustainability

policies and frameworks of the World Bank Group entities participating in the RSF.

Accordingly, the World Bank Group and the GoPNG have collaborated in producing this manual

for the staff of PFIs in the RSF to use as guidance in screening loan applications for

environmental and social risks and ensuring that appropriate risk management measures have

been identified for implementation by the loan applicant.

This manual, along with a Social and Environmental Management System (SEMS) that is

established by each PFI, also meets the requirement of the World Bank Group that a financial

intermediary has established an appropriate Environmental and Social Management Framework.

Participating financial institutions are required to establish or arrange for proper capacities to

duly implement their SEMS in a manner consistent with the guidance provided in this manual. If

a PFI does not have the capacity to implement such a Framework, the World Bank Group

members reserve the right of prior review and approval of all transactions that take place under

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the RSF until such capacity is developed or satisfactory arrangements made for external

expertise to assist the PFI in implementing the Framework.

It is anticipated that the majority of transactions covered by the RSF will be in the services or

light manufacturing sectors and will have environmental or social risks associated with them that

are readily identified and addressed. However, it is recognized that there may be some business

activities in which the environmental and social risks and impacts are significant and require

commensurate assessment and management, e.g., land acquisition, labor and working standards,

inappropriate disposal of wastes, or unhealthy or hazardous working conditions. Procedures and

guidance are presented in this manual for screening, assessing, and managing these risks for

transactions under the RSF.

1.2 Rationale for a Risk Sharing Facility

The objective of the RSF is to accelerate commercial banks’ lending to SMEs. The facility could

cover a variety of loan types, including working capital, trade financing, or term loans for

productive assets, and will be subject to eligibility criteria to be agreed on between the IFC, IDA,

and commercial banks or other financial institutions that may participate in the RSF. The target

portfolio does not include enterprises engaged directly in extractive industries1, but it may

include SMEs that seek to provide goods or services to such businesses.

1.3 Role of Participating Financial Institutions

In agreeing to participate in the RSF, each PFI accepts responsibility to the World Bank Group

for mandatory screening, assessment, and management of the environmental and social risks and

impacts of proposed transactions it takes under the RSF in a manner that is consistent with IFC

Performance Standards and the World Bank Safeguard Policies as well as the financial

institution’s corporate practices and policies for Corporate Responsibility. In order to effectively

use this manual as a guidance to staff for managing environmental and social risk, each financial

institution will develop an internal SEMS (Annex A). The SEMS describes key features such as:

social and environment policies and procedures; current organization structure and staffing for

managing environmental and social risk; skills and competencies in social and environmental

areas; training and awareness of the institution’s investment, legal, and credit officers on the

organization’s SEMS; reporting systems to managers; and performance monitoring procedures.

1.4 Context for Risk Management

This manual is a tool for staff2 of the PFI to accompany other guidance tools for risk

management that have been developed and implemented by the institution or its corporate parent.

Examples of other risk management tools routinely used by a PFI could include Corporate

Responsibility Policies or Guidelines, Credit Risk Principles and Policy, or Country Lending

Guidelines.

1 Mining, extracting oil or gas, or logging in natural forests.

2 Including any expert consultants that may be hired or retained by the financial institution to fully implement the

procedures outlined in this manual.

3

In addition to these internal documents, the following World Bank Group resources will be

applied in managing environmental and social risks of RSF transactions:

IFC Performance Standards on Social and Environmental Sustainability, as found on the

IFC website3;

World Bank Group Environmental, Health and Safety Guidelines, as found on the IFC

website4;

World Bank Safeguard Policies as found on the World Bank website5.

1.5 Objectives of Environmental and Social Screening and Assessment

The productivity of land and waters and the sustainability of ecosystems are, together with a

socially acceptable livelihood, a prerequisite for sound development of communities and nations.

Almost all countries have therefore introduced environmental assessment (EA) procedures as an

instrument for protecting its environment and peoples from the adverse impacts of economic

activities of different kinds. EA is a process where a proposed activity is assessed with regard to

its impacts on the human, physical, and biological environment, worker and community health

and safety, social and cultural heritage, as well as transboundary and global effects. The

objectives are: to identify positive and negative impacts of the activity, and make sure that its

negative consequences are prevented, minimized or mitigated; and consider factors in project

design that improve sustainability of the project. Inadequate attention to environmental and

social issues might lead to serious failures in economic performance. Environmental charges,

fines, clean-ups, mitigation and other damage compensation costs might cause serious financial

risks to otherwise successful businesses. These risks are associated not just with direct financial

losses and degradation of common resources, but also with serious damage to the image and

reputation of the involved parties, including the financial institutions providing loans.

Following are among the key steps in the environmental assessment process:

Screening: If this activity is likely to cause environmental or social impacts, what are the

likely consequences of these impacts?

Scoping: What are the main issues for assessment? What is the project’s geographic

area of influence? At what stage of activity are the impacts likely to occur? Are there

directly affected people or local communities that may be impacted by the project and

whose views and concerns therefore should be considered in project design and

implementation?

Assessment: Analyze the scope and nature of the impacts, the need for permits, public

perceptions of the impacts, measures to avoid or mitigate those impacts, and need for

monitoring how well the risks are being managed.

Consultation and disclosure: Share information on the project and its expected impacts

with directly affected people, local communities, or other stakeholders; and seek their

views and concerns about project design and implementation.

3 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B

4 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B

5 www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol; See also Annex C

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Depending on the nature of the transaction and the associated environmental and social risks, a

range of instruments can be used to assess the risks and impacts. For example, existing

operations with moderate risks or impacts (e.g., food processing facilities) may best be assessed

with an environmental audit of the operations and an Environmental Management Plan for

correcting any problems and for future treatment and disposal of wastes. In some circumstances,

an Environmental Management Plan may be no more complex than the performance

specifications of a wastewater treatment system. The choice of instrument used to assess risks

and impacts should be commensurate to the magnitude and significance of the likely risks.

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Chapter 2: Environmental and Social Screening of Transactions

2.1 Loan Application

The transaction must satisfy national, IFC, and World Bank environmental and social

requirements. The applicant for a loan will present to the financial institution a brief description

of the transaction and a brief description of what the applicant believes are likely to be

environmental or social risks and issues of concern with respect to the transaction. This

information will be used by the financial intermediary in the initial screening and categorization

process.

2.2 Screening and Categorization

The financial institution will categorize the proposed transaction (i.e., the activity which is the

subject of the loan application) in accordance with guidelines in this manual. The choice of

categorization will have the following implications:

Category A transaction: There are potential significant, controversial, or sensitive issues

associated with the transaction that go beyond compliance and require careful, expert

consideration of impacts, mitigation, and tradeoffs. Those transactions that will involve

large-scale acquisition of land or permanent loss of income or assets involving multiple

households, or directly impact indigenous peoples, will be included in this category. An

environmental and social impact assessment report will be required that focuses on the

key issues of concern. Category A transactions must comply with World Bank Safeguard

Policies and IFC Performance Standards. The financial institution will consult with

responsible national environmental authorities and IFC staff before processing the

transaction after initial screening.

For the target portfolio of the SME Access to Finance Project, Category A transactions

are not anticipated.

Category B transaction: The transaction may have some environmental or social risks,

but they are readily addressed through recognized good practices as described in IFC

Performance Standards and World Bank Group Environmental, Health and Safety

Guidelines (EHSGs). As it would also do for any Category A transaction, the financial

institution will verify that: (1) the supported activities comply with applicable national

environmental and social laws and regulations, and applicable World Bank Group

EHSGs; (2) appropriate environmental permits are obtained prior to lending; and (3)

investments do not contravene the Exclusion List presented in Section 3.4 of this manual.

Category B transactions are expected to be the bulk of SME activities in the light

manufacturing, agribusiness, or construction services sectors.

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Category C transaction: The transaction is likely to have minimal or no environmental or

social risks associated with it. No further environmental and social assessment work is

required after screening.

Category C transactions are expected to be the bulk of SME activities in the services

sector such as light equipment leasing activities, provision of temporary personnel or

office support such as data processing, or trade and export/import services.

