Social Due Diligence in EIB Lending : an Introduction to EIB ’ s Social Standards

1. Social Due Diligence in EIB Lending : an Introduction to EIB’s Social Standards Eleni Kyrou, Social Development Specialist PJ/ECSO November 5th, 2014 European Investment Bank

2. I. The Foundation of EIB’s E&S Framework • EIB’s general approach to the environment and social well-being is derived from the Lisbon Treaty (2009) • The Charter of Fundamental Rights of the EU as the main reference for EIB’s social standards; and supplemented by good practice requirements (MFIs’ standards, ILO Core Labour Conventions, UN Guiding Principles on Business & Human Rights, etc) • EIB Statement of Environmental and Social Principles and Standards (2009) as its highest-level policy articulating EIB’s commitments to environmental and social sustainability • EIB E&S Practices Handbook (updated 2013) operationalizes the Statement, introduces HR language, and provides guidance to promoters on compliance and alignment to E&S performance • EIB E&S Standards apply to all regions (exceptions indicated); all types of financing; both public and private sector projects; throughout the project cycle European Investment Bank

3. Foundation of EIB’s Environmental & Social Framework • Highest-level policy of the Bank articulating EIB’s commitments to environmental and social sustainability • Applicable to all regions, all types of financing, to the whole project, throughout the project cycle European Investment Bank

4. EIB Environmental and Social Framework European Investment Bank

5. The Integrated Approach EIB E&S SPS committing to sustainability and the protection and respect of human rights Integration: Environment, climate change, social issues, biodiversity and ecosystems 10 EIB E&S Standards : key requirements for Bank supported operations EIB E&S Framework Standards apply to both public and private sector and to all regions Internal due diligence procedures for the Bank

6. What do EIB’s E&S policies and Standards Encompass? COMPLIANCE QUALITY ENHANCEMENT RISK & IMPACT MANAGEMENT

7. EIB Environmental and Social Standards • Requirements to be met throughout the life of an EIB-supported operation • Help promoters manage E&S impacts and risks • Help promoters improve their E&S performance through implementation of sound environmental and social practices, transparency and accountability. European Investment Bank

8. The Role of the EIB vs the Role of the Promoter European Investment Bank

9. The Social Standards: Key Messages & Specific Outcomes Defined The social standards that need to be achieved are defined, but not the way in which they are achieved • Avoid impacts – Application of the Mitigation Hierarchy • Avoids prescription and allows promoters to develop solutions that are appropriate to the circumstances and location • Increases both opportunities and risks for promoters and their financiers Opportunity • Innovation • License to operate • Cost effectiveness solutions • Efficiency Risk • Promoter and EIB need to understand what they have to do • Capacity constraints of the promoter can mean that impacts are not managed European Investment Bank

10. EIB Social Due Diligence Guiding Principles • Appraisal in the context of the project’s definition, covering relevant stages of the project cycle, proportional to impacts and risks; • Support positive environmental and social outcomes; • Comply with national laws (but if not adequate – EIB/EU/IFI policies should be the substitute) but sometimes not enough to say project is acceptable because it has national approval; • Apply international best practices; • Create ownership among stakeholders; • Assess implementation capacities and systems; • Support the rights of the project affected people; • Monitoring and review; • Not to be dogmatic but use experience, sector and country knowledge, judgement and common sense. European Investment Bank

11. III. Human Rights Integration: Key Principles • HR impact assessment seen as an integral part of a robust social impact assessment – not required as a stand-alone instrument • HR mitigation hierarchy as key principle -- premised on the principle of remedy rather than off-setting • Focus on materiality of risk to affected persons, now acknowledged as rights-holders • Guided by considerations of likelihood, severity, and frequency of HR impacts anticipated, hence ordering the prioritization of mitigation measures accordingly (with exceptions in supply chain) • Likelihood is often linked to: (i) the country context related to specific rights, and (ii) specific business relationships posing particular HR risks • Severity is to be appraised on basis of gravity of anticipated impacts (scale), scope and remediability of the said impact • Considerations of influence over potential impact and leverage over those able to affect change should inform attribution of responsibility and obligation for action European Investment Bank

12. III. Human Rights Integration: Key Challenges • Supply chain risks remain due to the decision to limit the requirement to the application of standards and due diligence on the first-tier supplies   • Application of standards in environments with poor governance (and particularly with public promoters) • Challenges related to monitoring and follow-up of implementation of commitments by promoters European Investment Bank

13. Understand Promoter Capacity and Commitment European Investment Bank

14. What’s in the Standards? • Objectives • Definitions • General guidance • Screening questionnaire • Specific requirements where sensible • Further references European Investment Bank 31

15. What’s not in the Standards? • Detailed step-by-step directions • Coverage of all likely project scenarios • Detailed methodologies for further studies • =>Social Development Specialist Further resources European Investment Bank 31

16. Standard 1: Assessment and Management of Environmental and Social Impacts and Risks • Objective • To anticipate, avoid, minimize, and compensate for impacts and risks; • To mitigate or minimise negative impacts to affected communities and the environment; • To promote effective use of environmental and social management systems • To promote adequate engagement and communication with project-affected communities • In sum: • Standard 1 establishes the importance of (i) integrated assessment to identify the environmental and social impacts, risks, and opportunities of projects; (ii) effective community engagement through disclosure of project-related information and consultation with local communities on matters that directly affect them; and (iii) management of environmental and social performance throughout the life of the project .

