SUMMARY OF SPECIAL STUDY
EVALUATION OF ENVIRONMENTAL PERFORMANCE OF EBRD
PROJECT EVALUATION DEPARTMENT MAY 2001
PREFACE The subject of this special study is the independent evaluation of the environmental performance of the EBRD. It covers a sample of projects in environmentally important sectors, and other activities of the EBRD in environmentally important areas, since the Bank’s foundation. This thematic and impact study aims to identify the Bank’s environmental impact in the region and help to improve its future environmental performance. The environmentally important sectors evaluated include Industry and Manufacturing, Energy (including power utilities and energy efficiency), Municipal and Environmental Infrastructure (MEI), Natural Resources and Transport sectors. The review of other environmentally important activities includes the Project Preparation Committee (PPC), environmental training, and cooperation with Financial Intermediaries (FIs), the Nuclear Safety Account (NSA), and the Technical Cooperation Funds Programme (TCFP). The assessment of FIs, NSA, and TCFP is based on recently conducted evaluations by PED. The Team Leader and author in this special study was Jouni Eerikainen, Senior Environmental Evaluation Manager in PED whose position is funded by the Finnish TC fund. He was also responsible for carrying out field surveys in the Industry and Manufacturing and Natural Resources sectors. The consultant of PED, Dr. Damir Brdjanovich (IWACO, The Netherlands, funded by the Dutch TC fund) carried out field surveys in the MEI sector. The specialists in the Environmental Appraisal Unit (EAU) of the Bank conducted field surveys and desk studies in all sectors. PED has validated and approved all the evaluation reports prepared by EAU. The field survey evaluations are based on on-site visits and interviews carried out between March and September 2000 with representatives of the borrower, environmental authorities, and in some cases with NGOs and other stakeholders. The desk study evaluations that did not include site visits were conducted between August and November 2000. The 39 environmental performance evaluation reports of the individual projects are presented in the report “Evaluation of Environmental Performance of the EBRD, Volume 2”. The 148 “Lessons Learned” are compiled in Volume 3. The findings in the report relate to the specific projects sampled, as do the lessons learned. Some general inferences for the Bank's future operations in similar sectors have also been made.
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1.
BACKGROUND AND OBJECTIVES
At the time of its establishment in 1991, the European Bank for Reconstruction and Development (EBRD) was the first multilateral development bank (MDB) directed by its founding agreement to “promote in the full range of its activities environmentally sound and sustainable development”. To fulfil its environmental mandate, the EBRD has incorporated environmental procedures into all its operations and is helping the transition countries to deal with the multitude of environmental problems inherited from the communist era. The collapse of the centrally planned economies significantly reduced the resources available to the public sector to upgrade and maintain facilities such as water supplies and waste-water treatment plants. It also resulted in severe disruption to mechanisms that deliver environmental protection, such as monitoring regimes and plant inspections. Under communism, environmental standards and regulations were set at demanding levels, but they tended to be ignored, with a low level of fines being paid. These were also often enforced in an arbitrary way, resulting in major polluters often escaping significant financial penalties. In the production sector, facilities were outdated, pollution control equipment was in need of renewal or non-existent, energy and other resource efficiency was low, and environmental protection was a low priority. Environmental management in the production sector was generally weak and dominated by production targets. Environmental disasters were regarded as state secrets and public participation in environmental decision-making was very limited and poorly organised. Toxic waste management in centrally planned economies was generally poor, despite the obvious need for designated landfills and treatment plants. Industrial facilities and military bases produced thousands of tonnes of toxic wastes, which were not properly stored or treated, resulting in soil and ground water pollution. The authorities did not regulate the use of asbestos in buildings, or polychlorinated biphenyls (PCBs) in electrical equipment. Asbestosis is now a major occupationrelated disease. The lack of nuclear safety was dramatically demonstrated in the catastrophic accident at the Chernobyl nuclear power plant in 1986 in Ukraine. High-risk nuclear power plants and storing of spent nuclear fuels and wastes from nuclear power plants and military nuclear reactors still pose significant environmental risks. The reduced life expectancy in many of the transition countries over the past decade is, in part, likely to have been attributable to the degradation of the environment. Polluted air, contaminated drinking water, overuse of chemicals, bad management of hazardous waste, and poor occupational health and safety regimes have all taken their toll, together with the reduced resources available to the health sector and changes in lifestyle. Environmental practices and energy efficiency have improved in some advanced transition countries but there are still major challenges in the region with regard to raising environmental standards and achieving sustainable development. As the EBRD marks its tenth anniversary, it is important to review how the Bank has fulfilled its environmental mandate and to assess the environmental impact of the Bank since its foundation. The Project Evaluation Department (PED) conducted this thematic impact study as part of its 2000 Work Programme. The first objective of the study was to examine the environmental impact of the Bank, based on a review of a sample of environmentally sensitive projects, and to assess the environmental impact of other aspects of the Bank's activities. The second objective was to draw lessons from past experience in order to improve future operations and procedures, including environmental due diligence, monitoring, and evaluation practices. Based on the study and “Lessons Learned” from the projects, the objective has also been to evaluate the environmental due diligence, monitoring, and especially evaluation practices (Evaluation guidance). Evaluation of country- and sector strategies as well as evaluation of the Bank’s organisational framework, and comparison of the Bank with other MDBs has been excluded from the scope of the study. 3
2.