2.3 Principles and Methods of Screening

Screening is the first step in the environmental assessment process, which will assign the

transaction in question to one of the three categories. This categorization will decide the nature

of further environmental assessment and identify transactions to be excluded at an early stage to

save costly and time-consuming procedures and analysis. The significance of impacts may be

described in different ways. The simplest approach is the presence or absence of impacts and

qualification of degree of impact as minimal, moderate, significant, or highly significant. In

assessing degree of impact or risk, it is appropriate to take into consideration type, scale,

location, timing, and sensitivity of the impact. A key factor to consider is whether the impact is

reversible, and if so, the rate of recovery.

2.4 Reference to World Bank Group Policies and Guidelines in Screening

Given the purpose and objectives of the RSF to serve SMEs in the services sector, and the types

of investments that are expected to be in the RSF portfolio, the first and primary point of

reference for screening with respect to World Bank Group Policies and Guidelines will be:

IFC Performance Standards; and

World Bank Group Environmental, Health and Safety Guidelines (EHSGs).

This is because the IFC Performance Standards and the EHSGs are particularly suited to private

sector transactions; moreover, the IFC Performance Standards and the EHSGs are at the core of

the Equator Principles, and many commercial banks are familiar with or have adopted the

Equator Principles.

Considerable effort has been given to achieve high degree of harmonization between the IFC

Performance Standards and World Bank Safeguard Policies. The majority of differences

between them arise from differences in processes and procedures between the two institutions

and their respective internal project cycles, but there are also a few differences that reflect that

IFC’s client is a private sector enterprise whereas the World Bank’s borrowers typically are

governments and governmental agencies either at the national or sub-sovereign level. As

indicated in the previous paragraph, these differences are unlikely to surface in the

implementation of the RSF, especially in the context of Category B and Category C transactions,

but emerging risks and issues regarding expansion of SME in the PNG economy do not entirely

eliminate the need to verify this during the screening process. For screening purposes, Annex D

provides an overview of the few instances of divergence that in rare cases may arise during

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implementation of the RSF. Those rare cases likely would arise in Category A transactions, or

transactions involving acquisition of land, resettlement of people, or that have a direct affect on

vulnerable ethnic groups as defined by IFC Performance Standard 7 (Annex C) and the

comparable World Bank Safeguard Policy on Indigenous Peoples.

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Chapter 3: Categorization

3.1 Category A Transactions

The transaction and its operative setting must be explained to be able to determine the

appropriate environmental category. The following characteristics of possible impacts of the

transaction typically trigger Category A designation .

The location of the project enterprise or activity may be:

Near sensitive and valuable ecosystems, protected areas and habitat of endangered species;

Near areas with archaeological and/or historic sites or existing cultural and social institutions;

Near or in areas occupied by vulnerable ethnic minorities or indigenous peoples, or lands to which they

are collectively attached;

In densely populated areas, where resettlement may be required or potential pollution impacts and other

disturbances may significantly affect communities;

In regions where there are conflicts in natural resources allocation;

Near watercourses, aquifer recharge areas or in reservoirs used for potable water supply; or

In or close to lands or waters containing valuable resources. Examples of sensitivity issues are those where the transaction can:

Cause adverse global or regional environmental impacts;

Concern the rights of indigenous people or vulnerable ethnic minorities;

Require large scale land acquisition6 or subsequent change in land use that produces loss or damage of

assets or income for local residents;

Lead to involuntary settlements or displacement of people from their livelihoods;

Impact protected or otherwise recognized areas of high biodiversity or cultural value; or

Lead to toxic waste disposal.

Examples where the nature of the transaction may:

Cause irreversible degradation or unsustainable exploitation of natural resources; or

Pose serious risks of significant harm to human health and safety.

Examples of the magnitude of the transaction where:

A high amount of scarce resources may be put at risk;

The timing and duration of the negative impacts are long; or

The cumulative effects of many similar, but individually small transactions together lead to serious

impacts.

Category A transactions are perceived to have significant adverse environmental and/or social

impacts, and comprehensive mitigation measures will be necessary to allow for such a

transaction to be supported. Transactions with effects as described above must be subject to a

full EA (see Section 1.5) carried out by an independent expert/entity that is not affiliated with

the applicant. For highly risky projects, a Panel of Experts may be required to advise the

financial institution.

Category A transactions are not anticipated to form part of the target portfolio, but due to their

risk profile, the financial institution will consult with IFC staff as soon as category A potential

6 Acquisition of small parcels of land, even if obtained on a negotiated basis with property owners or those with

recognized rights to the land, should be considered as sensitive if expropriation or other compulsory measures would

have resulted upon the failure of negotiation. In such cases, the loan application should be discussed with IFC

counterparts as soon as possible.

9

has been identified. For any confirmed Category A transaction, the financial institution would

need to engage qualified, reputable environmental and social experts to advise on relevant

aspects of the due diligence and structuring.

3.2 Category B Transactions

Transactions with a limited number of potentially adverse environmental or social impacts that

are generally site-specific, largely reversible, and readily addressed through mitigation measures

that reduce the risk to moderate or low levels are normally classified as Category B. The

following characteristics indicate a Category B transaction.

Environmental and social risks for the most part are mostly limited to and readily mitigated through

application of good industry practice as described in relevant Environmental, Health and Safety

Guidelines;

Labor and working conditions are unlikely to include harmful child labor, involuntary or compulsory

labor, or significant occupational health and safety issues;

Significant land acquisition or significant land use change is not expected7, nor is there expectation of

displacement of people or significant loss of livelihoods due to project activities; and

Socially or economically disadvantaged groups, such as tribal or ethnic groups or similar communities,

are not known to occur in the project’s area of direct impact, nor does the activity involve use of lands

to which they are collectively attached.

In the agribusiness sector, the issue of supply chains for raw materials can be complex and, in

some instances, this issue poses a significant reputational risk. In screening a transaction, the

financial institution will consider the matter of supply chains, especially under the following

three circumstances: (a) the source of the raw materials is clearly defined and dedicated; (b)

there is recognized risk with respect to harmful child labor, involuntary or compulsory labor, or

significant occupational health and safety issues associated with the supply chain; or (c) the

source of raw materials are lands occupied by or traditional lands of indigenous peoples as

defined in IFC Performance Standard 7 (Annex C) and the comparable World Bank Safeguard

Policy on Indigenous Peoples.

3.3 Category C Transactions

Transactions that are perceived to have minimal or no adverse environmental or social impacts

are classified as Category C, and no further environmental or social assessment work needs to be

done after initial screening and categorization.

3.4 Excluded Transactions

Following transactions are excluded from consideration in the RSF:

7 If small parcels of land are acquired as part of the proposed transaction, the loan applicant must provide

satisfactory evidence that the land was acquired on an negotiated basis with property owners or those with

recognized rights to the land, and that there was no risk of expropriation or other compulsory process upon failure of

negotiations.

10

Production or trade in any product or activity deemed illegal under host country laws or

regulations or international conventions and agreements, or subject to international bans,

such as pharmaceuticals, pesticides/herbicides, ozone depleting substances, PCBs,

wildlife or products regulated under CITES.

Commercial logging operations for use in primary tropical moist forest.

Production or trade in wood or other forestry products other than from sustainably

managed forests.

Drift net fishing in the marine environment using nets in excess of 2.5 km in length.

Production or activities involving harmful or exploitative forms of forced labor8 or

harmful child labor9.

Production or trade in weapons and munitions.

Production or trade in alcoholic beverages (excluding beer and wine).

Production or trade in tobacco.

Gambling, casinos and equivalent enterprises.

Production or trade in radioactive materials. This does not apply to the purchase of

medical equipment, quality control (measurement) equipment and any equipment where

IFC considers the radioactive source to be trivial and/or adequately shielded.

Production or trade in unbonded asbestos fibers. This does not apply to purchase and use

of bonded asbestos cement sheeting where the asbestos content is less than 20 percent.

8 Forced labor means all work or service, not voluntarily performed, that is extracted from an individual under threat

of force or penalty. 9 Harmful child labor means the employment of children that is economically exploitive, or is likely to be hazardous

to, or to interfere with, the child’s education, or to be harmful to the child’s health, or physical, mental, spiritual,

moral, or social development.

