ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT OPERATIONS MANUAL

Cambodia: Agribusiness Access to Finance Project

World Bank Group Financed Risk Sharing Facility

28 October 2010

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TABLE OF CONTENTS Chapter 1: Introduction 1.1 Purpose and Objectives of this Manual 1.2 Rationale for a Risk Sharing Facility 1.3 Role of Participating Financial Institutions 1.4 Context for Risk Management 1.5 Objectives of Environmental and Social Screening and Assessment Chapter 2: Environmental and Social Screening of Transactions 2.1 Loan Application 2.2 Screening and Categorization 2.3 Principles and Methods of Screening 2.4 Reference to World Bank Group Policies and Guidelines in Screening Chapter 3: Categorization 3.1 Category A Transactions 3.2 Category B Transactions 3.3 Category C Transactions 3.4 Excluded Transactions Chapter 4: Environmental and Social Review and Assessment 4.1 Context for the Risk Sharing Facility 4.2 Category C Transactions 4.3 Category B Transactions 4.4 Category A Transactions Chapter 5: Monitoring and Supervision 5.1 Monitoring and Supervision of the Portfolio by the Financial Institution 5.2 Financial Intermediary Reporting to the IFC and IDA 5.3 Grievance Mechanisms Annex A Social and Environmental Management System Annex B Environmental, Health and Safety Guidelines—Agribusiness Sector Annex C IFC Performance Standards and World Bank Safeguard Policies Annex D Relevant Differences between IFC Performance Standards and World Bank

Safeguards Annex E National Environmental and Social Legislation

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Chapter 1: Introduction

1.1 Purpose and Objectives of this Manual

The Royal Government of Cambodia (RGC) has requested the World Bank Group, specifically the International Development Association (IDA) and the International Finance Corporation (IFC), to support its efforts to remove the bottlenecks that constrain agribusiness access to finance. By improving agribusiness access to finance and targeting in particular small- and medium-scale enterprises (SMEs), the higher level objective is to foster SME growth and employment creation in Cambodia, which are keys to achieving the RGC’s overall objectives of spurring economic growth and poverty reduction. These objectives are consistent with the World Bank’s 2005 Country Assistance Strategy. They also are consistent with the IFC’s financial sector development strategy in Cambodia, which focuses on improving the quality and availability of financial services to commercial and retail customers by supporting the financial institutions that have the potential to provide such services. Furthermore, the project supports IFC’s strategy for the development of the agribusiness sector in Cambodia. IFC and IDA have previously partnered to develop a partial credit guarantee instrument, i.e., a Risk Sharing Facility (RSF), in a few other countries. As discussed below, such an instrument, managed by IFC, is an ideal solution to meet the objectives described above. The RSF is in principle open to all commercial banks and financial institutions that meet the eligibility criteria, provided that they have interest in the facility’s objectives and agree to screening and assessing environmental and social risks of transactions in accordance with this manual. One of the prerequisites of the World Bank Group support for an RSF in Cambodia is that the participating financial institutions integrate into their lending operations the requirements of environmentally and socially sound and sustainable development as identified in laws and regulations of Cambodia and the sustainability policies and frameworks of the World Bank Group entities participating in the RSF. Accordingly, the World Bank Group and the RGC have collaborated in producing this manual for the staff of participating financial institutions in the RSF to use as guidance in screening loan applications for environmental and social risks and ensuring that appropriate risk management measures have been identified for implementation by the loan applicant. This manual, along with a Social and Environmental Management System (SEMS) that is established by the participating financial institution, also meets the requirement of the World Bank Group that a financial intermediary have established an appropriate Environmental and Social Management Framework. Participating financial institutions are required to establish or arrange for proper capacities to duly implement their SEMS in a manner consistent with the guidance provided in this manual. If a participating commercial bank does not have the capacity to implement such a Framework, the World Bank Group members reserve the right of prior review and approval of all transactions that take place under the RSF until such capacity is developed or satisfactory arrangements made for external expertise to assist the participating financial institution in implementing the Framework. It is anticipated that the majority of transactions covered by the RSF will have environmental or social risks associated with them that are readily identified and addressed. However, it is

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recognized that there are agribusiness processing activities in which the environmental and social risks and impacts are significant and require commensurate assessment and management, e.g., land acquisition, labor and working standards, inappropriate disposal of wastes from food processing facilities, or unhealthy or hazardous working conditions. Procedures and guidance are presented in this manual for screening, assessing, and managing these risks for transactions under the RSF. 1.2 Rationale for a Risk Sharing Facility

The objective of the RSF is to immediately accelerate commercial banks’ lending to agribusiness SMEs. Agribusiness activities are defined as a broad spectrum of activities ranging from storing, processing, packaging, exporting, and related logistical support needs. Agriculture and agribusiness sector represent a significant component of SMEs in Cambodia. The sector is made up mostly of informal agricultural enterprises such as wholesalers, rice millers, corn dryers, animal feed producers, rubber processors, food and beverage manufacturers, and others. The facility could cover a variety of loan types, including working capital, trade financing, or term loans for productive assets, and will be subject to eligibility criteria to be agreed on between the IFC, IDA, and commercial banks or other financial institutions that may participate in the RSF. The target portfolio does not include primary production of agricultural commodities. 1.3 Role of Participating Financial Institutions