APPROACH AND METHODOLOGY
The methodology applied in the special study comprises: (i) an environment related statistical analysis of environmental sensitive projects covering independent evaluations by PED, mainly in the form of OPERs and XMR Assessments, self-evaluations by Banking Departments, mainly in the form of Reviews, and evaluations in the form of field surveys and desk studies, (ii) an in depth field survey with site visits based on a limited sample of projects in key environmental sectors and regions, (iii) a desk study on a larger sample of projects, (iv) study on other environmentally important activities of the Bank, and (v) assessment of EDD, monitoring and evaluation practices. The Bank had 666 completed or active projects with at least first disbursement by 2000. The total number of sampled projects for field survey (12) and desk study (27) is 39, out of a total of 262 “environmentally sensitive projects”, which include all active and completed projects in Industry & Manufacturing, Power & Energy and Energy Efficiency, Municipal and Environmental Infrastructure, Natural Resources and Transport sectors that are screened to A/1, A/0, B/1, B/0 or C/1 environmental screening categories. The 39 sampled projects represent 10 per cent of the Bank’s total financing. The individual projects were selected on the basis that they form a representative cross-section of the implemented projects in environmentally important sectors as a whole. In order to improve the statistical reliability of the analysis, previously reviewed and evaluated environmentally sensitive projects were added to the basic sample, forming altogether 113 reviewed projects that represent 25 per cent of the Bank’s total financing. A methodology was developed to summarise the environmental performance of projects as the aggregate of the environmental and health & safety (EH&S) performance components in a graphical one-page form. The EH&S performance components have been rated using a six point rating scale with benchmarking explanations in each rating. This methodology enabled the evaluation of the extent of environmental change (environmental impact), as the difference of the environmental performance before the project started and measured at the time of the evaluation. The projects have been grouped in categories of environmental success, according to their environmental performance and extent of environmental change. Examples of successful and less successful categorised projects, as well as “greenfield” projects have been briefly described in environmentally important sectors. Apart from environmental performance and extent of environmental change, other key evaluation categories from the environmental point of view are relevance, efficiency, and sustainability. The focus of environmental assessment of individual projects has been, how the Environmental Action Plans (EAPs) have been prepared, monitored and implemented during the project cycle. Special attention has been paid for evaluation of Environmental Management System (EMS), public consultation, and cooperation with authorities and other stakeholders. Other evaluated environmentally important activities of EBRD include: · · · ·
Environmental training and cooperation with FIs The Nuclear Safety Account including Chernobyl Shelter Fund Technical Cooperation Project Preparation Committee of the “Environment for Europe Process”
The evolving of Bank’s environmental procedures has been described. The environmental procedures of the Bank linked to the projects including EDD and monitoring and Environmental Action Plans (EAPs) have been evaluated as an integrated part of the project evaluation during the field survey and desk study. Recommendations to develop EDD, monitoring and evaluation practices have been drawn from the project evaluations.
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3. 3.1
EVALUATION IN RESPECT OF ENVIRONMENTAL PERFORMANCE & CHANGE GENERAL EVALUATION AND STATISTICAL ANALYSIS OF PROJECTS
Distribution of the reviewed environmentally sensitive projects by sector and region is presented in the table below. Table 1 Distribution of the 113 reviewed projects by sector and region Sector, Type Region
Advanced Intermediate/Early Russia Total
Industry & Manufacturing
Energy
30 13 9 52 46%
3 11 1 15 13%
Municipal & Natural Env Inf Resources
4 2 6 5%
4 9 13 12%
Transport
14 7 6 27 24%
Total
%
51 45% 37 33% 25 22% 113 100% 100%
Most of the industry and manufacturing sector projects have been implemented in advanced transition countries and most of the projects in natural resource sector have been implemented in Russia. There are 22 projects that are screened to “A” category, which is 48 per cent of all “A” screened and disbursed 46 projects by 2000. The total investments of these 113 reviewed projects were € 16,102 mill and funding approved by EBRD was € 3,689 mill, representing 25 per cent of the total active or completed financing of € 14,95 mill in 666 projects of the Bank between 1991-2000. 3.2
ENVIRONMENTAL PERFORMANCE:
The environmental performance measures how well the environmental objectives of the project including regulatory compliance have been met. The environmental performance of the reviewed projects is shown in the table below: Table 2 Environmental performance of the 113 reviewed projects Environmental Performance 113 35 23 38 17 0 0
Evaluated projects: Excellent Good Satisfactory Marginal Unsatisfactory Highly Unsatisfactory
31% 20% 34% 15% 0% 0%
51%
49%
In the environmentally most important sectors, the environmental performance has been excellent, good or satisfactory in 85 per cent of the projects of which excellent or good is 51 per cent. There is a slight positive correlation between the environmental performance and overall performance of the projects as can be seen in the table below. The overall performance includes financial performance, transition impact, additionality, and environmental performance. The shaded areas represent a good positive correlation. Two projects, which have been highly successful or successful in their overall performance, show only marginal environmental performance. On the other hand, three projects with unsuccessful overall performance, in industry and transport sectors, have been excellent in their environmental performance. Among these projects, the environmental performance of Korado radiator plant project in Czech Republic and M1-M15 Motorway project in Hungary was excellent despite of the financial failures of these projects due to too optimistic revenue forecasts. It seems that in such rare cases also projects with weak overall performance have a chance to achieve excellent environmental performance. 5