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Chapter 4: Environmental and Social Review and Assessment

4.1 Context for the Risk Sharing Facility

Environmentally sound and sustainable and socially responsible investments are critical elements

of the World Bank Group’s developmental mandate, and both IFC and IDA need to ensure the

proper implementation of its mandate in its financial intermediary (FI) operations including the

principle of delegated responsibility, which characterizes such operations. The financial

institution participating in the WBG funded RSF therefore, at a minimum, will adhere to the

following basic requirements:

The financial institution will implement its SEMS (Annex A) in a manner satisfactory to

the World Bank Group and integrate it as fully as possible into its credit application

appraisal and monitoring procedures.

The financial institution will comply with the Environmental and Social Exclusion List

for FI’s (Section 3.4). This list includes activities prohibited by international

environmental agreements or where the World Bank Group considers indirect financing

inappropriate because of the significance of associated environmental and social risks.

The financial institution will take measures as deemed necessary to validate that the loan

applicant has appropriately identified in its loan application (Section 2.1) the

environmental and social risks and measures needed to manage them in project

implementation.

The financial institution will submit to the World Bank Group periodic reports on the

implementation of its SEMS and the environmental and social performance of the RSF

portfolio.

Within five business days of becoming aware, the financial institution will notify the

World Bank Group of any significant social, labor, health and safety, security or

environmental incident, accident, issue, or circumstance with respect to any financing

activities covered by the RSF.

It is the loan applicant’s responsibility to ensure that the proposed activity covered by the

loan complies with all national environmental legislation and regulations. If an applicant

states that the necessary permits or licenses have not yet been issued, the financial

institution will advise the applicant to obtain the licenses and permits before loans can be

disbursed.

As noted above, it is anticipated that the majority of transactions covered by the RSF will be

loans to SMEs that would be classifiable as Category C or Category B, Category A transactions

are not anticipated, but cannot be entirely ruled out.

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4.2 Category C Transactions

If the likely environmental and social risks and impacts are determined through the screening

process to be very low or negligible, the transaction is a Category C and no further

environmental review and assessment is required except that it must be confirmed that the

proposed transaction is in compliance with applicable PNG laws and regulations (Annex E).

4.3 Category B Transactions

For Category B transactions, the environmental and social risks and impacts are perceived to be

limited, site specific, not irreversible and with established remedial and good practice measures

as described in the appropriate Environmental Health and Safety Guidelines.

If the activity is one that is subject to preparation of an Environmental Inception Report (EIR) or

Environmental Impact Statement (EIS) under PNG legislation (see Annex E), the financial

institution may proceed to process the loan application, but will not disburse the loan until the

applicant provides a notice of approval from the responsible PNG environmental authority for

review and approval of the EIR.

An environmental audit is carried out on existing facilities and focuses on two elements: (a)

compliance of existing facilities and operations with relevant environmental (including

occupational health and safety) and social laws, regulations, and applicable World Bank Group

requirements (Section 2.4); and (b) the nature and extent of environmental impacts, including

contamination to soils, groundwater, and structures, as a result of past activities. A Corrective

Action Plan is often an outcome of an environmental audit. Such environmental reviews or

assessments might however take many forms, depending on the type of transaction proposed.

It is recognized that SMEs may have limited capacity for assessing environmental and social

risks or carrying out necessary studies, such as environmental audits. Flexibility will be applied

and efforts made to find the best instruments and procedures for the transaction in question. In

accordance with its SEMS, the financial institution will assure itself that environmental and

social risks and impacts have been adequately identified and appropriate managed in a manner

commensurate to the risk. In some instances, the financial institution may opt to arrange for an

appropriate environmental review on its own behalf using outside expertise. At minimum, for all

Category B transactions, the financial institution will prepare for the record a brief summary

report or memorandum identifying sources of information and relevant facts and findings that

allow a determination that the transaction is consistent with applicable environmental and social

benchmarks (see Section 2.4).

4.4 Category A Transactions

In the event a Category A transaction is identified for lending under cover of the RSF, the

applicant will be required to prepare a full EIS as per PNG regulations and consistent with World

Bank Safeguards Policies and IFC Performance Standards and submit it to the financial

institution.

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In the event that the applicant has already prepared an EIS in accordance with PNG regulations

and processes, the financial institution must review the report and make a determination whether:

it is adequate and accurate in identification of environmental and social impacts; that appropriate

measures have been identified to avoid, minimize, or mitigate those impacts; that the applicant

has the commitment and the capability to manage the impacts as proposed. Moreover, the

financial institution will assure itself that the records show that timely and appropriate

consultation with directly affected people, local communities, and interested stakeholders has

taken place on the findings and recommendations of the EIS. If the applicant has prepared the

EIS on his/her own project proposal using its internal technical resources, the financial institution

will arrange for an independent expert to assist in the review and assessment of the quality of the

EIS and its findings.

For any prospective Category A transaction, the financial institution as soon as possible will

contact IFC counterparts responsible for involvement in the RSF in order to seek advice and

counsel from IFC environmental and social specialists regarding the proposed loan. The IFC

specialists will engage with relevant World Bank environmental and social specialists to ensure

the appropriate standard is met, especially with respect to involuntary resettlement or impacts on

local ethnic groups.

4.5 Investments Requiring Land Acquisition or Change in Land Use

Proposed SME investments that involve the acquisition of land or change in use of lands under

traditional ownership or use by local PNG clans or associations require additional scrutiny in

environmental and social review of the loan application. The SME loan applicant must

demonstrate to the satisfaction of the participating financial institution that the applicant has

carried out free, prior, and informed consultation with the local community associated with the

subject land and has broad support from that community to undertake the investment as

proposed. The consultation between the loan applicant and the local community must have been

carried out in the local language and in accordance with customs of the local community with

respect to an informed community-level decision-making process. The loan applicant must

agree that terms of payment or compensation to the local community for occupation or use of the

land must approximate the replacement value of the affected land and other affected assets and

must be transparent to the local community. Prior to approving the loan application, the

participating financial institution as soon as possible will contact IFC counterparts for

involvement in the RSF in order to notify them of the proposed transaction and present a brief

summary of: the magnitude and socioeconomic impacts on affected persons; the evidence

regarding consultations with and broad support of the local community for the investment; and

the planned mitigation measures for displacement, if any. The IFC counterparts will engage with

relevant World Bank environmental and social specialists to ensure the appropriate standard is

met, especially with respect to involuntary resettlement or impacts on the local clans or

associations.

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Chapter 5: Monitoring and Supervision

5.1 Monitoring and Supervision of the Portfolio by the Financial Institution

For all Category A and B projects in the portfolio, the participating financial institution will

monitor the management of environmental and social impacts in a manner consistent with this

Manual and the financial institution’s SEMS, including the environmental management plan and

corrective actions identified/agreed during the transaction screening and assessment stages.

Category A transaction clients will be required to fund certified independent audits to evaluate

whether environmental and social risks are being managed in a manner satisfactory to the

financial institution.

In addition, the financial institution will regularly (i.e., every month) screen for any negative

media/NGO coverage/reports on environmental and social aspects of its portfolio clients, and

retain records of all findings.

The financial institution agrees to make its monitoring and supervision reports available on a

business confidential basis to IFC or IDA counterparts upon request.

5.2 Financial Intermediary Reporting to the IFC and IDA

The commercial bank or financial institution, acting as financial intermediary for IFC and IDA

involvement in the RSF, will prepare an annual report for IFC and IDA counterparts on

environmental and social performance of the portfolio as follows:

Listing of all transactions approved during the reporting period, listing environmental

category (A, B, or C) and the name and location of SME receiving the loan;

For Category A projects approved during the reporting period, copies of the internal

determination of adequacy or the independent expert review as described in Section 4.4;

For Category A projects, a summary report on implementation progress of follow-up

actions mandated by the project’s EIS;

For Category B projects approved during the reporting period, a copy of the summary

report or memorandum noted at the end of Section 4.3;

A brief listing of anticipated Category A and B projects that are being processed or with a

pending loan application;

A brief summary regarding how this Manual and/or the participating financial

institution’s SEMS has been implemented in transactions covered by the RSF, including

any material changes (e.g., to staffing, procedure); and

Details of any negative media/NGO coverage and reports on portfolio clients regarding

environmental and social aspects that have come to the attention of the financial

institution and are deemed to produce reputational or credit risk to the participating

financial institutions, including the World Bank Group participation in the RSF.