In agreeing to participate in the RSF, each commercial bank or financial institution accepts responsibility to the World Bank Group for mandatory screening, assessment, and management of the environmental and social risks and impacts of proposed transactions it takes under the RSF in a manner that is consistent with IFC Performance Standards and the World Bank Safeguard Policies as well as the financial institution’s corporate practices and policies for Corporate Responsibility. In order to effectively use this manual as a guidance to staff for managing environmental and social risk, each financial institution will develop an internal SEMS (Annex A). The SEMS describes key features such as: social and environment policies and procedures; current organization structure and staffing for managing environmental and social risk; skills and competencies in social and environmental areas; training and awareness of the institution’s investment, legal, and credit officers on the organization’s SEMS; reporting systems to managers; and performance monitoring procedures. 1.4 Context for Risk Management

This manual is a tool for staff1 of the participating financial institution to accompany other guidance tools for risk management that have been developed and implemented by the institution or its corporate parent. Examples of other risk management tools could include Corporate Responsibility Policies or Guidelines, Credit Risk Principles and Policy, or Country Lending Guidelines.

1 Including any expert consultants that may be hired or retained by the financial institution to fully implement the procedures outlined in this manual.

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In addition to these internal documents, the following World Bank Group resources will be applied in managing environmental and social risks of RSF transactions:

• IFC Performance Standards on Social and Environmental Sustainability, as found on the IFC website2;

• World Bank Group Environmental, Health and Safety Guidelines, as found on the IFC website3;

• World Bank Safeguard Policies as found on the World Bank website4.

1.5 Objectives of Environmental and Social Screening and Assessment

The productivity of land and waters and the sustainability of ecosystems are, together with a socially acceptable livelihood, a prerequisite for sound development of communities and nations. Almost all countries have therefore introduced environmental assessment (EA) procedures as an instrument for protecting its environment and peoples from the adverse impacts of economic activities of different kinds. EA is a process where a proposed activity is assessed with regard to its impacts on the human, physical, and biological environment, worker and community health and safety, social and cultural heritage, as well as transboundary and global effects. The objectives are: to identify positive and negative impacts of the activity, and make sure that its negative consequences are prevented, minimized or mitigated; and consider factors in project design that improve sustainability of the project. Inadequate attention to environmental and social issues might lead to serious failures in economic performance. Environmental charges, fines, clean-ups, mitigation and other damage compensation costs might cause serious financial risks to otherwise successful businesses. These risks are associated not just with direct financial losses and degradation of common resources, but also with serious damage to the image and reputation of the involved parties, including the financial institutions providing loans. Following are among the key steps in the environmental assessment process: • Screening: If this activity is likely to cause environmental or social impacts, what are the

likely consequences of these impacts? • Scoping: What are the main issues for assessment? What is the project’s geographic

area of influence? At what stage of activity are the impacts likely to occur? Are there directly affected people or local communities that may be impacted by the project and whose views and concerns therefore should be considered in project design and implementation?

• Assessment: Analyze the scope and nature of the impacts, the need for permits, public perceptions of the impacts, measures to avoid or mitigate those impacts, and need for monitoring how well the risks are being managed.

• Consultation and disclosure: Share information on the project and its expected impacts with directly affected people, local communities, or other stakeholders; and seek their views and concerns about project design and implementation.

2 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B 3 www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards; See also Annex B 4 www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol; See also Annex C

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Depending on the nature of the transaction and the associated environmental and social risks, a range of instruments can be used to assess the risks and impacts. For example, existing operations with moderate risks or impacts (e.g., food processing facilities) may best be assessed with an environmental audit of the operations and an Environmental Management Plan for correcting any problems and for future treatment and disposal of wastes. In some circumstances, an Environmental Management Plan may be no more complex than the performance specifications of a wastewater treatment system. The choice of instrument used to assess risks and impacts should be commensurate to the magnitude and significance of the likely risks.

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Chapter 2: Environmental and Social Screening of Transactions

2.1 Loan Application

The transaction must satisfy national, IFC, and World Bank environmental and social requirements. The applicant for a loan will present to the financial institution a brief description of the transaction and a brief description of what the applicant believes are likely to be environmental or social risks and issues of concern with respect to the transaction. This information will be used by the financial intermediary in the initial screening and categorization process. 2.2 Screening and Categorization

The financial institution will categorize the proposed transaction (i.e., the activity which is the subject of the loan application) in accordance with guidelines in this manual. The choice of categorization will have the following implications: • Category A transaction: There are potential significant, controversial, or sensitive issues

associated with the transaction that go beyond compliance and require careful, expert consideration of impacts, mitigation, and tradeoffs. Those transactions that will involve large-scale acquisition of private land or permanent loss of income or assets involving multiple households, or impact ethnic minorities, will be included in this category. An environmental and social impact assessment report will be required that focuses on the key issues of concern. Category A transactions must comply with World Bank Safeguard Policies and IFC Performance Standards. The financial institution will consult with responsible Cambodian environmental authorities and IFC staff before processing the transaction after initial screening. For the target portfolio of the Agribusiness Access to Finance Project, Category A transactions are not anticipated.

• Category B transaction: The transaction may have some environmental or social risks, but they are readily addressed through recognized good practices as described in IFC Performance Standards and World Bank Group Environmental, Health and Safety Guidelines (EHSGs). As it would also do for any Category A transaction, the financial institution will verify that: (1) the supported activities comply with applicable national environmental and social laws and regulations, and applicable World Bank Group EHSGs; (2) appropriate environmental permits are obtained prior to lending; and (3) investments do not contravene the Exclusion List presented in Section 3.4 of this manual. Category B transactions are anticipated to be the bulk of the target portfolio.