Table 3 Environmental performance of the reviewed projects and their overall performance Performance
Environmental Performance Highly Unsatisfactory
Unsatisfactory Marginal Satisfactory
Highly Successful Successful Partly Successful Unsuccessful Total
1 1 4 8 14
Good Excellent Total
4 10 4
20 8 9 37
18
4 21 6 3 34
9 52 22 20 103
In some projects, the environmental benefits have not yet been fully visible at the time of evaluation due to the incompleteness of the long-term environmental investment plans. The environmental performance by sector is shown in the chart below: Figure 1 Environmental performance of the 113 reviewed projects by sector 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Industry & Ma nufa cturing
Energy
Municipa l & Env Inf
Na tura l Resources
Tra nsport
Tota l
Excellent
27%
33%
17%
23%
44%
31%
Good
17%
27%
67%
38%
4%
20%
Sa tisfa ctory
38%
27%
0%
23%
41%
34%
Ma rgina l
17%
13%
17%
15%
11%
15%
Unsa tisfactory
0%
0%
0%
0%
0%
0%
Highly Unsa tisfa ctory
0%
0%
0%
0%
0%
0%
The relative amount of projects with excellent or good environmental performance is highest in MEI sector (84 per cent) and thereafter in Natural Resources sector (61 per cent). The percentage of projects with excellent environmental performance is highest in the Transport sector (44 per cent). Main part of Industry and Manufacturing sector projects has been rated as satisfactory (38 per cent). The amount of unsuccessful projects with marginal environmental performance varies quite evenly between 11 per cent and 17 per cent across the sectors. The environmental performance by region is shown in the chart below:
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Figure 2 Environmental performance of the 113 reviewed projects by region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Adva nced
Intermedia te/ Ea rly
Russia
Tota l
Excellent
39%
24%
24%
31%
Good
22%
19%
20%
20%
Sa tisfa ctory
31%
38%
32%
34%
Ma rgina l
8%
19%
24%
15%
Unsa tisfactory
0%
0%
0%
0%
Highly Unsa tisfa ctory
0%
0%
0%
0%
Most of the reviewed projects in environmentally important sectors have been implemented in Advanced Transition Countries (45 per cent of 113), where on average the environmental performance has been better than in other regions. 3.3
EXTENT OF ENVIRONMENTAL CHANGE (ENVIRONMENTAL IMPACT)
The extent of environmental change is related to the difference of the environmental performance at the time of evaluation compared with the situation in the beginning of the project. In other terms, the extent of environmental change is also related to the environmental impact of the project as defined in ISO 14001 standard. The extent of environmental change of the reviewed projects is shown in the table below: Table 4 Extent of environmental change of the 113 reviewed projects Extent of Environmental Change 113 3 44 52 14 0
Evaluated projects: Outstanding Substantial Some None Negative
3% 39% 46% 12% 0%
42% 58%
In the environmentally most important sectors, there has been substantial or outstanding positive environmental change in 42 per cent of the projects. The extent of environmental change by sector is shown in the table below. Figure 3 Extent of environmental change of the 113 reviewed projects by sector 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Industry & Ma nufa cturing
Energy
Municipa l & Env Inf
Na tura l Resources
Tra nsport
Tota l
Outsta nding
6%
0%
0%
0%
0%
3%
Substa ntia l
37%
40%
67%
62%
26%
39%
Some
46%
33%
33%
38%
59%
46%
None
12%
27%
0%
0%
15%
12%
Negative
0%
0%
0%
0%
0%
0%
The extent of environmental change has been outstanding only in Industry and Manufacturing sector and there have not been any failures in MEI and Natural Resources sector to provide positive
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environmental change. As shown in the figure above, there has been less positive environmental change in energy sector compared with others. The extent of environmental change in various regions is shown in the table below. Figure 4 Extent of environmental change of the 113 reviewed projects by region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Adva nced
Intermedia te/ Ea rly
Russia
Tota l
Outsta nding
4%
0%
4%
3%
Substa ntia l
47%
27%
40%
39%
Some
41%
54%
44%
46%
None
8%
19%
12%
12%
Negative
0%
0%
0%
0%
There have been more projects with outstanding or substantial extent of environmental change in advanced transition countries and also in Russia compared with intermediate and early transition countries. In Russia, many of the reviewed projects, especially in oil drilling and mining have had a unsatisfactory starting-point thus creating a good potential for positive environmental change. 3.4
ENVIRONMENTAL SUCCESS OF THE PROJECTS
For example, let us consider an industrial facility with very polluted air, soil, groundwater, and recipient waters in the vicinity, due to high pollution loads before the project started. The Environmental and Health and Safety Management System are weak resulting in exposure to hazardous chemicals and unprotected equipment in the workplace, high number of accidents and fatalities, accumulation of wastes, poor energy efficiency and other Environmental, Health and Safety concerns. No public consultation has been conducted in environmental issues. With a well designed and successful environmental due diligence, monitoring, and public consultation, strong institutional development, and investments in modern process and pollution control technology, the environmental performance of the borrower’s organisation is upgraded from “highly unsatisfactory” or “unsatisfactory” in the beginning to “excellent” at the time of evaluation. In such a case, the extent of environmental change is “outstanding”, as described the evaluation guideline. The table below illustrates the environmental performance rating on the scale “Highly unsatisfactory” (–3), “Unsatisfactory” (-2), “Marginal” (-1), “Satisfactory” (+1), “Good” (+2), to “Excellent” (+3) in the beginning and at the time of evaluation. The length of the arrow indicates the environmental impact or extent of environmental change. The environmental objectives or targets set forth in ERM and EAP are marked with symbol . . The environmental objective/target is met, when the arrow reaches the symbol. The environmental object of a project, in general, is to achieve at least satisfactory (+1) environmental performance and regulatory compliance. Table 5 “Excellent success” projects with excellent environmental performance and outstanding or substantial extent of environmental change ENVIRONMENTAL SUCCESS
Excellent
Environmental performance in the beginning
