Project owners feel the heat
Project finance comes increasingly with more pressure on borrowers to manage environmental and social risk – but the focus of this risk is also constantly shifting.
According to Sharon Jones, partner and principal environmental consultant at SRK Consulting, until fairly recently investors and lending institutions tended to scrutinise land acquisition and involuntary resettlement aspects, but there is now elevated interest in working conditions, resource efficiency and pollution prevention (to manage climate change).
Indeed, certain types of projects – such as those requiring diesel power – were finding it more difficult to find any funding at all.
Jones highlights that the reputational risk to investors and lenders remains a critical informant in financial decision making, putting project owners under growing pressure to recognise environmental and social risks.
This burden is becoming more pronounced as shareholder activists and civil society groups highlight investment decisions they perceive to be controversial.
“A leading guideline in this field has been the International Finance Corporation (IFC) Performance Standards,” she says. “But other standards and conventions, such as International Labour Organisation (ILO) conventions, are important too, and increasingly SRK is required to consider areas such as human rights, gender equality, carbon neutrality, circular economy, waste valorisation and climate change when assessing project risks.”
Big focus on climate change
This means that lenders and their Environmental, Social and Governance (ESG) consultants need to assess risk in issues as diverse as worker accommodation, gender-based violence, grievance mechanisms and the use of security forces for protection. There is a continued focus on climate change and climate resilience of projects.
“Other important areas of concern include community health, safety and security, as well as indigenous peoples’ rights and cultural heritage,” Jones says.
“The Equator Principles, also driven by financial institutions, have been updated to focus more intensely on aspects like climate change.”
This has confirmed the value of Environmental and Social Due Diligence (ESDD) as a tool to assess projects’ environmental and social compliance with good international industry practice (GIIP).
SRK partner and principal consultant Christopher Dalgliesh highlights that ESDD’s often identify gaps and recommend measures to bring projects into compliance, providing assurance to funders.
Gaps are typically documented in an Environmental and Social Action Plan (ESAP) against which lenders usually require ongoing compliance reviews or audits through construction and into project operations.
“By reviewing project performance, we can identify a range of risks – highlighting those that are material to financing,” says Dalgliesh. “By giving lenders insight into certain key risk areas, they are in a better position to make their lending decisions.”
This makes the exercise different to a normal environmental and social impact assessment, where mitigation measures are recommended which can solve specific problems.
Gaining valuable insight
ESDD work usually begins with expert scrutiny of key project documents. This highlights the main areas of potential concern, which can be further explored during a site visit.
“With an experienced practitioner or team conducting the ESDD, a great deal of valuable insight can be gathered in discussions with the project team, project owners and Health, Safety and Environment managers – but also with a range of project stakeholders,” says Jones.
She notes that ESG consultants need to be constantly upgrading their skill sets to keep abreast of evolving or shifting risks and standards. SRK has conducted ESDD across many sectors, ranging from hydropower projects in Angola and fertiliser projects in Bangladesh, to a mine upgrade near Saldanha Bay and a hydro-electric scheme in Ethiopia.
WhyAfrica reports about, and publishes newsletters, magazines and research reports about natural resources and the primary sectors of African economies, and the infrastructure, equipment and engineering methods needed to extract and utilise these resources in an efficient, responsible, sustainable, ethic and environmentally friendly way, so that it will benefit the people of Africa.
Furthermore, WhyAfrica promotes Africa as an investment and travel destination, analyses the continent’s business environment and investment opportunities, and reports on how the political economy of African countries affects its development.
WhyAfrica provides you with business intelligence that matters. Africa is our business, and we want it to be yours too. To subscribe to WhyAfrica’s free newsletter or digital magazine, and for more news on Africa, visit the website at www.whyafrica.co.za or send a direct message. WhyAfrica launched its first ever digital magazine in November 2021.
The company will undertake its annual road trip through South Africa, Zimbabwe, Zambia, the DRC, Malawi, Tanzania and Kenya in 2023. If you are interested in sponsorship or advertising opportunities, please contact me at firstname.lastname@example.org. We have a wide range of different packages and combo deals to give your company the greatest exposure to a rapidly growing, African readership.
The 2022 Southern Africa Road trip issue of WhyAfrica’s magazine is now available in print. The magazine was distributed in South Africa, Namibia, Zambia, Zimbabwe, and Botswana during WhyAfrica’s 2022 Southern Africa Overland Road Trip, the company’s new and innovative platform. WhyAfrica has expanded its product range and now offers its readers, followers, advertisers, subscribers and partners the following:
- Daily 24/7 online articles on WhyAfrica’s website (FREE)
- Daily updates on WhyAfrica’s social media platforms (FREE)
- Newsletters delivered to a handpicked audience every two weeks (FREE)
- Two printed magazine per year distributed at large events and during our road trips across Africa featuring original, in-depth articles (FREE) with great, on-site photographs by the WhyAfrica team (FOR SALE UPON REQUEST)
- Four digital magazines per year (FREE)
- Live updates, video clips, articles, and podcasts during and after WhyAfrica’s annual road trips (Southern Africa in 2022, East Africa in 2023 and West Africa in 2024) (FREE)
- Sponsorship and advertising opportunities for the annual WhyAfrica Overland Road Trips (PAID FOR)
- A library where companies doing business in Africa can display scientific or research papers (PAID FOR)
- A product section where companies doing business in Africa can display new offerings or services (PAID FOR)
- Media partnerships with, and a presence at, most of the major conferences and exhibitions in the African mining, energy, agriculture, infrastructure, water management, ESG, environmental management, tourism, development, and conservation sectors (FREE)
- WhyAfrica connects potential investors with new ventures in Africa and suppliers and service providers with existing companies in Africa (PAID FOR)
- WhyAfrica assists companies in generating content focused on the wider African business community (PAID FOR)
- Partnerships with companies doing business in Africa (PAID FOR)
- Partnerships with companies thinking about expanding into Africa (PAID FOR)
- In 2023 subscribers will have access to our in-depth articles about the African political economy, research, and country reports about the countries we visit on our road trips, and trends in the sectors that we cover (PAID FOR)
- A WhyAfrica book is in the pipeline and if all goes according to plan, should be published towards the end of 2023 (PAID FOR)
- The WhyAfrica consultancy arm assists and advises companies doing business in Africa through utilising our extensive global business network (PAID FOR)
Become part of the WhyAfrica community. Tell us your story. Expand your footprint across Africa and partner with us to make the most of your African experience.