• Category C transaction: The transaction is likely to have minimal or no environmental or social risks associated with it. No further environmental and social assessment work is required after screening.

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2.3 Principles and Methods of Screening

Screening is the first step in the environmental assessment process, which will assign the transaction in question to one of the three categories. This categorization will decide the nature of further environmental assessment and identify transactions to be excluded at an early stage to save costly and time-consuming procedures and analysis. The significance of impacts may be described in different ways. The simplest approach is the presence or absence of impacts and qualification of degree of impact as minimal, moderate, significant, or highly significant. In assessing degree of impact or risk, it is appropriate to take into consideration type, scale, location, timing, and sensitivity of the impact. A key factor to consider is whether the impact is reversible, and if so, the rate of recovery. 2.4 Reference to World Bank Group Policies and Guidelines in Screening

Given the purpose and objectives of the RSF to serve SMEs in the agribusiness sector, and the types of investments that are expected to be in the RSF portfolio, the first and primary point of reference for screening with respect to World Bank Group Policies and Guidelines will be: • IFC Performance Standards; and • World Bank Group Environmental, Health and Safety Guidelines (EHSGs).

This is because the IFC Performance Standards and the EHSGs are particularly suited to private sector transactions; moreover, the IFC Performance Standards and the EHSGs are at the core of the Equator Principles, and many commercial banks are familiar with or have adopted the Equator Principles. Considerable effort has been given to achieve high degree of harmonization between the IFC Performance Standards and World Bank Safeguard Policies. The majority of differences between them arise from differences in processes and procedures between the two institutions and their respective internal project cycles, but there are also a few differences that reflect that IFC’s client is a private sector enterprise whereas the World Bank’s borrowers typically are governments and governmental agencies either at the national or sub-sovereign level. As indicated in the previous paragraph, these differences are unlikely to surface in the implementation of the RSF, especially in the context of Category B and Category C transactions, but emerging risks and issues regarding sustainable development in the agribusiness sector do not entirely eliminate the need to verify this during the screening process. For screening purposes, Annex D provides an overview of the few instances of divergence that in rare cases may arise during implementation of the RSF. Those rare cases likely would arise in Category A transactions, or transactions involving acquisition of land, resettlement of people, or that have a direct affect on vulnerable ethnic groups as defined by IFC Performance Standard 7 (Annex C) and the comparable World Bank Safeguard Policy on Indigenous Peoples.

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Chapter 3: Categorization

3.1 Category A Transactions

The transaction and its operative setting must be explained to be able to determine the appropriate environmental category. The following characteristics of possible impacts of the transaction typically trigger Category A designation .

The location of the project enterprise or activity may be: • Near sensitive and valuable ecosystems, protected areas and habitat of endangered species; • Near areas with archaeological and/or historic sites or existing cultural and social institutions; • Near or in areas occupied by ethnic minorities or indigenous peoples, or lands to which they are

collectively attached; • In densely populated areas, where resettlement may be required or potential pollution impacts and other

disturbances may significantly affect communities; • In regions where there are conflicts in natural resources allocation; • Near watercourses, aquifer recharge areas or in reservoirs used for potable water supply; or • In or close to lands or waters containing valuable resources.Examples of sensitivity issues are those where the transaction can: • Cause adverse global or regional environmental impacts; • Concern the rights of indigenous people or vulnerable ethnic minorities; • Require large-scale acquisition of private land5, and subsequent change in land use and/or loss of or

damage to assets and income; • Lead to involuntary settlements or displacement of people from their livelihoods; • Impact protected or otherwise recognized areas of high biodiversity or cultural value; or • Lead to toxic waste disposal. Examples where the nature of the transaction may: • Cause irreversible degradation or unsustainable exploitation of natural resources; or • Pose serious risks of significant harm to human health and safety. Examples of the magnitude of the transaction where: • A high amount of scarce resources may be put at risk; • The timing and duration of the negative impacts are long; or • The cumulative effects of many similar, but individually small transactions together lead to serious

impacts.

Category A transactions are perceived to have significant adverse environmental and/or social impacts, and comprehensive mitigation measures will be necessary to allow for such a transaction to be supported. Transactions with effects as described above must be subject to a full EA (see Section 1.5) carried out by an independent expert/entity that is not affiliated with the applicant. For highly risky projects, a Panel of Experts may be required to advise the financial institution. Category A transactions are not anticipated to form part of the target portfolio, but due to their risk profile, the financial institution will consult with IFC staff as soon as category A potential

5 Acquisition of small parcels of land, even if obtained on a negotiated basis with property owners or those with recognized rights to the land, should be considered as sensitive if expropriation or other compulsory measures would have resulted upon the failure of negotiation. In such cases, the loan application should be discussed with IFC counterparts as soon as possible.

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has been identified. For any confirmed Category A transaction, the financial institution would need to engage internationally recognized environmental and social specialists to advise on relevant aspects of the due diligence and structuring. 3.2 Category B Transactions

Transactions with a limited number of potentially adverse environmental or social impacts that are generally site-specific, largely reversible, and readily addressed through mitigation measures that reduce the risk to moderate or low levels are normally classified as Category B. The following characteristics indicate a Category B transaction.