Regulatory Extent of Environmental performance rating in the beginning and at compliance Env. EU/nation./WB Change the time of evaluation -2 -1 +1 +2 +3 -3 Yes/Yes/Yes
Environmental performance at the time of evaluation
Unsatisfactory Highly unsatisfactory
Excellent
Outstanding
Satisfactory Marginal
Excellent
Substantial
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Yes/Yes/Yes
Similarly, it is possible to separate projects with “Good success”, “Satisfactory success”, “Unsatisfactory success”, and “Highly unsatisfactory success” according to the environmental performance when the project started and at the time of evaluation. These different categories of environmental success are presented below. Table 6 Environmental success of the projects based on environmental performance and extent of environmental change ENVIRONMENTAL SUCCESS
Good
Satisfactory
Unsatisfactory Highly Unsatisfactory Greenfield & high starting performance projects
Environmental performance in the beginning
Environmental performance at the time of evaluation
Regulatory Extent of Environmental performance rating in the beginning and at compliance Env. EU/nation./WB Change the time of evaluation26 -2 -1 +1 +2 +3 -3 Yes/Yes/Yes
Highly unsatisfactory
Good
Marginal Unsatisfactory
Good
Substantial
Unsatisfactory Highly unsatisfactory
Satisfactory
Substantial
Marginal
Satisfactory
Some
Unsatisfactory Highly unsatisfactory
Marginal Unsatisfactory
Some
Marginal Unsatisfactory
Marginal Unsatisfactory
None
Unsatisfactory Marginal
Highly unsatisfactory Unsatisfactory
Negative
Good Satisfactory
Excellent Good
Some
Excellent Good Satisfactory
Excellent Good Satisfactory
None
Outstanding
Yes/Yes/Yes Yes/Yes/Yes Yes/Yes/Yes No/No/No No/No/No No/No/No Yes/Yes/Yes Yes/Yes/Yes
The methodology described above has been used to calculate the average environmental performance rating and extent of environmental change of the 113 reviewed projects in different sectors and regions. Numerical values in linear scale have been given to the projects according to their environmental performance from “highly unsatisfactory” to “excellent” at the time of evaluation. The environmental performance in the beginning has been calculated by deducting the extent of environmental change from the environmental performance at the time of evaluation. The following figure gives a rough estimate on the average environmental performance in the beginning and at the time of evaluation of the reviewed 113 projects by sector: Figure 5 Average environmental performance of reviewed 113 projects in the beginning and at the time of evaluation by sector All sectors
Beginning
Evaluation
Municipal & Env Inf Transport Energy Natural Resources Industry & Manufacturing -2 Unsatisfactory
-1 Marginal
+1 Satisfactory
+2 Good
+3 Excellent
The length of the horizontal bar indicates the extent of environmental change or environmental impact. On average, the Bank has been able to improve the environmental performance of the reviewed 113 projects from unsatisfactory/marginal starting point to nearly good at the time of 26
“Highly unsatisfactory”(–3), “Unsatisfactory”(-2), “Marginal”(-1), “Satisfactory”(+1), “Good”(+2), “Excellent”(+3).
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evaluation. It can be clearly seen that despite of the lowest starting point of the MEI sector projects, a substantial environmental change has upgraded their environmental performance to almost good. The starting point in Natural Resources and Industry and Manufacturing sector has also been lower than marginal and the environmental change has been substantial. The extent of environmental change in Energy and especially Transport sector projects has been somewhat lower. The average environmental performance at the time of evaluation has been highest in MEI, Transport and Energy sectors; the differences between all sectors are however quite small. The figure below gives similarly a rough estimate on the average environmental performance by region: Figure 6 Average environmental performance of reviewed 113 projects in the beginning and at the time of evaluation by region All regions
Beginning
Evaluation
Advanced Intermediate/Early Russia -2 Unsatisfactory
-1 Marginal
+1 Satisfactory
+2 Good
+3 Excellent
Most of the reviewed MEI and industry & manufacturing sector projects have been implemented in the advanced transition countries. The extent of environmental change is also highest here. The Natural Resources projects in Russia have influenced in its high average extent of environmental change. The average environmental performance is good in the advanced transition countries; in Russia and in Intermediate and Early transition countries it is between “good” and “satisfactory”. The starting point has been lowest in Russia. The table below summarises the different categories of environmental success in a matrix form. Table 7 Categories of environmental success Environmental Performance Highly Unsatisfactory Marginal Extent of Environmental unsatisfactory Change Outstanding Substantial Some Unsatisfactory success None Highly unsatisfactory success Negative
Satisfactory Good
Excellent
Good Excellent success success Satisfacto Greenfield & rysuccess high starting performance projects
The environmental performance of all 113 reviewed projects, and their extent of environmental change is summarised in the table below. They comprise 19 (17 per cent) “excellent success”, 16 (14 per cent) “good success” projects, and 17 (15 per cent) “unsatisfactory success” projects. The main part of the projects are satisfactory success 32 (28 per cent) and greenfield & high starting performance projects 29 (26 per cent).
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Table 8 Environmental performance of the 113 reviewed projects and their extent of environmental change (environmental impact) Extent of Environmental Change Outstanding Substantial Some None Negative Total
Environmental Performance Unsatisfactory Marginal
Highly unsatisfactory
0%
0%
Satisfactory Good
Excellent
Total
13 4
12 20 6
2 14 6 1
1 18 13 3
3 44 52 14
17 15%
38 34%
23 20%
35 31%
113
3% 39% 46% 12% 0%
As shown in previous Table 6, the “satisfactory success” category comprises projects with regulatory non-compliance and high environmental and health and safety concerns before the project started. The environmental performance of the organisation in the beginning of the project has been in many cases unsatisfactory or highly unsatisfactory. To bring the environmental performance from a highly unsatisfactory even to a satisfactory level and up to the regulatory compliance especially in projects comprising large industrial facilities, demands a lot of input from the Bank. 4.
