Addressing Environment & Social Risk - Current Practices Constraints and Issues May 13, 2010

1. Addressing Environment & Social Risk - Current PracticesConstraints and IssuesMay 13, 2010 Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

2. Presentation Outline • Banking and Environment - Connect • E&S Legislations • E&S Risks to Financial Institutions • E&S Risk Management at IDFC • Constraints and Issues Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

3. Banking and Environment – The Connect • Initiatives were being taken to address environmental issues • In the start it was most from the developed world • First one being US NEPA requirement of Environment Impact Assessment • Other key developments since then are: 1979 – World Bank OD 4.01 – Environmental Assessment 1980 – US EPA “Superfund” legislation 1989 – IFC Environment Unit created 1993 – UNEP statement on Sustainable Banking signed by over 20 international banks 1995 – 2nd UNEP banking and environmental meeting 1997 – National Westminster Bank discounts for borrowers with EMSs 2000 – Campaign against banks funding Three Gorges Dam, China 2000 – ABN v Greenpeace Netherlands regarding Indonesian oil palm impacts 2001 – Dutch banks announce environment and social policies for lending 2002 – Citigroup v Rainforest Action Network Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

4. E&S Legislations – Indian Context Various legislations enacted to cover environmental and social aspects, to mention a few: • Water Act and Rules thereunder • Air Act and Rules thereunder • Environment (Protection) Act, 1986 and Rules • EIA Notification, January 1994 and September 2006 • Forest Conservation Act, 1980 • Hazardous Waste Management Rules • Manufacture, Storage and Import of Hazardous Chemical Rules • Public Liability Insurance Act • Rules on Emergency Planning, Preparedness and Response for Chemical Accidents, 1996 • Wildlife (Protection) Act, 1972 • Municipal Solid Wastes (Management and Handling) Rules, 2000 • The Noise Pollution (Regulation and Control) Rules 2000 • The National Environment Tribunal Act, 1995 • The Environment (Protection) (Second Amendment Rules), 1999 – Notification dated October 5, 1999 • Land Acquisition • State & National R&R Policy • State-level Rules Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

5. E&S Risks to Financial Institutions Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

6. ERM at IDFC - Background • Established as part of its formation • Mandated part of IDFC inception • Management commitment • E&S Policy • Environment Management Cell with dedicated resources • Environment Management Systems and Procedures • Inputs from WB, ADB, IFC in the initial few years shaped the systems and procedures and the due diligence process Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

7. ERM - Managing Risks • Objective is to highlight E&S Risks for the project financed • E&S Risk Management includes: • Assessment of time and cost overruns due to E&S aspects • Environment and social liabilities • Reputation Risk Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

8. ERM – Drivers and Principles EMS&P • Structure – on lines of ISO 14001 adapted to a FI’s needs • Clear processes delineated: • Undertaking ESDD • Undertaking ESMR • Formats for collecting information • Clear allocation of responsibility Drivers • Mandate • Increasing stakeholder confidence • Integrating environmental risk • Improving effectiveness through an organisational approach • Benefiting from a structured systems approach • Real contribution Principles • Organisational responsibility • Working with project proponents • Environmental risk is the focus • Meet legislative requirements • Real improvements in performance Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

9. ERM - Project Cycle Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

10. Constraints & Issues • E&S Documentation • Robustness and Quality • Cummulative impact • Social assessment • Public Consultation • One off activity • Sustained involvement • Disclosure • Part of EC • No other avenue • Land Acquisition • Compensation issues • Coverage of affected persons • Economic displacement Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.