• Environmental and social risks for the most part are mostly limited to and readily mitigated through application of good industry practice as described in relevant Environmental, Health and Safety Guidelines;

• Labor and working conditions are unlikely to include harmful child labor, involuntary or compulsory labor, or significant occupational health and safety issues;

• Significant land acquisition or significant land use change is not expected,6 nor is there expectation of displacement of people or significant loss of livelihoods due to project activities; and

• Socially or economically disadvantaged groups, such as tribal or ethnic groups or similar communities, are not known to occur in the project’s area of direct impact.

In the agribusiness sector, the issue of supply chains for raw materials can be complex and, in some instances, this issue poses a significant reputational risk. In screening a transaction, the financial institution will consider the matter of supply chains, especially under the following three circumstances: (a) the source of the raw materials is clearly defined and dedicated; (b) there is recognized risk with respect to harmful child labor, involuntary or compulsory labor, or significant occupational health and safety issues associated with the supply chain; or (c) the source of raw materials are lands occupied by or traditional lands of ethnically vulnerable groups as defined in IFC Performance Standard 7 (Annex C) and the comparable World Bank Safeguard Policy on Indigenous Peoples. 3.3 Category C Transactions

Transactions that are perceived to have minimal or no adverse environmental or social impacts are classified as Category C, and no further environmental or social assessment work needs to be done after initial screening and categorization. 3.4 Excluded Transactions

Following transactions are excluded from consideration in the RSF:

6 If small parcels of land are acquired as part of the proposed transaction, the loan applicant must provide satisfactory evidence that the land was acquired on a negotiated basis with property owners or those with recognized rights to the land, and that there was no risk of expropriation or other compulsory process upon failure of negotiations.

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• Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements, or subject to international bans, such as pharmaceuticals, pesticides/herbicides, ozone depleting substances, PCBs, wildlife or products regulated under CITES.

• Commercial logging operations for use in primary tropical moist forest. • Production or trade in wood or other forestry products other than from sustainably

managed forests. • Drift net fishing in the marine environment using nets in excess of 2.5 km in length. • Production or activities involving harmful or exploitative forms of forced labor7 or

harmful child labor8.• Production or trade in weapons and munitions. • Production or trade in alcoholic beverages (excluding beer and wine). • Production or trade in tobacco. • Gambling, casinos and equivalent enterprises. • Production or trade in radioactive materials. This does not apply to the purchase of

medical equipment, quality control (measurement) equipment and any equipment where IFC considers the radioactive source to be trivial and/or adequately shielded.

• Production or trade in unbonded asbestos fibers. This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20 percent.

7 Forced labor means all work or service, not voluntarily performed, that is extracted from an individual under threat of force or penalty. 8 Harmful child labor means the employment of children that is economically exploitive, or is likely to be hazardous to, or to interfere with, the child’s education, or to be harmful to the child’s health, or physical, mental, spiritual, moral, or social development.

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Chapter 4: Environmental and Social Review and Assessment

4.1 Context for the Risk Sharing Facility

Environmentally sound and sustainable and socially responsible investments are critical elements of the World Bank Group’s developmental mandate, and both IFC and IDA need to ensure the proper implementation of its mandate in its financial intermediary (FI) operations including the principle of delegated responsibility, which characterizes such operations. The financial institution participating in the WBG funded RSF therefore, at a minimum, will adhere to the following basic requirements: • The financial institution will implement its SEMS (Annex A) in a manner satisfactory to

the World Bank Group and integrate it as fully as possible into its credit application appraisal and monitoring procedures.

• The financial institution will comply with the Environmental and Social Exclusion List for FI’s (Section 3.4). This list includes activities prohibited by international environmental agreements or where the World Bank Group considers indirect financing inappropriate because of the significance of associated environmental and social risks.

• The financial institution will take measures as deemed necessary to validate that the loan applicant has appropriately identified in its loan application (Section 2.1) the environmental and social risks and measures needed to manage them in project implementation.

• The financial institution will submit to the World Bank Group periodic reports on the implementation of its SEMS and the environmental and social performance of the RSF portfolio.

• Within five business days of becoming aware, the financial institution will notify the World Bank Group of any significant social, labor, health and safety, security or environmental incident, accident, issue, or circumstance with respect to any financing activities covered by the RSF.

• It is the applicant’s responsibility to ensure that the proposed activity covered by the loan complies with all national environmental legislation and regulations. If an applicant states that the necessary permits or licenses have not yet been issued, the financial institution will advise the applicant to obtain the licenses and permits before loans can be disbursed.

As noted above, it is anticipated that the majority of transactions covered by the RSF will be loans to SMEs that would be classifiable as Category B, Category A transactions are not anticipated, but cannot be entirely ruled out. Category C transactions are possible, but unusual for agricultural processing operations (as there are raw materials and waste streams to manage).

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4.2 Category C Transactions

If the likely environmental and social risks and impacts are determined through the screening process to be very low or negligible, the transaction is a Category C and no further environmental review and assessment is required except that it must be confirmed that the proposed transaction is in compliance with applicable Cambodian laws and regulations (Annex E).