MAIN CONCLUSIONS
4.1
FULFILMENT OF THE ENVIRONMENTAL MANDATE OF THE BANK
The evaluation assesses whether the EBRD has contributed enough over the past few years to overcome the legacy of the communist era and to undertake the remedies required. Based on the evaluation of projects and a review of the Bank’s activities in other environmentally important areas over the past ten years, the Bank has done well in respect of environmental performance and impact in projects with a substantial environmental dimension. This takes into account some notable deficiencies in environmental monitoring and reporting. The Bank has incorporated environmental requirements into loan covenants and has used other instruments to deliver positive environmental change. These include housing the Project Preparation Committee (PPC), encouraging environmental training and cooperation with financial intermediaries (FIs), developing the nuclear safety and decommissioning funds and making use of the Bank’s Technical Cooperation Funds Programme (TCFP). Of the 113 reviewed projects, only 15 per cent obtained below satisfactory environmental performance ratings. With the exception of these, the Bank has been able to help clients comply with most of the relevant domestic and EU or World Bank environmental regulations and guidelines, and meet the objectives of the EBRD's Environmental Action Plans. The environmental performance was rated as Excellent, Good or Satisfactory in 85 per cent of cases. A total of 51 per cent were rated as Excellent or Good. The extent of environmental change was Outstanding or Substantial in 42 per cent of the reviewed projects, see table below:
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Table 9 Environmental performance of the 113 reviewed projects and their extent of environmental change (environmental impact) Extent of Environmental Change Outstanding Substantial Some None Negative Total
Highly unsatisfactory
0%
Unsatisfactory
0%
Environmental Performance Marginal Satisfactory Good
Excellent
Total
13 4
12 20 6
2 14 6 1
1 18 13 3
3 44 52 14
17 15%
38 34%
23 20%
35 31%
113
3% 39% 46% 12% 0%
Unsatisfactory success
Good success
Excellent success
Highly unsatisfactory success
Satisfactory success
Greenfield & high starting performance projects
The extent of environmental change has been highest in environmentally sensitive sectors, especially in municipal and environmental infrastructure (MEI) sector, and in projects screened to “A” category. The Bank can significantly improve its environmental impact by undertaking a greater number of environmentally beneficial projects in these sectors and categories and incorporating more environmental benefits to its “mainstream” projects. 4.2
ENVIRONMENTAL DUE DILIGENCE, MONITORING AND EVALUATION PRACTICES
Most of the analysed projects show that the EBRD's environmental procedures, which were revised in 1996, are practical and efficiently incorporated in the Bank's project cycle. The Bank carefully follows its environmental procedures, and the Operations Committee has adequately addressed the environmental aspects of projects during the approval process. Therefore, there is no apparent need to revise the Bank's environmental procedures. The procedures are effective in safeguarding the establishment of environmental objectives and the covenanting of loans as long as they are carefully followed by the specialists of the Environmental Appraisal Unit (EAU), operation leaders, consultants, project sponsors and clients. The weaknesses in environmental due diligence practices that were identified in some of the cases relate to insufficient quality of feasibility studies and poor use of findings as well as the use of consultants lacking the necessary expertise, and unsatisfactory coordination of consultants. In general, the environmental monitoring procedures in the EBRD's project cycle are well defined. In some projects, the environmental reporting by the client has been excellent. However, the majority of environmental reports were not well-drafted and did not provide consistent information on the essential EH&S issues. The data on air emissions, notably carbon dioxide emissions, resulting from energy production is particularly insufficient. In an effort to improve environmental reporting, and to make it more consistent among IFIs, the EAU sought to enhance reporting practices at an informal international workshop organised in the Bank and at an internal workshop in 2000. Work to improve reporting procedures among IFIs is now under way. This study confirms the need to develop consistency in the evaluation of environmental performance. In some projects the EBRD's Environmental Action Plans (EAPs), which are linked with working capital loans, have resulted in a positive environmental impact. However, there can be difficulties in achieving sustainable environmental improvements with short-term loans for working capital to large corporations. 12
4.3
THE EBRD'S ENVIRONMENTAL IMPACT IN SECTORS WITH IMPORTANT ENVIRONMENTAL ASPECTS
On average, the EBRD has been able to improve the environmental performance of its projects, from a low starting point to a relatively good level at the time of evaluation. There has been a substantial improvement, for example, in the environmental performance of projects in the municipal and environmental infrastructure (MEI) sector. The starting point in the natural resources sector and in the industry and manufacturing sector was poor, and the environmental change has been substantial. The extent of environmental change in energy and especially in transport projects has been less significant. The average environmental performance at the time of evaluation was highest in the MEI and the Transport and Energy sectors; the differences between all sectors are, however quite small, as shown in the figure below: Figure 7 “Environmental Balance Sheet”, average environmental performance of reviewed 113 projects at the beginning and at the time of evaluation by sector2 All sectors
Beginning
Evaluation
Municipal & Env Inf Transport Energy Natural Resources Industry & Manufacturing -2 Unsatisfactory
+1 Satisfactory
-1 Marginal
+2 Good
+3 Excellent
The average extent of environmental change and environmental performance was highest in the advanced transition countries, see figure below: Figure 8 “Environmental Balance Sheet”, average environmental performance of reviewed 113 projects in the beginning and at the time of evaluation by region All regions
Beginning
Evaluation
Advanced Intermediate/Early Russia -2 Unsatisfactory
-1 Marginal
+1 Satisfactory
+2 Good
+3 Excellent
So far, the results for joint implementation (JI) projects have been disappointingly modest. Only one JI-related project has been disbursed so far, and no changes in energy consumption and emissions had taken place in this project. The market for emission trading is still nascent and characterised by high regulatory and price uncertainty and low liquidity. 4.4
ENVIRONMENTAL CHALLENGES FOR THE BANK
The environmental legacy from the communist era is marked by a dilapidated municipal infrastructure and industrial framework with huge environmental and health and safety concerns. The environmental problems in the region challenge the Bank to proactively seek more projects with the potential for substantial positive environmental change. Although 39 per cent of the total number of EBRD projects – amounting to about half of its total investments - have an environmental dimension (the “environmentally sensitive projects”), the 2
The left end of the horizontal bar indicates the environmental performance at the beginning of the project and the right end at the time of evaluation. The length of the bar indicates the extent of environmental change, or environmental impact.
