FAQ on Environmental and Social Safeguards for Financial Institutions

As progress has come to mean growing accumulation and consumption in material terms, this has led to establishment of ever larger production units, energy harnessing facilities, transport, storage and recreational infrastructure. For decades now, people have been fighting to protect their land, forest, ocean, ecology, lives and livelihood from these so-called development projects.  For the most part, the people have and continue to resist the government and the companies despite the police brutalities and threat of false arrests. But many times, the financiers of these projects continue to be in the dark. There have only been a handful of projects in India, where people have raised questions directly to the financiers on the violations and impacts of the projects they are investing on. In addition to international funders like the World Bank, Asian Development Bank or Asian Infrastructure Development Bank, a report by the Bank Information Centre studying thermal power projects over 1000MW found, 90% of the finance for these projects were being funded by domestic sources including, commercial banks which run on public money. What is the responsibility of financiers who fund such projects? Are there procedures in place which allow constant monitoring of impact of such projects and prescribe mitigatory action? Environmental and social safeguards (ESS) address precisely such questions. As large scale ‘development projects’ continue to pose a risk not only to their immediate context but to our future and survival, the ESS makes financiers accountable for the impact on  climate, ecology and population of the projects which they fund.

1. What are Environmental and Social Safeguards?

• “Environmental and Social Safeguards (or Standards)” is used by environmental activists, development institutions, international treaties and agencies to refer to policies, standards and operational procedures designed to first identify and then try to avoid, mitigate and minimise adverse environmental and social impacts that may arise in the implementation of development projects.”
• “ESS also has a pro-active dimension to try to increase chances that development projects deliver better outcomes for people and the environment.”
• The ESS policies also help people to hold the Financial Institutions accountable when there are any violations.

2. Why do we need ESS?

• ESS policies are one of tools in the hands of people to hold the financial institutions accountable.
• With a strong ESS policy and accountability mechanism in place, it can help people to access the impacts of the project on the ecology, natural resources, ways of living, livelihood etc and at times stop the project
• To ensure that development projects do not cause destruction
• Adoption of ESS by banking and finance institutions is essential to pursue SDG goals.

3. Who has to adhere to ESS? Where and how?

• Ideally, all Finance institutions that lend to big projects.
• Lending banks have to conduct social and environmental impact assessments, and ensure ‘effective participation and Free, Prior and Informed Consent’ of potentially affected communities before approving loans and conduct periodical impact assessments once the project is underway.

4. What domains do ESS cover?

• For instance, the Environmental and Social Framework (ESF) adopted by the World Bank includes environment and social impact assessment, pollution control, labour, community health, land acquisition and resettlement, indigenous people, biodiversity and natural resource conservation, cultural heritage, financial intermediaries. This has largely been the framework adopted by many other MDBs too.

5. How did ESS evolve?

• As a consequence of growing criticism and protest the World Bank in the 1980s and 1990s was forced to introduce Operational Policies and Bank Procedures, which came to be known as ‘Safeguards’.
• In the second decade of 2000s the World Bank attempted to give a coherent shape to all the Safeguards it had adopted over the years, in the form of a systemic vision and a framework which came to be known as ‘Environmental and Social Framework’ (ESF)
• Grassroots struggle by communities and activists, played a crucial role in the evolution and adoption of such policies by finance institutions all over the world.

6. How did Development Banks adopt ESS policies?

• Other banks like the Asian Development Bank, were forced to evolve its own policies owing to the kind of challenges and protests it faced for its projects. Some of these banks followed the model adopted by the World Bank.

7. Have Indian Banks adopted ESS policies?

• Indian banks have not adopted a mandatory ESS framework.