4.3 Category B Transactions

For Category B transactions, the environmental and social risks and impacts are perceived to be limited, site specific, not irreversible and with established remedial and good practice measures as described in the appropriate Environmental Health and Safety Guidelines. If the activity is one that is subject to Initial Environmental Impact Assessment (IEIA) or full Environmental Impact Assessment (EIA) under Cambodian legislation (see Annex E), the financial institution may proceed to process the loan application, but will not disburse the loan until the applicant provides a notice of approval from the responsible Cambodian environmental authority for review and approval of the IEIA or EIA. An environmental audit is carried out on existing plants and focuses on two elements: (a) compliance of existing facilities and operations with relevant environmental (including occupational health and safety) and social laws, regulations, and applicable World Bank Group requirements (Section 2.4); and (b) the nature and extent of environmental impacts, including contamination to soils, groundwater, and structures, as a result of past activities. A Corrective Action Plan is often an outcome of an environmental audit. Such environmental reviews or assessments might however take many forms, depending on the type of transaction proposed. It is recognized that SMEs may have limited capacity for assessing environmental and social risks or carrying out necessary studies, such as environmental audits. Flexibility will be applied and efforts made to find the best instruments and procedures for the transaction in question. In accordance with its SEMS, the financial institution will assure itself that environmental and social risks and impacts have been adequately identified and appropriate managed in a manner commensurate to the risk. In some instances, the financial institution may opt to arrange for an appropriate environmental review on its own behalf using outside expertise. At minimum, for all Category B transactions, the financial institution will prepare for the record a brief summary report or memorandum identifying sources of information and relevant facts and findings that allow a determination that the transaction is consistent with applicable environmental and social benchmarks (see Section 2.4). 4.4 Category A Transactions

In the event a Category A transaction is identified for lending under cover of the RSF, the applicant will be required to prepare a full EIA as per Cambodian regulations and consistent with World Bank Safeguards Policies and IFC Performance Standards and submit it to the financial institution.

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In the event that the applicant has already prepared an EIA in accordance with Cambodian regulations and processes, the financial institution must review the report and make a determination whether: it is adequate and accurate in identification of environmental and social impacts; that appropriate measures have been identified to avoid, minimize, or mitigate those impacts; that the applicant has the commitment and the capability to manage the impacts as proposed. Moreover, the financial institution will assure itself that the records show that timely and appropriate consultation with directly affected people, local communities, and interested stakeholders has taken place on the findings and recommendations of the EIA. If the applicant has prepared the EIA on his/her own project proposal using its internal technical resources, the financial institution will arrange for an independent expert to assist in the review and assessment of the quality of the EIA and its findings. If the large-scale acquisition of private land, or loss of income or assets for multiple households is anticipated as a result of land acquisition, the financial institutions will first advise the applicants to revise the proposed investment to avoid such impacts. Should such impact be inevitable, then the financial institution will contact IFC counterparts for advice. Similarly, where ethnic minority communities are known to reside in or near where investments occur, IFC counterparts will be duly informed at the earliest stage of transaction appraisal. For any prospective Category A transaction, especially those that may involve land acquisition, physical displacement of people or restrictions on their livelihoods, or direct impacts on vulnerable ethnic groups, the financial institution as soon as possible will contact IFC counterparts responsible for involvement in the RSF in order to seek advice and counsel from IFC environmental and social specialists regarding the proposed loan. The IFC specialists will engage with relevant World Bank environmental and social specialists to ensure the appropriate standard is met, especially with respect to involuntary resettlement or impacts on vulnerable ethnic groups. In some cases, the loan applicant may be required to prepare a Resettlement Action Plan or an Ethnic Minority Development Plan as part of the EIA process.

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Chapter 5: Monitoring and Supervision

5.1 Monitoring and Supervision of the Portfolio by the Financial Institution

For all Category A and B projects in the portfolio, the participating financial institution will monitor the management of environmental and social impacts in a manner consistent with this Manual and the financial institution’s SEMS, including the environmental management plan and corrective actions identified/agreed during the transaction screening and assessment stages. Category A transaction clients will be required to fund certified independent audits to evaluate whether environmental and social risks are being managed in a manner satisfactory to the financial institution. In addition, the participating financial institution will regularly monitor the media in order to screen the news for any reports that relate to environmental and social aspects of the loans covered under the RSF. The institutions will retain records of all findings regarding any such loans that may have been found to have adverse environmental or social impacts. The financial institution agrees to make its monitoring and supervision reports available on a business confidential basis to IFC or IDA counterparts upon request. 5.2 Financial Intermediary Reporting to the IFC and IDA

The commercial bank or financial institution, acting as financial intermediary for IFC and IDA involvement in the RSF, will prepare an annual report for IFC and IDA counterparts on environmental and social performance of the portfolio as follows: • Listing of all transactions approved during the reporting period, listing environmental

category (A, B, or C) and the name and location of SME receiving the loan; • For Category A projects approved during the reporting period, copies of the internal

determination of adequacy or the independent expert review as described in Section 4.4; • For Category A projects, a summary report on implementation progress of follow-up

actions mandated by the project’s EIA; • For Category B projects approved during the reporting period, a copy of the summary

report or memorandum noted at the end of Section 4.3; • A brief listing of anticipated Category A and B projects that are being processed or with a

pending loan application; • A brief summary regarding how this Manual and/or the participating financial

institution’s SEMS has been implemented in transactions covered by the RSF, including any material changes (e.g., to staffing, procedure); and

• Details of any negative media/NGO coverage and reports on portfolio clients regarding environmental and social aspects that have come to the attention of the financial institution and are deemed to produce reputational or credit risk to the participating financial institutions, including the World Bank Group participation in the RSF.