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Bank makes no systematic effort to finance projects with a significant potential for improving the environment. Apart from projects generated by EBRD’s MEI and Energy Efficiency Teams, environmental benefit is not a key criterion in the selection of other Bank projects because projects are currently identified predominantly on the basis of sound banking principles, transition impact and "additionality". Although there are exceptions, the Bank has not been prepared so far to consider taking higher commercial risks on a systematic basis for projects with a significant environmental benefit. The active development of environmentally beneficial Bank projects would need more resources and a proactive approach. The majority of the Bank’s operations are targeted at the private sector, where the project sponsor usually selects the project as project developer. The Bank’s operative organisation has very limited skills and staff to develop the environmental projects from the beginning, and the Bank does not act as a strategic environmentally orientated investor. In the future, the Bank will move increasingly towards the east, to early and intermediate transition countries and especially to Russia where many of the Bank's “A” screened projects have been undertaken. The projects are therefore likely to become more demanding in terms of appraisal and more difficult to implement successfully, especially from an environmental point of view. The Bank’s strategy is to increase the annual volume of its operations. Taking into account the increasing volume of EBRD financing, and the increasing environmental complexity of projects as the Bank’s operations move eastwards, the challenges concerning the environment will become more demanding and will need a more proactive approach. 4.5
EFFICIENCY IN ACHIEVING ENVIRONMENTAL IMPROVEMENTS
When assessing the efficiency in achieving environmental improvements in EBRD projects, the following issues were considered: project management, cost efficiency and keeping to the investment schedule and budget. In general, MEI projects have been reasonably well prepared and implemented but in some cases, there have been cost overruns and delays because of the complexity of the projects. There have also been some failings in terms of feasibility studies and procurement. Overall, in MEI and transport projects the Bank has been successful in bringing about positive environmental change. In the industry and manufacturing sector, most EBRD projects have been implemented efficiently, but in some projects the efficiency has been hampered by deficiencies in feasibility studies, resulting in unrealistic schedules and overruns in budgets. In the natural resources sector EBRD projects have been efficiently implemented in general but the main failings have concerned inefficient implementation of new procedures and technologies or a lack of interest by the client in avoiding flaring in oil drilling projects. In successful energy sector projects, objectives have been achieved as scheduled but in one inefficient project, the implementation of a flue gas desulphurisation (FGD) plant was much delayed. 4.6
ENVIRONMENTAL SUSTAINABILITY
Environmental sustainability refers to the continuation of environmental benefits once the Bank’s involvement with the project has ended. All projects with good or excellent environmental performance and with a successful overall performance have also been sustainable. Companies that have adopted a formal Environmental Management System (EMS) have been able to sustain the positive change in environmental management. Sustainability has been highest in the transport and MEI sectors. In the MEI sector, the Bank contributed, for example, to the development of selfsustainable water and waste-water utilities. 4.8
IMPORTANCE OF A STRONG AND COMMITTED SPONSOR
In large environmentally sensitive projects it has been essential to involve a financially and technologically strong and committed sponsor in order to meet the environmental objectives of the project. However, there have been some cases where a strong sponsor was not a guarantee for the implementation of sound EH&S practices. 14
4.9
ENVIRONMENTAL PERFORMANCE
MANAGEMENT
SYSTEMS
HAVE
IMPROVED
ENVIRONMENTAL
A comprehensive and well-designed Environmental Management System (EMS), usually based on ISO 14001, has clear benefits and has improved environmental risk management and environmental performance. A certified EMS usually promotes sales and marketing, particularly in export markets. It has improved the transparency of environmental and H&S reporting and public participation. Training of the management in EMS at the early stage of the project has been essential in developing understanding, in setting environmental objectives and in managing environmental change. The Bank’s policy has been to encourage rather than demand clients to implement and certify EMS. This is well justified considering the voluntary nature of building EMS and the limited supportive infrastructure for EMS implementation, in particular in some Central Asian countries and Russia. 4.10
CONSULTATION AND COOPERATION WITH AUTHORITIES, STAKEHOLDERS
PUBLIC
NGOS
AND OTHER
The EBRD and sponsors have conducted good dialogue with environmental authorities. In projects where public consultation and participation has been required and successfully undertaken, this has been carefully planned and organised with a nominated person in charge, and meetings have been held regularly on the progress of EH&S issues. In a successful natural resources project in Siberia, the borrowers established community programmes with the cities affected by the project and with villages of local reindeer herders whose livelihood was affected. The financial allocations in such programmes have been substantial in many cases. Discussions with the authorities and with Non Governmental Organisations (NGOs) at an early stage in the project cycle have been an essential tool in achieving good relations with the authorities and other project stakeholders. In many projects, the Bank has encouraged clients to provide information to the public on the environmental aspects of the project. This has usually resulted in an improvement in public consultation and information. In a few cases, however, the public consultation has been very limited or non-existent. Experience on one unsuccessful project shows that a strong foreign sponsor does not always guarantee successful public consultation. 4.11
ENVIRONMENTAL TRAINING AND COOPERATION WITH FINANCIAL INTERMEDIARIES
The environmental due diligence (EDD) training in managing environmental risks is very useful. Overall, PED rated the Programme as Successful. However, the quality of the training has varied, and the EDD manuals have differed significantly in quality. After the introduction of the new EDD Manual, which was also made available in 1999 in CD-ROM format, the situation has substantially improved. It was felt that the Bank’s representatives on some boards of directors lacked EDD training and were uncomfortable in raising environmental issues. The Bank’s use of the EU-funded framework contract, its effectiveness, and the cooperation between the EBRD, consultants and recipient organisations is good. ED has taken an active role in promoting use of EDD, both in organising meetings with other IFIs and in developing mechanisms to involve EDD in the operations of financial intermediaries. 4.12