8. Many Indian banks have claimed that they have ESG policies. Are they not the ESS policy?

• Some Indian banks may have included Environment, Social and Governance (ESG) reporting in their credit appraisal process. The Security and Exchange Board of India has made ESG reporting mandatory for 1000 top listed firms in the market.
• ESG reporting does not cover the wide range of issues covered under ESS, nor does it have a permanent Grievance Redressal Mechanism.
• In recent years though, owing to international discourse on adoption of safeguards,  some Indian banks claim to have adopted non-binding, non-enforceable ‘guidelines.’IIFCL, Yes Bank, HDFC Mutual funds, RBL Bank, SBI Mutual funds, Axis Bank, Citibank can be named as some examples.
• Federal Bank and Axis Bank have exclusion lists of sensitive projects which the banks do not fund like those involving wildlife products, radioactive materials etc.

8. Are ESS policies mandatory for all development?

• As yet ESS policies are not mandatory in India.

9. What are the fallouts of not having Safeguards?

• Environmental impact in the form of pollution of air, rivers, groundwater, land
• Emission of hazardous chemicals
• Destruction of habitat, biodiversity, and homes
• Displacement of indigenous communities

10. Who bears the brunt of ‘development’ which is unmindful of its social and environmental impact?

• Experience shows that adivasis, coastal people, landless farmers, small farmers, dalits, Muslims, women and children get affected the most.But the long term impact on climate, biodiversity, and environment affects everyone.

11. Do ESS policies pose an obstacle to development?

• Rather than pose an obstacle to development, the goal of ESS is to enable responsible growth and make finance institutions accountable for the projects they fund.

12. What if ESS are violated?

• Since ESS in India are non-binding, the question of their violations does not arise. Issues arising from environmental and social impact of development projects come under the purview of relevant local legislation.

13. If ESS is followed, will not investments in projects be impossible?

• In the last 40 years safeguards have been adopted by the World Bank and a number of other MDBs and that has not caused any hindrance to investments.

14. The West has developed themselves and they can afford ESS. India is still developing and ESS will curtail its ability to develop like the West.

• The path of development that left a trail of destruction behind needs to be shunned rather than uncritically followed.
• Environment, marginalised people who bear the brunt of development projects, wildlife and the future of developing countries cannot be treated as collateral and need to be protected here and now.

15. Are there grievance redressal mechanisms for non-implementation of safeguards? 

• Indian Banks merely have non-binding guidelines on environmental and social issues. These guidelines are not mandatory and no Grievance Redressal Mechanism exists where people can raise concerns.

16. Why Should Indian Banks adopt safeguard policies?

• Indian financial institutions have long evaded their commitment to responsible investments by shifting the onus on to the existing laws and ministry clearances for the environment and other due diligence.
• The banks need to adopt sustainable practices as an institution and should be responsible for their investments. Bank money put in unsustainable investments will delay the project resulting in loss to Banks.
• Many projects will become unviable if there are protests against displacement, destruction of the natural environment etc.
• Indian Banks should move with the times and adopt climate friends policies for loans and investments.

17. Why should banks adopt independent ESS when projects need environment clearance, pollution control board permissions etc?

• The understanding developed the world over is that financiers of development projects have to be accountable for the impact of the projects funded by them, quite apart from whether local laws exist or not.
• Adoption of ESS allows an additional layer of supervision to be put in place.

18. Banks’ job is to invest the deposits of their clients so as to pay interests on their deposits. Why should they look into ESS?

• The Indian National Finance institutions continue to support development projects in India often leading to massive Non Performing Assets and huge write offs.
• Banks as any other financial institutions apart from their profits need to consider human rights of affected communities, environmental impact particularly in the era of climate change and set of policies adhering with the Sustainable Development Goals as is being done by their counterparts in various other countries.

19. How do I know whether my bank has adopted ESS?

• Banks which have adopted ESS display it on their websites.
• Bank officials can be directly approached for enquiry.

20. What can we do to strengthen ESS?

• For CSOs it is important to raise the issue of ESS wherever a project can potentially or presently has an impact on environment, biodiversity, indigeneous people, habitation, labour, livelihood, and cultural heritage.
• While using the existing governmental and non-governmental grievance mechanisms, the CSOs should simultaneously engage with affected communities to amplify their concerns.
• In addition, CSOs can connect with domestic and international peoples’ groups and organisations which have worked on the issue of safeguards for learning, support and solidarity.

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