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5.3 Grievance Mechanisms

If local communities or directly affected stakeholders approach the financial institution with reasonable and responsible claims that an activity by an SME funded by a loan from the financial institution as part of the RSF has caused harm to them, their livelihoods, or their environment, the financial institution will work with the borrowing SME to try to address the concerns in a reasonable and responsible manner. The financial institution will report as soon as possible such complaints to the IFC. In addition, the financial institution shall inform the aggrieved parties that if efforts by the borrower (SME) to resolve the issue are unsatisfactory, the aggrieved parties have the right to bring their complaints to staff in the local IFC or Bank offices, at the addresses below: IFC

No 70, Norodom Boulevard Sangkat Chey Chom Neas Phnom Penh, Cambodia Telephone: (855-23) 210922 World Bank

113 Norodom Boulevard Phnom Penh, Cambodia Telephone: (855-23) 213538, 213639, 217301, 217304

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Annex A: Social and Environmental Management System

In order to effectively use this manual as a guidance to staff for managing environmental and social risk, each participating financial institution shall develop its own internal Social and Environmental Management System (SEMS). In addition to a policy outlining the commitment to meet the requirements of this EOM and other standards the institution may wish to follow, the SEMS shall describe key features including: social and environment policies and procedures; organization structure and staffing for managing environmental and social risk; skills and competencies in social and environmental areas; training and awareness of the institution’s investment, legal, and credit officers on the organization’s SEMS; reporting systems to managers; and performance monitoring procedures. The SEMS shall also include supporting tools such as checklists, templates and guidance notes to assist the loan/credit officers and other relevant staff to assess and manage environmental and social risks. Upon application by a commercial bank or financial institution to participate in the RSF, environmental and social specialists from IFC and IDA will engage with the institution and convey IDA and IFC’s social and environmental requirements as embodied in this EOM. The applying institution will be responsible for developing the required SEMS and integrating it into the institution’s lending operations to screen loan applications and mange environmental and social risks in a manner consistent with this manual. Once the SEMS is developed, the applying institution shall send it to IFC and IDA for review. A satisfactory SEMS, approved by the applying institution’s own management and accepted by IFC/IDA, will be a condition of effectiveness for the RSF agreement between the IFC and the participating institution. IFC/IDA’s requirements for participating institutions to implement a satisfactory SEMS for managing environmental and social risk consistent with the EOM will be disclosed in a Summary of Proposed Investment (SPI) on IFC’s website (www.ifc.org).

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Annex B: Environmental, Health & Safety Guidelines Agribusiness Sector

As of August 2010, the World Bank Group has produced 64 Environmental, Health & Safety Guidelines (EHSGs) for various industrial sectors, as well as General Environmental, Health & Safety Guidelines which covers a wide range of issues and is applicable to all industrial in addition to the sector-specific guidelines. The full set of Industry Sector EHSGs and the General EHSGs can be most readily accessed on IFC’s website:

(www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards). The IFC website is also the location where updates of the EHSGs will be posted, as new examples of good practice are identified, or as new guidelines are prepared. These EHSGs are also part of the Equator Principles. As required by the Equator Principles, the most recent version of the respective applicable guidelines should be used in the screening and review of new transactions. In addition to the General Environmental, Health & Safety Guidelines, the following Industry Sector Guidelines have been developed for the Agribusiness/Food Production sector: • Mammalian Livestock Production • Poultry Production • Plantation Crop Production • Annual Crop Production • Aquaculture • Sugar Manufacturing • Vegetable Oil Processing • Dairy Processing • Fish Processing • Meat Processing • Poultry Processing • Breweries • Food and Beverage Processing. It should be noted that these Industry Sector EHSGs and the General EHSG are intended to identify recognized good practice, particularly in the absence of comparable national or local legislation. Moreover, they are designed to cover a wide range of topics, especially in the case of the General EHSG, some or many of which specific topics may not be relevant or applicable to the project enterprise seeking a loan under the RSF. The EHSGs will be used by the financial institution as useful tools in the screening and review process to determine whether environmental and social risks associated with the project enterprise have been appropriately identified and managed.

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Annex C: IFC Performance Standards and World Bank Safeguard Policies

The IFC has produced eight Performance Standards which cover a wide range of issues and is considered applicable to all transactions that would be classified as Category B or Category A. The eight Performance Standards are also considered part of the Equator Principles. The eight Performance Standards can be most readily accessed on IFC’s website, and are listed below: (www.ifc.org/ifcext/sustainability.nsf/Content/EnvSocStandards). • Performance Standard 1: Social and Environmental Management Systems • Performance Standard 2: Labor and Working Conditions • Performance Standard 3: Pollution Prevention and Abatement • Performance Standard 4: Community Health, Safety and Security • Performance Standard 5: Land Acquisition and Involuntary Resettlement • Performance Standard 6: Biodiversity Conservation and Sustainable Natural Resources

Management • Performance Standard 7: Indigenous Peoples • Performance Standard 8: Cultural Heritage

The World Bank has ten Safeguard Policies (Operational Policies [OPs]) that in most environmental and social matters are similar in coverage to the IFC Performance Standards: • OP 4.01: Environmental Assessment • OP 4.04: Natural Habitats • OP 4.09: Pest Management • OP 4.10: Indigenous Peoples • OP 4.11: Physical Cultural Resources • OP 4.12: Involuntary Resettlement • OP 4.36: Forests • OP 4.37: Safety of Dams • OP 7.50: Projects on International Waterways • OP 7.60: Projects in Disputed Areas. These can be found on the World Bank website: (www.worldbank.org/wbsite/external/projects/extpolicies/extsafepol). In the context of the kinds of Category B transactions that are envisioned for cover under the RSF, it is expected that screening and determination of consistency with relevant IFC Performance Standards will also allow a determination of consistency with relevant World Bank Environmental and Social Safeguard Policies. However, there may be rare instances, primarily in the context of Category A transactions, where there may be minor differences in policy requirements. These few differences are summarized in Annex D.