17. Standard 1: Assessment and Management of Environmental and Social Impacts and Risks • Key elements • Assessment • Management • M&E • Stakeholder engagement • Relevant frameworks of reference • SEA • Assessment area, taking into account: assets or facilities or associated works directly owned or managed by the Promoter and integral parts of the main project intervention; supporting/enabling activities; associated facilities or businesses; areas and communities likely to be affected by cumulative impacts • When do we undertake a comprehensive environmental and/or social assessment? • Environmental and Social Management Plans (ESMPs) • Organizational and Management Systems • Intermediated Operations; Corporate loans

18. Standard 8: Labour Standards • Objectives • To promote fair treatment, non-discrimination, equal opportunity and safe conditions for workers and employees; • To ensure compliance with national employment and labour laws; • To protect workers and avoid the use of forced or child labour; • To promote the right to freedom of association. • Key elements • The Bank is expected to undertake a labour assessment, follow up in monitoring • Requires comparable terms and conditions for all workers; • Defines first-tier supplier and contractor, requiring application of due diligence at that level, too; • Introduces requirements for workers’ accommodation; • Ensures worker access to a grievance mechanism; • Introduces the notion of labour audit.

19. Standard 8: Labour Standards • Red lines • No child labour is admissible • No forced or bonded labour is acceptable • Highly desirable • Freedom of association and the right to collective bargaining • Screening • Check Promoters’ awareness of ILO Core Labour Standards and compatibility with national law • Assess risk in terms of labour problems [downtime, union problems, worker-management relationships, working conditions, etc ] • Is there an internal grievance mechanism for workers? • Review the Promoter’s employment policies (HR), their adequacy, and management’s capacity to implement • Are the actions required to meet necessary standards articulated in the ESMP? • How to handle subcontractors and supply chain? • Do not rely automatically on fellow IFIs in the transaction

20. Standard 9: Occupational and Public Health, Safety and Security • Objectives • To anticipate and avoid or manage health, safety and security impacts on workers and the public; • To safeguard people and property in accordance with relevant human rights principles. • Key highlights • The Standard applies to 1st-tier suppliers and primary contractors. Promoters are recommended to seek to apply the Standard through the supply chain with the use of a human rights due diligence assessment. • Where health impacts on the public and/or the workers of significant magnitude, an ESHIA is expected. Specifically for the labour domain, a hazard assessment is foreseen. • Labourers’ accommodation and health, hygiene & safety considerations • Security management enters the scene in our due diligence • Different risks related to HSS that the promoter needs to address, managed through a variety of plans, such as: influx management plan; emergency preparedness plan; traffic management plan; security management plan etc. • IFI differences on OSHS

21. Standard 9: Occupational and Public Health, Safety and Security • Screening • Assess health, safety and hygiene risks for workers and communities alike  transportation and access, waste disposal, security personnel, in-migration of workers – exposure to disease, etc. • Plans or measures to deal with these risks • Is there a formal structure to deal with the HSH issues? Reporting measures of incidents? • Are there any significant security threats? Is the Promoter considering the hiring of public or private security forces? • Check living and hygiene conditions at labourers’quarters • Monitoring can be done by site visits for major projects by lenders advisors

22. Upstream • Identification •  Issues meeting • PreAppraisal • PIN • Appraisal AFS • Approval CA • Loan negotiation • Implementation • Operation • Completion • Opinion for • Appraisal (OA) • Appraisal report • COP Business plan • Completion • report • Contract • Progress reports • E&S - REM • indicators • Social • screening • Env. eligibility • ESIA (s) EA • ESDS • E&S Rating • REM • E&S • covenants • (loan conditions) EIB Project Cycle and Social Due Diligence Elements • E&S issues • Project cycle • Paper trail European Investment Bank

23. Stages of the EIB Project Cycle and Relevant Points of Disclosure and Engagement • Pre-Appraisal • Appraisal • Approval • Disbursement • Supervision Promoter: Community engagement and consultation EIB: Publication of ESDS EIB: Publication of NTS/EIS Promoter: On-going Community Engagement / Documentation Updates European Investment Bank

24. ECSO: What We Strive For ECSO: Environment, Climate and Social Office (PJ) • Three (3) social specialists in place available for full attribution and/or helpdesk function • Social screening process once PIN is issued • Social Working Group (inter-directorate) We work towards: • Adding value • A collaborative and transparent process; • Engage stakeholders in a variety of ways; • Adapt to ever changing global E&S needs; • Obtain feedback from directly-affected communities and promoters. European Investment Bank

25. THANK YOU EleniKyrou PJ/ECSO European Investment Bank