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5.3 Grievance Mechanisms

If local communities or directly affected stakeholders approach the financial institution with

reasonable and responsible claims that an activity by an SME funded by a loan from the

financial institution as part of the RSF has caused harm to them, their livelihoods, or their

environment, the financial institution will work with the borrowing SME to try to address the

concerns in a reasonable and responsible manner. The financial institution will report as soon as

possible such complaints to the IFC. In addition, the financial institution shall inform the

aggrieved parties that if efforts by the borrower (SME) to resolve the issue are unsatisfactory,

the aggrieved parties have the right to bring their complaints to staff in the local IFC or Bank

offices, at the address below:

The World Bank Group

Level 13, Deloitte Tower

P.O. Box 1877

Port Moresby, National Capital District

Telephone: (675) 321-7111

Fax: (675) 321-7730

16

Annex A: Social and Environmental Management System

In order to effectively use this manual as a guidance to staff for managing environmental and

social risk, each participating financial institution shall develop its own internal Social and

Environmental Management System (SEMS). In addition to a policy outlining the commitment

to meet the requirements of this EOM and other standards the institution may wish to follow, the

SEMS shall describe key features including: social and environment policies and procedures;

organization structure and staffing for managing environmental and social risk; skills and

competencies in social and environmental areas; training and awareness of the institution’s

investment, legal, and credit officers on the organization’s SEMS; reporting systems to

managers; and performance monitoring procedures. The SEMS shall also include supporting

tools such as checklists, templates and guidance notes to assist the loan/credit officers and other

relevant staff to assess and manage environmental and social risks.

Upon application by a commercial bank or financial institution to participate in the RSF,

environmental and social specialists from IFC and IDA will engage with the institution and

convey IDA and IFC’s social and environmental requirements as embodied in this EOM. The

applying institution will be responsible for developing the required SEMS and integrating it into

the institution’s lending operations to screen loan applications and mange environmental and

social risks in a manner consistent with this manual. Once the SEMS is developed, the applying

institution shall send it to IFC and IDA for review. A satisfactory SEMS, approved by the

applying institution’s own management and accepted by IFC/IDA, will be a condition of

effectiveness for the RSF agreement between the IFC and the participating institution.

IFC/IDA’s requirements for participating institutions to implement a satisfactory SEMS for

managing environmental and social risk consistent with the EOM will be disclosed in a

Summary of Proposed Investment (SPI) on IFC’s website (www.ifc.org).

17

Annex B: Environmental, Health & Safety Guidelines

As of August 2010, the World Bank Group has produced 64 Environmental, Health & Safety

Guidelines (EHSGs) for various industrial sectors, as well as General Environmental, Health &

Safety Guidelines which covers a wide range of issues and is applicable to all industrial in

addition to the sector-specific guidelines. The full set of Industry Sector EHSGs and the

General EHSGs can be most readily accessed on IFC’s website:

(www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards).

The IFC website is also the location where updates of the EHSGs will be posted, as new

examples of good practice are identified, or as new guidelines are prepared. These EHSGs are

also part of the Equator Principles. As required by the Equator Principles, the most recent

version of the respective applicable guidelines should be used in the screening and review of new

transactions.

For most investments in the services industry, the General Environmental, Health & Safety

Guideline is most likely the only applicable EHSG. However, for some investments possible

under the Risk Sharing Facility, there are specific industry sector guidelines that also would

apply in addition to the General EHSG. A few examples of some of these are:

Tourism and Hospitality Development

Telecommunications

Mammalian Livestock Production

Poultry Production

Plantation Crop Production

Annual Crop Production

Aquaculture

Fish Processing

Meat Processing

Poultry Processing

Food and Beverage Processing.

It should be noted that these Industry Sector EHSGs and the General EHSG are intended to

identify recognized good practice, particularly in the absence of comparable national or local

legislation. Moreover, they are designed to cover a wide range of topics, especially in the case

of the General EHSG, some or many of which specific topics may not be relevant or applicable

to the project enterprise seeking a loan under the RSF. The EHSGs will be used by the financial

institution as useful tools in the screening and review process to determine whether

environmental and social risks associated with the project enterprise have been appropriately

identified and managed.

18

Annex C: IFC Performance Standards and World Bank Safeguard Policies

The IFC has produced eight Performance Standards which cover a wide range of issues and is

considered applicable to all transactions that would be classified as Category B or Category A.

The eight Performance Standards are also considered part of the Equator Principles. The eight

Performance Standards can be most readily accessed on IFC’s website, and are listed below:

(www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards).

Performance Standard 1: Social and Environmental Management Systems

Performance Standard 2: Labor and Working Conditions

Performance Standard 3: Pollution Prevention and Abatement

Performance Standard 4: Community Health, Safety and Security

Performance Standard 5: Land Acquisition and Involuntary Resettlement

Performance Standard 6: Biodiversity Conservation and Sustainable Natural Resources

Management

Performance Standard 7: Indigenous Peoples

Performance Standard 8: Cultural Heritage

The World Bank has ten Safeguard Policies (Operational Policies [OPs]) that in most

environmental and social matters are similar in coverage to the IFC Performance Standards:

OP 4.01: Environmental Assessment

OP 4.04: Natural Habitats

OP 4.09: Pest Management

OP 4.10: Indigenous Peoples

OP 4.11: Physical Cultural Resources

OP 4.12: Involuntary Resettlement

OP 4.36: Forests

OP 4.37: Safety of Dams

OP 7.50: Projects on International Waterways

OP 7.60: Projects in Disputed Areas.

These can be found on the World Bank website:

(www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol).

In the context of the kinds of Category B transactions that are envisioned for cover under the

RSF, it is expected that screening and determination of consistency with relevant IFC

Performance Standards will also allow a determination of consistency with relevant World Bank

Environmental and Social Safeguard Policies. However, there may be rare instances, primarily

in the context of Category A transactions, where there may be minor differences in policy

requirements. These few differences are summarized in Annex D.

19

Annex D: Relevant Differences between IFC Performance Standards and World Bank

Safeguards

IFC Performance Standards and the World Bank Operational Policies relating to environment

and social safeguards are generally equivalent in scope, but sometimes realized in slightly

different ways in practice. The differences are mostly in form and process, and do not represent

major differences in policy content. This matrix provides a side-by-side comparison of the

related text in Bank and IFC safeguard policies, along with guidance on how the two systems’

policy requirements should be applied together.

20

Text from World Bank OP

Text from IFC Performance Standards and Policies Comparison & Guidance

EIS:

Responsibility

for Drafting

The borrower is responsible for carrying out the

EA. For Category A projects, the borrower retains

independent EA experts not affiliated with the

project to carry out the EA. [Footnote 6 states:

However, the borrower ensures that when

individuals or entities are engaged to carry out EA

activities, any conflict of interest is avoided. For

example, when an independent EA is required, it

is not carried out by the consultants hired to

prepare the engineering design.] (OP 4.01)

The Assessment will be an adequate, accurate,

and objective evaluation and presentation of the

issues, prepared by qualified and experienced

persons. (IFC PS 1 para 7)

Qualified and experienced external experts are

required in the circumstances referenced in PS 6

paragraph 7; PS 7 paragraph 11; and PS 8

paragraph 4.

Comparison: The Bank requires the EIS for

Category A projects to be carried out by an entity

independent of the borrower. In addition, IFC

policy requires the client to retain qualified and

experienced external experts to verify monitoring

information for Category A.

Guidance: For Category A projects, the EIS

should be carried out by an external consultant

not connected with the project.