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Annex D: Relevant Differences between IFC Performance Standards and World Bank Safeguards

IFC Performance Standards and the World Bank Operational Policies relating to environment and social safeguards are generally equivalent in scope, but sometimes realized in slightly different ways in practice. The differences are mostly in form and process, and do not represent major differences in policy content. This matrix provides a side-by-side comparison of the related text in Bank and IFC safeguard policies, along with guidance on how the two systems’ policy requirements should be applied together.

19

Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

EIA:Responsibilityfor Drafting

The borrower is responsible for carrying out theEA. For Category A projects, the borrower retainsindependent EA experts not affiliated with theproject to carry out the EA. [Footnote 6 states:However, the borrower ensures that whenindividuals or entities are engaged to carry out EAactivities, any conflict of interest is avoided. Forexample, when an independent EA is required, itis not carried out by the consultants hired toprepare the engineering design.] (OP 4.01)

The Assessment will be an adequate, accurate, andobjective evaluation and presentation of the issues,prepared by qualified and experienced persons. (IFCPS 1 para 7)

Qualified and experienced external experts arerequired in the circumstances referenced in PS 6paragraph 7; PS 7 paragraph 11; and PS 8paragraph 4.

Comparison: The Bank requires the EIA forCategory A projects to be carried out by an entityindependent of the borrower. In addition, IFC policyrequires the client to retain qualified andexperienced external experts to verify monitoringinformation for Category A.

Guidance: For Category A projects, the EIA shouldbe carried out by an external consultant notconnected with the project.

EA AdvisoryPanel

For Category A projects that are highly risky orcontentious or that involve serious andmultidimensional environmental concerns, theborrower should normally also engage anadvisory panel of independent, internationallyrecognized environmental specialists to advise onall aspects of the project relevant to the EA. Therole of the advisory panel depends on the degreeto which project preparation has progressed, andon the extent and quality of any EA workcompleted, at the time the Bank begins toconsider the project. (OP 4.01 para 4)

For Category A projects with significant impacts thatare diverse, irreversible, or unprecedented, the clientwill retain qualified and experienced external expertsto verify its monitoring information. (PS 1 para 24)

In addition, external experts are required in certaindefined circumstances on issues concerningbiodiversity (as provided in paragraph 4 ofPerformance Standard 6), Indigenous Peoples (asprovided in paragraph 11 of Performance Standard7), and cultural heritage (as provided in paragraph 4of Performance Standard 8).

Comparison: The Bank requires an independentpanel of experts for Category A projects that arevery complex and precedent-setting; this is alsomandatory for larger dams. IFC requires a panelbased on project-specific issues, and considers thecontribution of other project experts, such as theLenders’ Independent E&S Specialists (if used) indetermining the need for an EA advisory panel.

Guidance: A decision on whether a panel isrequired should take into account all EA work thathas already been undertaken and mindful of Bankpolicy.

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

Dam SafetyPanel

The Bank’s OP 4.37—Safety of Dams—includesthe following requirement: (para 3, 4)

For large dams, including tailings dams and ashponds, the Bank requires:

(a) reviews by an independent panel of expertsthroughout investigation, design, andconstruction of the dam and the start ofoperations;

(b) preparation and implementation of detailedplans: a plan for construction supervision andquality assurance, a plan for instrumentation,an operation and maintenance plan, and anemergency preparedness plan;

(c) prequalification of bidders during procurementand bid tendering; and

(d) periodic safety inspections of the dam aftercompletion.

The independent review panel consists of three ormore experts, appointed by the borrower andacceptable to the Bank, with expertise in thevarious technical fields relevant to the dam safetyaspects of the particular dam. The number,professional breadth, technical expertise, andexperience of panel members are appropriate tothe size, complexity, and hazard potential of thedam under consideration. For high-hazard dams,in particular, the panel experts should beinternationally known experts in their field.

With IFC implementation of the PerformanceStandards, dam safety is now part of PS 4—Community Health, Safety and Security. PS 4includes the following text (in para 6):

When structural elements or components, such asdams, tailings dams, or ash ponds, are situated inhigh-risk locations, and their failure or malfunctionmay threaten the safety of communities, the clientwill engage one or more qualified experts withrelevant and recognized experience in similarprojects, separate from those responsible for thedesign and construction, to conduct a review asearly as possible in project development andthroughout the stages of project design,construction, and commissioning.

Comparison: The Bank requires an independentpanel (3-5 members) of dam safety experts for largedams. IFC takes a risk-based approach: where risksare high, it will require one or more external expertsnot connected to the project. IFC will also considerthe contribution of other project experts, such as theLenders’ Independent Engineer, in determining needfor a panel.

