SACE environmental and social due diligence guideline

Phase 1 - Screening

The Environmental and Social due diligence starts with the assessment of the Environmental Screening Questionnaire, included in the application form to be filled in by the applicant (box 6 - Environmental Screening).

Such a Questionnaire should be filled in with the aim of describing the project of destination, not the supply. For example, production capacity to be filled in is the capacity of the overall plant where the supply is destined and not the capacity of the supply under cover.

The screening questionnaire review should allow an easy identification of the project nature, industrial sector and site location. For example, a steam turbine may be destined to a thermal power plant as well as to a heat recovery process in a chemical plant: the screening should identify the right process.

Moreover, the screening questionnaire supports the assessment of whether or not there may be a high likelihood of severe project-related human rights impacts occurring.

Phase 2 - Classification

Combining the Screening Questionnaire with the basic information contained in the application form, each transaction may be classified in one of the following categories:

Category A: a project is classified as Category A if it has the potential to have significant adverse environmental and/or social impacts, which are diverse, irreversible and/or unprecedented. These impacts may affect an area broader than the sites or facilities subject to physical works. Category A, in principle, includes projects in sensitive sectors or located in or near sensitive areas.

Sensitive sectors may include, as an example: thermal power plant with a capacity of 300 MW or more, initial smelting steel, large dams, large scale undertakings like railroads, highways, ports and harbors, etc.

Sensitive sites may include, as an example: National Parks and other protected areas identified by national or international law, and other sensitive locations of international, national or regional importance, such as wetlands, forests with high biodiversity value, areas of archaeological or cultural significance, and areas of importance for indigenous peoples or other vulnerable groups.

An illustrative list of sensitive sectors and sites is set out in the Common Approaches’ Annex I.

Category B: a project is classified as Category B if its potential environmental and/or social impacts are less adverse than those of Category A projects. Typically, these impacts are few in number, site-specific, few if any are irreversible, and mitigation measures are more readily available. Category B, as an example, may include projects in less sensitive sectors like manufacturing, textile, ceramic and tiles, food and beverages, etc. located far from sensitive areas, for example in industrial areas or sites with a commercial/industrial use.

Category C: a project is classified as Category C if it has minimal or no potentially adverse environmental and/or social impacts.

Category EO: a project is classified as Category EO if it is an “Existing Operation”, in other words an existing undertaking that is undergoing no material change in output or function. For example, replacing an outdated equipment with the same type but new in an existing plant that is not changing anything else.

Classification is key to address the next due diligence phase:

• for Category A and B an environmental and social review is needed (phase 3);
• for Category C no further steps are needed and the due diligence process is concluded;
• for Category EO no review, but an assessment of potential environmental and social risks is required. SACE carries out such an assessment through on-line databases and ad-hoc questions.

Phase 3 - Review

For Category A review, SACE requires an Environmental and Social Impact Assessment (ESIA), to be done in compliance with the World Bank Group Guidelines for ESIAs. An illustrative content of an ESIA compliant with World Bank Group’s guidelines is in Annex II of the Common Approaches. If an ESIA is already available according to different standards, SACE accepts it for review but may require substantial integration to fill gaps. The ESIA may be in local language: SACE may require translation or support through a consultant with local language skills.

For Category B review, SACE requires an ad-hoc questionnaire to be filled in by both the exporter and the buyer: the Environmental and Social Review Questionnaire (ESRQ). If other documents covering environmental and social aspects are already available, SACE accepts it for review but may require substantial integrations to fill gaps. The Questionnaire is tailored on the specifics of each transaction: an example of ESRQ is available ESRQ.

The review is an interactive phase where, after initial documentation gathering, several parties (mainly exporter and buyer) are involved in providing clarifications, further integration or assessing project improvement actions.

The level of involvement of different parties is influenced by the project nature and financial structure: in the most complex cases third party consultants, experts on environmental and social matters, may be appointed [1] to support the due diligence.

The review objective is to ensure project compliance to the most stringent between Host Country and International environmental and social standards, where international standards include:

• The 8 IFC Performance Standards
• The 63 World Bank Group Environmental, Health and Safety (EHS) Guidelines

The above standards are subject to periodic reviews and may change. It is recommended that IFC (International Finance Corporation) web site is checked for the most recent updates.

In case of sectors or issues that are not covered by the above International standards, other internationally recognized standards may be used, like for example the IAEA guidelines for nuclear sector, or the WHO for air quality.

A final assessment on environmental and social impacts management and project compliance with standards concludes the review phase; this may include requirements for mitigation actions and/or monitoring plans.

In the most complex cases, when action plans or environmental and social covenants are required, SACE follows up implementation through a monitoring activity on environmental and social performances of the project. Such monitoring extends normally for the loan duration and has a frequency that may be quarterly or six-monthly during construction and six-monthly or annually during operation.

Phase 4 - Disclosure and Reporting

For all Category A projects, the ESIA is made available to the public through a notice on SACE’s web site and for 30 days before a final decision of support is taken, in compliance with SACE policy on environmental disclosure. The web news is available in Italian and English, while the ESIA will be made available in the same language which SACE accepts for review. All ESIA availability news remains on the web site indefinitely and may be identified through either project name or site location through the search engine.

All category A and B transactions guaranteed are disclosed publicly on our web site every six months, indicating project nature, information reviewed and standards used.

A six-monthly report to the OECD Secretariat on all guaranteed transactions classified in category A and B is also provided by all OECD Member States. The OECD Secretariat checks and elaborate such transactions reports and provide elaborated data in aggregated reports. The latest OECD reports are available here.

Multisourcing Projects

In case of co-insurance, SACE promotes the highest cooperation with the other involved export credit agencies, sharing information, consultant and site visits, coordinating environmental and social requirements.

In case one or more Major Multilateral Financial Institutions [2] (MLA) are involved in the same transaction, the international standards to be used for project compliance may be those of the principal involved MLA, with the aim to avoid a double due diligence ensuring the same level of protection. For example, if the European Bank for Reconstruction and Development (EBRD) is involved and applies its own Performance Requirements, SACE may as well adopt such standards as international standards for the project without carrying out a double due diligence towards the IFC Performance Standards.

In case an Equator Principles Financial Institution is involved, SACE promotes the highest cooperation and sharing of information, consultant and site visits, because the use of the same set of standards (those of the World Bank Group for both) is an added value that harmonizes the due diligence. For those aspects where the Equator Principles and the Common Approaches differ, minor deviations may be addressed through Project requirements. In reassurance situations with other export credit agencies adhering to the Common Approaches, the leader insurer is responsible to carry out the environmental and social due diligence also for the benefit of the follower insurer. The last may rely on the leader insurer due diligence without carrying out its own. Finally, if an export credit agency plays a minor role in comparison with an MLA or another export credit agency on the same transaction, the minor agency may decide to rely on the due diligence carried out by the MLA or leader export credit agency.