EA Advisory

Panel

For Category A projects that are highly risky or

contentious or that involve serious and

multidimensional environmental concerns, the

borrower should normally also engage an

advisory panel of independent, internationally

recognized environmental specialists to advise on

all aspects of the project relevant to the EA. The

role of the advisory panel depends on the degree

to which project preparation has progressed, and

on the extent and quality of any EA work

completed, at the time the Bank begins to

consider the project. (OP 4.01 para 4)

For Category A projects with significant impacts

that are diverse, irreversible, or unprecedented,

the client will retain qualified and experienced

external experts to verify its monitoring

information. (PS 1 para 24)

In addition, external experts are required in

certain defined circumstances on issues

concerning biodiversity (as provided in paragraph

4 of Performance Standard 6), Indigenous

Peoples (as provided in paragraph 11 of

Performance Standard 7), and cultural heritage

(as provided in paragraph 4 of Performance

Standard 8).

Comparison: The Bank requires an independent

panel of experts for Category A projects that are

very complex and precedent-setting; this is also

mandatory for larger dams. IFC requires a panel

based on project-specific issues, and considers

the contribution of other project experts, such as

the Lenders’ Independent E&S Specialists (if

used) in determining the need for an EA advisory

panel.

Guidance: A decision on whether a panel is

required should take into account all EA work that

has already been undertaken and mindful of Bank

policy.

21

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Dam Safety

Panel

The Bank’s OP 4.37—Safety of Dams—includes

the following requirement: (para 3, 4)

For large dams, including tailings dams and ash

ponds, the Bank requires:

(a) reviews by an independent panel of experts

throughout investigation, design, and

construction of the dam and the start of

operations;

(b) preparation and implementation of detailed

plans: a plan for construction supervision and

quality assurance, a plan for instrumentation,

an operation and maintenance plan, and an

emergency preparedness plan;

(c) prequalification of bidders during procurement

and bid tendering; and

(d) periodic safety inspections of the dam after

completion.

The independent review panel consists of three or

more experts, appointed by the borrower and

acceptable to the Bank, with expertise in the

various technical fields relevant to the dam safety

aspects of the particular dam. The number,

professional breadth, technical expertise, and

experience of panel members are appropriate to

the size, complexity, and hazard potential of the

dam under consideration. For high-hazard dams,

in particular, the panel experts should be

internationally known experts in their field.

With IFC implementation of the Performance

Standards, dam safety is now part of PS 4—

Community Health, Safety and Security. PS 4

includes the following text (in para 6):

When structural elements or components, such as

dams, tailings dams, or ash ponds, are situated in

high-risk locations, and their failure or malfunction

may threaten the safety of communities, the client

will engage one or more qualified experts with

relevant and recognized experience in similar

projects, separate from those responsible for the

design and construction, to conduct a review as

early as possible in project development and

throughout the stages of project design,

construction, and commissioning.

Comparison: The Bank requires an independent

panel (3-5 members) of dam safety experts for

large dams. IFC takes a risk-based approach:

where risks are high, it will require one or more

external experts not connected to the project. IFC

will also consider the contribution of other project

experts, such as the Lenders’ Independent

Engineer, in determining need for a panel.

Guidance: In the event a transaction involves a

large dam, the financial intermediary should

immediately seek guidance from the World Bank’s

Lead Dam Safety Specialist. The composition of

any panel should be a joint decision, sufficient to

cover the specialized issues involved, and taking

into account all existing arrangements for

independent input into the project.

22

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Associated

Facilities

OP 4.01 Annex A includes associated facilities

indirectly:

Project area of influence: The area likely to be

affected by the project, including all its ancillary

aspects, such as power transmission corridors,

pipelines, canals, tunnels, relocation and access

roads, borrow and disposal areas, and

construction camps, as well as unplanned

developments induced by the project (e.g.,

spontaneous settlement, logging, or shifting

agriculture along access roads). The area of

influence may include, for example, (a) the

watershed within which the project is located; (b)

any affected estuary and coastal zone; (c) off-site

areas required for resettlement or compensatory

tracts; (d) the airshed (e.g., where airborne

pollution such as smoke or dust may enter or

leave the area of influence; (e) migratory routes of

humans, wildlife, or fish, particularly where they

relate to public health, economic activities, or

environmental conservation; and (f) areas used

for livelihood activities (hunting, fishing, grazing,

gathering, agriculture, etc.) or religious or

ceremonial purposes of a customary nature.

Risks and impacts will be analyzed in the context

of the project’s area of influence. This area of

influence encompasses, as appropriate: (i) the

primary project site(s) and related facilities that

the client (including its contractors) develops or

controls, such as power transmission corridors,

pipelines, canals, tunnels, relocation and access

roads, borrow and disposal areas, and

construction camps; (ii) associated facilities that

are not funded as part of the project (funding may

be provided separately by the client or by third

parties, including the government), and whose

viability and existence depend exclusively on the

project and whose goods or services are essential

for the successful operation of the project; (iii)

areas potentially impacted by cumulative impacts

from further planned development of the project,

any existing project or condition, and other

project-related developments that are realistically

defined at the time the Social and Environmental

Assessment is undertaken; and (iv) areas

potentially affected by impacts from unplanned

but predictable developments caused by the

project that may occur later or at a different

location. The area of influence does not include

potential impacts that would occur without the

project or independently of the project. (IFC PS 1

para 5)

IFC seeks to ensure that the projects it finances

achieve outcomes consistent with the

Performance Standards, even if the outcomes are

dependent upon the performance of third parties.

When the third party risk is high, and when the

client has control or influence over the actions and

behavior of the third party, IFC requires the client

to collaborate with the third party to achieve

outcomes consistent with the Performance

Standards. Specific requirements and options will

vary from case to case. (IFC PPS para 25)

Comparison: IFC defines Associated Facilities as

those ―whose viability and existence depend

exclusively on the project and whose goods or

services are essential for the successful operation

of the project.‖ IFC may also apply a narrower,

two-way dependency test. The Bank OP does not

mention ―Associated Facilities‖ directly, but

includes ―all ancillary aspects‖ as part of the

project area of influence, which is typically

interpreted as broader in scope.

23

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Natural Habitats Natural habitats are land and water areas where

(i) the ecosystems' biological communities are

formed largely by native plant and animal species,

and (ii) human activity has not essentially

modified the area's primary ecological functions.

(OP 4.04 para 1(a))

Critical natural habitats are:

(i) existing protected areas and areas officially

proposed by governments as protected areas

(e.g., reserves that meet the criteria of the World

Conservation Union [IUCN] classifications), areas

initially recognized as protected by traditional local

communities (e.g., sacred groves), and sites that

maintain conditions vital for the viability of these

protected areas (as determined by the

environmental assessment process); or

(ii) sites identified on supplementary lists

prepared by the Bank or an authoritative source

determined by the Regional environment sector

unit (RESU). Such sites may include areas

recognized by traditional local communities (e.g.,

sacred groves); areas with known high suitability

for biodiversity conservation; and sites that are

critical for rare, vulnerable, migratory, or

endangered species. Listings are based on

systematic evaluations of such factors as species

richness; the degree of endemism, rarity, and

vulnerability of component species;

representativeness; and integrity of ecosystem

processes. (OP 4.04 Annex A Definitions)

The Bank does not support projects that, in the

Bank's opinion, involve the significant conversion

or degradation of critical natural habitats. (OP

4.04 para 4)

Under Section ―Protection and Conservation of

Biodiversity‖ of PS 6 paragraphs 5–13 cover

Habitat, Modified Habitat, Natural Habitat, Critical

Habitat and Legally Protected Areas, Invasion

Alien Species.

Critical habitat is a subset of both natural and

modified habitat that deserves particular attention.

Critical habitat includes areas with high

biodiversity value, including habitat required for

the survival of critically endangered or

endangered species; areas having special

significance for endemic or restricted-range

species; sites that are critical for the survival of

migratory species; areas supporting globally

significant concentrations or numbers of

individuals of congregatory species; areas with

unique assemblages of species or which are

associated with key evolutionary processes or

provide key ecosystem services; and areas

having biodiversity of significant social, economic

or cultural importance to local communities. (PS 6

para 9)

In areas of critical habitat, the client will not

implement any project activities unless the

following requirements are met:

There are no measurable adverse impacts on

the ability of the critical habitat to support the

established population of species described in

paragraph 9 or the functions of the critical

habitat described in paragraph 9

There is no reduction in the population of any

recognized critically endangered or

endangered species

Any lesser impacts are mitigated in accordance

with paragraph 8 (PS 6 para 10)

Comparison: IFC policy applies a quantitative

test of measurable impacts; the Bank test is more

qualitative. Both require baseline data.