NUCLEAR SAFETY
Based on the PED’s evaluation of the Nuclear Safety Account (NSA) in November 2000, it was concluded that the Bank, on behalf of the NSA, had successfully arranged grant agreements with the governments of Bulgaria, Lithuania, Russia, Ukraine and with operating organisations to shut down several old and unsafe reactors, including Chernobyl Nuclear Power Plant (NPP), and to finance safety upgrades and assessments. As of December 2000, all NSA safety upgrade projects had been completed within the envisaged scope and budget. Safety improvements have been achieved, albeit not directly quantifiable. Overall, the operational performance of the NSA was 15
satisfactory. The process was diligent and effective and the individual safety projects were in compliance with the requirements as set out by the Programme. The Programme contributed to the strengthening of the regulatory authorities and to improving safety culture in the region. 4.13
TECHNICAL COOPERATION FUNDS PROGRAMME
Environmentally significant technical cooperation (TC) projects make up about 12 per cent of total TC support amounting to €647 million in 1991-99. PED has evaluated 113 of the 289 signed projects that have also received TC support. The results indicate that projects with TC support generally have higher ratings for overall project performance and transition impact compared with those without TC support. The use of TC funding for purposes other than investment preparation has been limited and it has been difficult to use TC funding for institutional development such as building the EMS, and environmental training of the management. 4.14
PROJECT PREPARATION COMMITTEE OF THE “ENVIRONMENT FOR EUROPE PROCESS”
The Project Preparation Committee (PPC) has increased the number of environmentally important MEI and power and energy (P&E) projects in the Bank’s portfolio and has kept the EBRD involved in the “Environment for Europe” process. The focus of PPC is shifting from EU accession countries towards CIS countries. This is because the environmental degradation in these countries is accelerating at an alarming pace, and because the EU Instrument for Structural Policies for PreAccession (ISPA) will provide financing for the large environmental investments needed in the accession candidate countries. 5.
MAIN RECOMMENDATIONS
5.1
FIND AND DEVELOP ENVIRONMENTALLY BENEFICIAL PROJECTS AND PROJECT STRUCTURES
At present, environmental risks in EBRD projects are identified and mitigated in the EDD process. To address the environmental opportunities, a system to analyse environmental risks and opportunities should be developed, and they should be classified in the project approval process, and summarised in the Summary Fact Sheet. A systematic analysis of environmental opportunities in the Bank’s existing “mainstream” operations would make it possible to incorporate in the project more environmental benefits, for example in the areas of waste management, recycling, energy efficiency and joint implementation. The environmental considerations should become a “fourth leg” of what is now the three-legged chair – transition, additionality, and bankability – in the marketing and initial selection of projects. The Bank should decide to what extent and in which organisational framework it will operate as an environmentally oriented project developer, especially in industry and manufacturing, natural resources and transport. An alternative to developing environmentally beneficial projects from the beginning is to provide support to environmental funds and ESCO (energy service companies) type projects. The EBRD could also direct a higher level of the investment funds it administers to the environmental sector. An example is the Bank proposal to found a “Northern Dimension Environmental Partnership”, which could be an important instrument for co-financing and grantfinancing environmental projects in the Baltic area and north-west Russia, including the muchneeded sewer and waste-water treatment projects in St. Petersburg. Such a fund could also alleviate the problems of handling and storing radioactive waste in the Barents region, and therefore joint discussions on this issue are recommended with the Contact Expert Group (CEG) of the International Atomic Energy Association (IAEA). Some new opportunities would involve cooperation with several stakeholders and multiple sponsors, resulting in more challenging project structures from an environmental point of view. The
16
sponsors should be clearly identified and the projects should be based on proven technologies, and the stakeholders should be motivated to implement the project. The Bank could try to identify regions, industrial sectors or clusters of industrial facilities where innovative project structures would bring the best results. The recycling industry is one of the environment-related industrial sectors where new project opportunities could be found. A study on recycling possibilities should be a more systematic and widely used tool in the EDD. The Bank could also consider targeting some of its FI operations in regions with significant environmental problems. The Bank should selectively target its marketing activities at potential sponsors that are likely to promote good environmental practices and jointly develop environmentally beneficial projects. To enhance the environmental dimension in projects, the incentive system for Bank staff should be oriented more towards improved environmental performance of the projects and finding environmentally beneficial projects. 5.2
IMPROVE ENVIRONMENTAL DUE DILIGENCE PRACTICES
The environmental due diligence practices are in general adequate, but some improvements in EDD practices are needed: ·
The quality and use of feasibility studies should be improved, especially in complex industrial projects.
·
Sufficient environmental information in the EDD phase should be ensured and exchanged by site visits and discussions with the authorities, NGOs and other stakeholders.
·
Selection of consultants according to the specific needs of the project should be improved in order to combine the expertise on industry-specific issues, general environmental issues, and specific environmental technologies in an optimal way. Formal interaction between the consultants should be requested. Use of consultants in reviewing the technical appraisal information should be promoted in large complex projects.
·
Project preparation in MEI projects should be improved and include more specific environmental targets. Feasibility studies should include the critical re-assessment of demand projections and an explicit pre-design component. They should also include a second opinion from an external independent consultant. A staged design and construction approach is recommended to avoid the risk of over-sizing in cases with uncertain future demands and sufficient flexibility in schedules and resources to accommodate the potential need for modification of certain project components.
·
In large A-screened projects in the energy and natural resources sectors, Environmental Impact Assessments (EIAs) should include a comprehensive analysis of the indirect impact of the project. It is important to consider the environmental impact beyond the project boundaries. The Bank should define a general approach or a guideline on how to set the boundaries of the environmental analysis.