24

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Grievance

Mechanism

Accessible procedures appropriate to the project

to address grievances in the affected Indigenous

Peoples’ communities arising from project

implementation. When designing the grievance

procedures, the borrower takes into account the

availability of judicial recourse and customary

dispute settlement mechanisms among the

Indigenous Peoples. (OP 4.10 Annex B para 2

(h))

Displaced persons and their communities, and

any host communities receiving them, are

provided timely and relevant information,

consulted on resettlement options, and offered

opportunities to participate in planning,

implementing, and monitoring resettlement.

Appropriate and accessible grievance

mechanisms are established for these groups.

(OP 4.12 para 13 (a))

If the client anticipates ongoing risks to or adverse

impacts on affected communities, the client will

establish a grievance mechanism to receive, and

facilitate resolution of, the affected communities’

concern and grievances about the client’s

environmental and social performance. (PS 1

para 23)

Workers: The client will provide a grievance

mechanism for workers (and their organizations,

where they exist) to raise reasonable workplace

concerns. The client will inform the workers of the

grievance mechanism at the time of hire, and

make it easily accessible to them. The

mechanism should involve an appropriate level of

management and address concerns promptly,

using an understandable and transparent process

that provides feedback to those concerned

without any retribution. The mechanism should

not impede access to other judicial or

administrative remedies that might be available

under law or through existing arbitration

procedures, or substitute for grievance

mechanisms provided through collective

agreements. (PS 2 para 13)

Land acquisition: The client will establish a

grievance mechanism consistent with

Performance Standard 1 to receive and address

specific concerns about compensation and

relocation that are raised by displaced persons or

members of host communities, including a

recourse mechanism designed to resolve disputes

in an impartial manner. (PS 5 para 10)

Indigenous Peoples: The client will establish an

ongoing relationship with the affected

communities of Indigenous Peoples from as early

as possible in the project planning and throughout

the life of the project. In projects with adverse

impacts on affected communities of Indigenous

Peoples the consultation process will ensure their

(continued)

Comparison: The Bank’s requirement for a

grievance mechanism is triggered for projects

which affect Indigenous Peoples and which cause

involuntary resettlement. IFC requires establishing

a grievance mechanism if the client anticipates

ongoing risks to, or adverse impacts on, affected

communities in general.

Guidance: The IFC’s broader standard should

apply.

25

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Grievance

Mechanism

(cont.)

free, prior, and informed consultation and facilitate

their informed participation on matters that affect

them directly, such as proposed mitigation

measures, the sharing of development benefits

and opportunities, and implementation issues.

The process of community engagement will be

culturally appropriate and commensurate with the

risks and potential impacts to the Indigenous

Peoples. In particular, the process will include the

following steps :

Ensure that the grievance mechanism

established for the project, as described in

Performance Standard 1 paragraph 23, is

culturally appropriate and accessible for

Indigenous Peoples (PS 7 para 9)

26

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

FPIC/Broad

Community

Support

This policy contributes to the Bank's mission of

poverty reduction and sustainable development

by ensuring that the development process fully

respects the dignity, human rights, economies,

and cultures of Indigenous Peoples. (OP 4.10

para 1)

For all projects that are proposed for Bank

financing and affect Indigenous Peoples, the Bank

requires the borrower to engage in a process of

free, prior, and informed consultation. The Bank

provides project financing only where free, prior,

and informed consultation results in broad

community support to the project by the affected

Indigenous Peoples. Such Bank-financed projects

include measures to (a) avoid potentially adverse

effects on the Indigenous Peoples’ communities;

or (b) when avoidance is not feasible, minimize,

mitigate, or compensate for such effects. Bank-

financed projects are also designed to ensure that

the Indigenous Peoples receive social and

economic benefits that are culturally appropriate

and gender- and intergenerationally inclusive. (OP

4.10 para 1)

IFC is committed to working with the private

sector to put into practice processes of community

engagement that ensure the free, prior, and

informed consultation of the affected

communities. Building on this commitment, when

clients are required to engage in a process of

free, prior, and informed consultation, IFC will

review the client’s documentation of the

engagement process, and in addition, through its

own investigation, assure itself that the client’s

community engagement is one that involves free,

prior, and informed consultation and enables the

informed participation of the affected

communities, leading to broad community support

for the project within the affected communities,

before presenting the project for approval by IFC’s

Board of Directors. Broad community support is a

collection of expressions by the affected

communities, through individuals or their

recognized representatives, in support of the

project. There may be broad community support

even if some individuals or groups object to the

project. After the Board approval of the project,

IFC will continue to monitor the client’s community

engagement process as part of its portfolio

supervision. (Sustainability Policy, para 20)

For projects with significant adverse impacts on

affected communities, the consultation process

will ensure their free, prior and informed

consultation and facilitate their informed

participation. Informed participation involves

organized and iterative consultation, leading to

the client’s incorporating into their decision-

making process the views of the affected

communities on matters that affect them directly,

such as proposed mitigation measures, the

sharing of development benefits and

opportunities, and implementation issues. The

client will document the process, in particular the

measures taken to avoid or minimize risks to and

adverse impacts on the affected communities.

Comparison: The Bank applies BCS for all

projects that affect Indigenous Peoples,

regardless of anticipated impact.

IFC applies BCS for all projects that require the

process of free, prior, and informed consultation

(FPIC). The process of FPIC is a client obligation

under the Performance Standards, and applies to

all projects with significant adverse impacts on

affected communities. In addition, IFC also

applies the FPIC requirement in projects with

adverse impacts on affected communities of

Indigenous Peoples. The requirement to ascertain

Broad Community Support is an IFC obligation in

its Sustainability Policy. It is a validation by IFC to

its Board of Directors of the impact of the client's

FPIC process. It is not predetermined by the

category of project, or sector, or by classification

of peoples affected, but is based on risks.

27

(PS 1, para 22)

The client will establish an ongoing relationship

with the affected communities of Indigenous

Peoples from as early as possible in the project

planning and throughout the life of the project. In

projects with adverse impacts on affected

communities of Indigenous Peoples, the

consultation process will ensure their free, prior,

and informed consultation and facilitate their

informed participation on matters that affect them

directly, such as proposed mitigation measures,

the sharing of development benefits and

opportunities, and implementation issues. (PS 7,

para 9)

28

Text from World Bank OP Text from IFC Performance

Standards and Policies Comparison & Guidance

Land

Acquisition and

Involuntary

Resettlement

This policy covers direct economic and social

impacts that both result from Bank-assisted

investment projects, and are caused by (a) the

involuntary taking of land resulting in (i) relocation

or loss of shelter; (ii) loss of assets or access to

assets; or (iii) loss of income sources or means of

livelihood, whether or not the affected persons

must move to another location; or (b) the

involuntary restriction of access to legally

designated parks and protected areas resulting in

adverse impacts on the livelihoods of the

displaced persons. (OP 4.12 para 3)

This policy applies to all components of the

project that result in involuntary resettlement,

regardless of the source of financing. It also

applies to other activities resulting in involuntary

resettlement that in the judgment of the Bank, are

(a) directly and significantly related to the Bank-

assisted project, (b) necessary to achieve its

objectives as set forth in the project documents;

and (c) carried out, or planned to be carried out,

contemporaneously with the project. (OP 4.12

para 4)

To address the impacts covered under paragraph

3(a) of this policy, the borrower prepares a

resettlement plan or a resettlement policy

framework (see para 25-30) that covers the

following:

(a) The resettlement plan or resettlement policy

framework includes measures to ensure that the

displaced persons are (i) informed about their

options and rights pertaining to resettlement; (ii)

consulted on, offered choices among, and

provided with technically and economically

feasible resettlement alternatives; and

(iii) provided prompt and effective compensation

at full replacement cost for losses of assets

attributable directly to the project.