·
Use of hazard analysis should be enhanced to manage major environmental risks.
·
A systematic search of cleaner production and recycling possibilities should be promoted.
5.3
IMPROVE MONITORING AND ENVIRONMENTAL REPORTING PRACTICES
The evaluation has indicated a need to notably improve environmental monitoring and reporting: ·
Models for environmental reporting should be developed. They should be codified according to the priority of the indicators, and include specific production-related pollution loads and clear warning signals in case of deviations from EAPs. The structure of the EAP should be improved to enhance consistency and transparency. 17
·
The reporting in respect of environmental due diligence, monitoring and evaluation should be based on integrated documentation that is comparable with the internationally accepted best practices and with the reporting of major IFIs. (See Appendix 1).
·
Clients should be encouraged to report main environmental and emission data in electronic format and the EAU should develop a reporting and pollution load database.
·
Monitoring programmes on the status of the environment should have specific objectives and outputs and information disclosure provisions. Early baseline studies should be promoted.
·
Large waste-water treatment plant investments need to be followed by detailed process assessments, especially with respect to the very complex interaction between the number of biological and chemical processes involved in the removal of organic matter, nitrogen and phosphorus from waste-water.
·
Monitoring and reporting on contamination of soil, groundwater and recipient waters should be enhanced when there is a risk of hazardous chemical leaks.
·
Completion tests and audits should be used to enhance information and reporting.
5.4
IMPROVE THE ENVIRONMENTAL MANAGEMENT OF CLIENTS
During EDD and subsequent monitoring, EAU should systematically identify the possible external resources required to allow the client to implement a formal EMS. EAU should actively market the adoption of EMS and develop documentation for the client and the sponsor to support its implementation. EMS training of management should take place in the early stages of the project and should include visits to organisations in the same sector that have implemented EMS. The use of TC funding in developing EMS and training management should be enhanced and made easier. 5.5
IMPROVE THE IMPLEMENTATION OF PROJECTS AND PUBLIC CONSULTATION
·
Successful oil drilling projects and mining projects in polluted regions should be used as demonstration projects for authorities and other operators in the region. The impact of demonstration projects on the practices of other operators should be followed during project monitoring.
·
In order to improve the allocation of responsibilities and reporting between IFIs in jointly financed projects the IFIs involved should select identical environmental reporting systems and agree on the responsibilities in monitoring and reporting.
·
A special energy efficiency programme should be linked to the EAP of power and district heating projects. Use of grants linked to energy efficiency should be studied.
·
Some previously reviewed TC projects indicate that terms of reference (TORs) should be more detailed to give advice to the consultants on the scope of the work. In addition, the consultant reports should be cross-checked so that the outcome corresponds with the task list in the TOR.
·
Public consultation should include clear objectives and indicators for further monitoring and evaluation.
·
The Bank should cooperate more actively with NGOs and develop systematically communication links with them, especially between Resident Offices and local NGOs. The Bank should strengthen the role of the NGO liaison officer.
18
SUMMARY ON ENVIRONMENTAL PERFORMANCE EVALUATION EXAMPLE
APPENDIX 1
Environmental Performance
Good (+3:Excellent, +2:Good, +1:Satisfactory, -1:Marginal, -2:Unsatisfactory, -3:Highly unsatisfactory)
Extent of environmental change, Environmental impact Relevance Efficiency Sustainability
Substantial (Outstanding, Substantial, Some, None, Negative) Excellent (Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly unsatisfactory) Good (Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly unsatisfactory) Good (Excellent, Good, Satisfactory, Marginal, Unsatisfactory, Highly unsatisfactory)
Emission unit = tonnes, annual average. Specific emission and discharge unit = kg per tonne product, annual average Electricity and fuel consumption unit = GWh/year. Specific electricity and fuel consumption unit = KWh/ tonne product
=Environmental Objective/Target ENV. PERFORMANCE ENVIRONMENT Ambient air Recipient waters Soil and groundwater Noise HEALTH AND SAFETY Policy and administration Accident rate (lost days/mmh) Training Emergency plans PRODUCTION kt/year liq. steel POLLUTION LOADS Air emissions SO2, emissions SO2, specific emissions NOx emissions NOx, specific emissions SPM, emissions SPM, specific emissions CO, emissions CO, specific emissions Waste-water discharges BOD7, discharges BOD7, specific discharges N, discharges N, specific discharges P, discharges P, specific discharges SS, discharges SS, specific discharges Waste Management Storing of wastes Wastes produced kt/year Specific waste production kg/t ENERGY EFFICIENCY Electricity consumption Specific electricity consumpt. Heat consumption (steam) Specific heat consumption ENV. RISK MANAGEMENT PUBLIC CONSULTATION MINING CLOSURE Closure plan Financing of closure
Relevance
Start 1995
End 1999
Change %
-15..-66
High Neutr Neutr Neutr
High High High
High High High High
57.5
28
-51
2,962
4,060
37
50,015 16.9 15,438 5.2 82,348 27.8
63,189 15.6 15,987 3.9 77,175 19.0
168,072
176,574
56.7
43.5
26 -8 4 -24 -6 -32 5 -23
Neutr
1,205 0.3 147 0.0
Neutr
/Yes No/Yes /Yes
Yes/Yes Yes/Yes
Neutr
4,302 1.1
Yes/Yes
Yes/Yes
High 4,147 1,021
High
/Yes
Yes/Yes
Neutr
High
Environmental performance Regulatory in the beginning and end compliance: -3 -2 -1 +1 +2 +3 EU/national
39,570 13,360 4,453 1,503
44,820 11,040 5,831 1,436
High High High High
19
13 -17 31 -4