(b) If the impacts include physical relocation, the

resettlement plan or resettlement policy

This Performance Standard applies to physical or

economic displacement resulting from the

following types of land transactions:

Type I: Land rights for a private sector project

acquired through expropriation or other

compulsory procedures;

Type II: Land rights for a private sector project

acquired through negotiated settlements with

property owners or those with legal rights to land,

including customary or traditional rights

recognized or recognizable under the laws of the

country, if expropriation or another compulsory

process would have resulted upon the failure of

negotiation. (PS 5 para 5)

The applicability of this Performance Standard is

established during the Social and Environmental

Assessment process, while implementation of the

actions necessary to meet the requirements of

this Performance Standard is managed through

the client’s Social and Environmental

Management System. The assessment and

management system requirements are outlined in

Performance Standard 1. (PS 5 para 4)

In the event of adverse economic, social, or

environmental impacts from project activities other

than land acquisition (e.g., loss of access to

assets or resources or restrictions on land use),

such impacts will be avoided, minimized,

mitigated, or compensated for through the

process of Social and Environmental Assessment

under PS 1. If these impacts become significantly

adverse at any stage of the project, the client

should consider applying the requirements of PS

5, even where no initial land acquisition was

involved. (PS 5 para 6)

In the case of Type I transactions (acquisition of

land rights through the exercise of eminent

domain) or Type II transactions (negotiated

settlements) that involve the physical

displacement of people, the client will develop a

Comparison: The approaches of the two policies

are complementary. IFC policy requires that when

land acquisition and resettlement are the

responsibility of the host government, the client

should collaborate with the responsible

government agency, to the extent permitted by

the agency, to achieve outcomes consistent with

the objectives of PS 5. In addition, where

government capacity is limited, the client should

play an active role during resettlement planning,

implementation, and monitoring.

29

framework includes measures to ensure that the

displaced persons are (i) provided assistance

(such as moving allowances) during relocation;

and (ii) provided with residential housing, or

housing sites, or, as required, agricultural sites for

which a combination of productive potential,

locational advantages, and other factors is at least

equivalent to the advantages of the old site.

(c) Where necessary to achieve the objectives of

the policy, the resettlement plan or resettlement

policy framework also include measures to ensure

that displaced persons are (i) offered support after

displacement for a transition period based on a

reasonable estimate of the time likely to be

needed to restore their livelihood and standards of

living; and (ii) provided with development

assistance in addition to compensation measures

described in paragraph 6(a); (iii) such as land

preparation, credit facilities, training, or job

opportunities. (OP4.12 para 6)

The borrower is responsible for preparing,

implementing, and monitoring a resettlement plan,

a resettlement policy framework, or a process

framework (the "resettlement instruments"), as

appropriate, that conform to this policy. The

resettlement instrument presents a strategy for

achieving the objectives of the policy and covers

all aspects of the proposed resettlement.

Borrower commitment to, and capacity for,

undertaking successful resettlement is a key

determinant of Bank involvement in a project.

(OP4.12 para 18)

The full costs of resettlement activities necessary

to achieve the objectives of the project are

included in the total costs of the project. The costs

of resettlement, like the costs of other project

activities, are treated as a charge against the

economic benefits of the project; and any net

benefits to resettlers (as compared to the

"without-project" circumstances) are added to the

benefits stream of the project. Resettlement

components or freestanding resettlement projects

need not be economically viable on their own, but

resettlement action plan or a resettlement

framework based on a Social and Environmental

Assessment that covers, at a minimum, the

applicable requirements of this Performance

Standard regardless of the number of people

affected. The plan or framework will be designed

to mitigate the negative impacts of displacement,

identify development opportunities, and establish

the entitlements of all categories of affected

persons (including host communities), with

particular attention paid to the needs of the poor

and the vulnerable (see Performance Standard 1

paragraph 12). The client will document all

transactions to acquire land rights, as well as

compensation measures and relocation activities.

The client will also establish procedures to

monitor and evaluate the implementation of

resettlement plans and take corrective action as

necessary. A resettlement will be considered

complete when the adverse impacts of

resettlement have been addressed in a manner

that is consistent with the objectives stated in the

resettlement plan or framework as well as the

objectives of this Performance Standard. (PS 5

para 12)

Where land acquisition and resettlement are the

responsibility of the host government, the client

will collaborate with the responsible government

agency, to the extent permitted by the agency, to

achieve outcomes that are consistent with the

objectives of this Performance Standard. In

addition, where government capacity is limited,

the client will play an active role during

resettlement planning, implementation and

monitoring, as described below in paragraphs 23-

25. (PS 5 para 22)

In the case of Type I transactions (acquisition of

land rights through expropriation or other legal

procedures) involving physical or economic

displacement, and Type II transactions

(negotiated settlements) involving physical

displacement, the client will prepare a plan (or a

framework) that, together with the documents

30

they should be cost-effective. (OP 4.12 para 20)

The borrower's obligations to carry out the

resettlement instrument and to keep the Bank

informed of implementation progress are provided

for in the legal agreements for the project. (OP

4.12 para 23)

The borrower is responsible for adequate

monitoring and evaluation of the activities set forth

in the resettlement instrument. The Bank regularly

supervises resettlement implementation to

determine compliance with the resettlement

instrument. Upon completion of the project, the

borrower undertakes an assessment to determine

whether the objectives of the resettlement

instrument have been achieved. The assessment

takes into account the baseline conditions and the

results of resettlement monitoring. If the

assessment reveals that these objectives may not

be realized, the borrower should propose followup

measures that may serve as the basis for

continued Bank supervision, as the Bank deems

appropriate (see also BP 4.12 para 16). (OP4.12

para 24)

prepared by the responsible government agency,

will address the relevant requirements of this

Performance Standard (the General

Requirements, except for paragraph 13, and

requirements for Physical Displacement and

Economic Displacement above).

The client may need to include in its plan: (i) a

description of the entitlements of displaced

persons provided under applicable laws and

regulations; (ii) the measures proposed to bridge

any gaps between such entitlements and the

requirements of this Performance Standard; and

(iii) the financial and implementation

responsibilities of the government agency and/or

the client. (PS 5 para 23) In the case of Type II

transactions (negotiated settlements) involving

economic (but not physical) displacement, the

client will identify and describe the procedures

that the responsible government agency plans to

use to compensate affected persons and

communities. If these procedures do not meet the

relevant requirements of this Performance

Standard (the General Requirements, except for

paragraph 12, and requirements for Economic

Displacement above), the client will develop its

own procedures to supplement government

action. (PS 5 para 24)

If permitted by the responsible government

agency, the client will, in collaboration with such

agency: (i) implement its plan or procedures

established in accordance with paragraph 23 or

24 above; and (ii) monitor resettlement activity

that is undertaken by the government agency until

such activity has been completed. (PS 5 para 25)

31

Annex E: National Environmental and Social Legislation

Note: This summary is provided for information purposes only, and is not necessarily an exhaustive

or World Bank Group approved list of all relevant environmental and social legislation.

Environmental Legislation

The Papua New Guinea Department of Environment and Conservation (DEC) is the national agency

tasked with environmental management of projects within Papua New Guinea. The primary

legislation for the management of natural resources is the Environment Act 2000, as amended in

2002, and which became fully effective in 2004. The Environment Act 2000 incorporated and

replaced three pieces of earlier legislation: Environmental Planning Act 1978, Environmental

Contaminants Act 1982, and Water Resources Act 1982. The Environment Act 2000 is

comprehensive, but the focus is clearly on large scale projects, with limited provision for managing

the effects of small scale activities.

Environmental Impact Assessment Process

The EIS process in Papua New Guinea is established by the Environment Act 2000 and the

Environmental Regulatory Framework (ERF) as outlined by DEC 1996. The Act specifies three

levels of activities, which is a categorization of the degree and magnitude of environmental impacts:

Level 1activities refer to those that require a minimum level of environmental protection.

Regulation of such activities will be based on standards, codes, and regulations that set

benchmarks for environmentally acceptable activities, for example, maximum discharge

levels, ambient quality standards for the receiving environment, codes of practice, or

guidelines for best or acceptable practice. In cases of non-compliance, environmental

protection orders, clean-up orders, and emergency directives may be issued.

Level 2 activities are those that require a framework of environmental approvals allowing for

water discharge permits, licensing for importation, sale and use of environmental

contaminants (hazardous chemicals), and for site-specific environmental conditions to be set

for these activities which have more significant potential impacts. Level two activities will be

regulated by means of conditions in environmental permits, environmental improvement

plans, and environmental management programs.

Level 3 activities cover those with the potential of major environmental impact and are

projects of national significance or of large scale. Such activities will be subject to a process

of public and detailed considerations of environmental implication through the

Environmental Impact Assessment process.

Level 2 and 3 activities require proponents to prepare information in accordance with the

Environment (Prescribed Activities) Regulation 2002 to meet their legal obligations under Section

48 of the Environmental Act 2000.

Several documents are submitted to DEC for the Level 3 project, normally beginning with an

Environmental Inception Report (EIR). This is assessed and feedbacks made to the proponent to

adjust or expand on the environmental impact assessment process. This is then followed through

32

with a full Environmental Impact Statement (EIS). Guidelines for the EIR and the EIS are provided

by DEC. Upon submittal of the EIS to DEC, the following steps occur:

Reviewing the EIS: An Environment Council established by DEC reviews the EIS and

decides whether the EIS is acceptable or not.

Decision-making: A decision is made as to whether a proposal is approved or not; a record

of decision explains how environmental issues were taken into consideration.

Issuing the relevant permits: If the EIS is approved, DEC issues the necessary

environmental permit that confirms the EIS has been satisfactorily completed and the project

may proceed.

Monitoring project implementation: The operator prepares and executes an appropriate

monitoring program (i.e., an environmental management program).

Monitoring the project: DEC undertakes periodic and independent compliance monitoring of

the project. It will provide a report which will be given back to the developer for discussions

and amendment to its operation, should there be an environmental concern.

Decommissioning the project upon its completion: A decommissioning report is prepared at

the end of the project life. This report outlines the restoration/rehabilitation activities to be

carried out by the operator and is lodged with DEC.

Extent of public participation

Public consultation and participation is required during the EIS scoping stages and while fulfilling

the terms of reference for the impact assessment of the EIS process. The operator is responsible for

identifying interested and affected parties and ensuring that all parties concerned are given adequate

opportunity to participate in the process. A public information program is initiated, and public

notices are issued during the scoping and EIS stages. Whenever a strong public concern over the

proposed project is indicated and impacts are extensive and far-reaching, DEC is required to

organize a public hearing.

Legislation regarding Land Acquisition and Involuntary Resettlement

The land tenure and land use system in PNG is based on customary land ownership. Approximately

97 percent of the land is owned by traditional landowners who have the right to decide what happens

on their land. The remaining approximately 3 percent of the land (alienated land) is controlled by

the State.

The land tenure system in PNG ensures that the customary owners of the land are involved in the

decision whether to exploit the resources and are involved in the benefit from the use of those

resources. While the national government has the power to acquire lands for public purposes under

the Land Act 1996, it is politically unpopular because land ownership and tenure is a very sensitive

social issue. To acquire the land means to purchase the land from the traditional landowners under

Section 15 of the Land Act 1996.

The procedure to acquire land is enforced under the Land Act 1996 by the Department of Land and

Physical Planning. The process is typically very complicated, takes considerable time, and often

triggers social conflict within and between communities.

33

Annex F: Guidance on World Bank’s Social Safeguards (OP4.10 and OP 4.12)

Introduction:

Safeguards policies help to avoid or minimize adverse impacts and manage risks. It is formulated to

support sustainable development. Sustainability is achieved when positive effects are enhanced

particularly for the poor and the other vulnerable groups so that they may receive benefits that help

support efforts against poverty. When social safeguards principles are not taken into account in the

project design and implementation it may unwittingly result not only in further aggravating the

poverty of project affected persons but also project delays and sometimes abandonment. On the

positive side, adequate engagement of the project affected persons result in the incorporation of their

concerns, ideas and suggestions that supports effective and efficient project implementation and

achievement of project objectives.

Operational Policy on Indigenous Peoples (OP 4.10)

The World Bank defines indigenous people as having the following characteristics in varying

degrees: a) self-identification as members of a distinct indigenous cultural group and recognition of

this identity by others; (b) collective attachment to geographically distinct habitats or ancestral

territories in the project area and to the natural resources in these habitats and territories, (c)

customary cultural, economic, social, or political institutions that are separate from those of the

dominant society and culture; and (d) an indigenous language, often different from the official

language of the country or region.

By this definition, many are agreed that Papuans in PNG is considered a member of an Indigenous

Peoples group. Therefore, the Bank projects generally would not require an IPPF or an IPP, rather,

the project itself would need to be designed in a manner consistent with OP 4.10. This means that

the development process must respect the dignity, human rights, economies and culture of affected

indigenous peoples. This is most relevant in the light of many SMEs being owned by people of other

ethnicities (like Australian, Chinese, or Filipino).

Applicant SMEs may not be required to develop Indigenous Peoples Plans if they are able to

demonstrate in their proposals that relevant IPs have been sufficiently consulted for the scope of

investments and measures to ensure that the IPs benefits from project investments are fully

integrated in the investment designs. Either way, if the screening process determines that particular

SME investment plans would trigger OP 4.10, then sufficient and meaningful consultation should be

conducted with relevant IPs, and comments received during consultation meetings and actions to be

taken to address them should be documented, filed and disclosed.

The IFC and the Bank teams should be called upon to advise the PFI on how (and whether) to

process the application when the subproject involves acquisition of lands under traditional ownership

or tenure, or have potentially direct impacts on an IP community (which in most cases involves land

tenure issues), then. In a manner commensurate to the risk (and likely impact), the Bank shall

identify the compliance requirement. It is however underscored that the Bank shall ensure the

presence of a culturally accepted First and Prior Informed Consultation and broad community

support for the proposed SME activity in such cases.

34

Operational Policy on Involuntary Resettlement (OP 4.12)

Land acquisition is not expected under this project since the predominant enterprise to be covered is

in construction service. Even the light manufacturing and agribusiness enterprises are mostly

existing already and any expansion is expected to be very limited in scope of land acquisition. To

confirm this, a screening tool shall be developed to ensure that the proposed investment plans can be

completed without (i) any additional acquisition of private land; and (ii) eviction of, partial damage

to structure and/ or restriction of access to income generating activities for, private individuals

including land users and squatters. Legacy issues uncompensated taking of land and damages to

other assets ) on land transaction that was conducted in the past would still trigger the policy and that

compensation has to be paid as per OP 4.12, if the conduct constitutes an integral part of the

investment plan without which the objective cannot be achieved. The following screening matrix

shall be used to check on presence/absence of potentially displaced persons.

SSppeecciiffiicc

IInnvveessttmmeenntt

ppllaann

NNaammee ooff

PPootteennttiiaallllyy

DDiissppllaacceedd

PPeerrssoonnss

AAsssseettss

AAffffeecctteedd

BBrriieeff ddeesscc..

EEssttiimmaatteedd CCoosstt AAggrreeeemmeennttss oonn

ccoommppeennssaattiioonn SSiiggnnaattuurree

It is noted that 97% of land in PNG are traditional lands and compensations may need the

involvement of traditional IP leaders.

On Capacity Building for Social Safeguards

The joint bank team for safeguards shall provide technical assistance to help develop the capacity of

the particular PFIs when needed. The SMEs will be assisted by the PFIs in the formulation of and

management of its social safeguards operations.

On Grievance Mechanism

Each participating PFI shall identify its specific focal person and his/her alternate for grievance and

redress. It shall also clearly state all official means of contacts with them. He or she will accept the

complaint from local communities or directly affected stakeholders with reasonable and responsible

claims that an activity by an SME funded by a loan from the financial institution as part of the RSF

has caused harm to them, their livelihoods, or their environment. The financial institution will work

with the borrowing SME to try to address the concerns in a reasonable and responsible manner. The

financial institution will report such complaints to the IFC immediately. An update on the case shall

be submitted to IFC no later than two weeks after its receipt. In addition, the financial institution

shall inform the aggrieved parties that if efforts by the borrower (SME) to resolve the issue are

unsatisfactory, the aggrieved parties have the right to bring their complaints to staff in the local IFC

or Bank offices.