Guidance: In the event a transaction involves alarge dam, the financial intermediary shouldimmediately seek guidance from the World Bank’sLead Dam Safety Specialist. The composition of anypanel should be a joint decision, sufficient to coverthe specialized issues involved, and taking intoaccount all existing arrangements for independentinput into the project.

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

AssociatedFacilities

OP 4.01 Annex A includes associated facilitiesindirectly:

Project area of influence: The area likely to beaffected by the project, including all its ancillaryaspects, such as power transmission corridors,pipelines, canals, tunnels, relocation and accessroads, borrow and disposal areas, andconstruction camps, as well as unplanneddevelopments induced by the project (e.g.,spontaneous settlement, logging, or shiftingagriculture along access roads). The area ofinfluence may include, for example, (a) thewatershed within which the project is located; (b)any affected estuary and coastal zone; (c) off-siteareas required for resettlement or compensatorytracts; (d) the airshed (e.g., where airbornepollution such as smoke or dust may enter orleave the area of influence; (e) migratory routes ofhumans, wildlife, or fish, particularly where theyrelate to public health, economic activities, orenvironmental conservation; and (f) areas usedfor livelihood activities (hunting, fishing, grazing,gathering, agriculture, etc.) or religious orceremonial purposes of a customary nature.

Risks and impacts will be analyzed in the context ofthe project’s area of influence. This area of influenceencompasses, as appropriate: (i) the primary projectsite(s) and related facilities that the client (includingits contractors) develops or controls, such as powertransmission corridors, pipelines, canals, tunnels,relocation and access roads, borrow and disposalareas, and construction camps; (ii) associatedfacilities that are not funded as part of the project(funding may be provided separately by the client orby third parties, including the government), andwhose viability and existence depend exclusively onthe project and whose goods or services areessential for the successful operation of the project;(iii) areas potentially impacted by cumulative impactsfrom further planned development of the project, anyexisting project or condition, and other project-related developments that are realistically defined atthe time the Social and Environmental Assessmentis undertaken; and (iv) areas potentially affected byimpacts from unplanned but predictabledevelopments caused by the project that may occurlater or at a different location. The area of influencedoes not include potential impacts that would occurwithout the project or independently of the project.(IFC PS 1 para 5)

IFC seeks to ensure that the projects it financesachieve outcomes consistent with the PerformanceStandards, even if the outcomes are dependentupon the performance of third parties. When thethird party risk is high, and when the client hascontrol or influence over the actions and behavior ofthe third party, IFC requires the client to collaboratewith the third party to achieve outcomes consistentwith the Performance Standards. Specificrequirements and options will vary from case tocase. (IFC PPS para 25)

Comparison: IFC defines Associated Facilities asthose “whose viability and existence dependexclusively on the project and whose goods orservices are essential for the successful operation ofthe project.” IFC may also apply a narrower, two-waydependency test. The Bank OP does not mention“Associated Facilities” directly, but includes “allancillary aspects” as part of the project area ofinfluence, which is typically interpreted as broader inscope.

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

Natural Habitats Natural habitats are land and water areas where(i) the ecosystems’ biological communities areformed largely by native plant and animal species,and (ii) human activity has not essentiallymodified the area’s primary ecological functions.(OP 4.04 para 1(a))

Critical natural habitats are:

(i) existing protected areas and areas officiallyproposed by governments as protected areas(e.g., reserves that meet the criteria of the WorldConservation Union [IUCN] classifications), areasinitially recognized as protected by traditional localcommunities (e.g., sacred groves), and sites thatmaintain conditions vital for the viability of theseprotected areas (as determined by theenvironmental assessment process); or

(ii) sites identified on supplementary listsprepared by the Bank or an authoritative sourcedetermined by the Regional environment sectorunit (RESU). Such sites may include areasrecognized by traditional local communities (e.g.,sacred groves); areas with known high suitabilityfor biodiversity conservation; and sites that arecritical for rare, vulnerable, migratory, orendangered species. Listings are based onsystematic evaluations of such factors as speciesrichness; the degree of endemism, rarity, andvulnerability of component species;representativeness; and integrity of ecosystemprocesses. (OP 4.04 Annex A Definitions)

The Bank does not support projects that, in theBank’s opinion, involve the significant conversionor degradation of critical natural habitats. (OP4.04 para 4)

Under Section “Protection and Conservation ofBiodiversity” of PS 6 paragraphs 5–13 cover Habitat,Modified Habitat, Natural Habitat, Critical Habitatand Legally Protected Areas, Invasion AlienSpecies.

Critical habitat is a subset of both natural andmodified habitat that deserves particular attention.

Critical habitat includes areas with high biodiversityvalue, including habitat required for the survival ofcritically endangered or endangered species; areashaving special significance for endemic or restricted-range species; sites that are critical for the survivalof migratory species; areas supporting globallysignificant concentrations or numbers of individualsof congregatory species; areas with uniqueassemblages of species or which are associatedwith key evolutionary processes or provide keyecosystem services; and areas having biodiversity ofsignificant social, economic or cultural importance tolocal communities. (PS 6 para 9)

In areas of critical habitat, the client will notimplement any project activities unless the followingrequirements are met:

• There are no measurable adverse impacts on theability of the critical habitat to support theestablished population of species described inparagraph 9 or the functions of the critical habitatdescribed in paragraph 9

• There is no reduction in the population of anyrecognized critically endangered or endangeredspecies

Any lesser impacts are mitigated in accordance withparagraph 8 (PS 6 para 10)

Comparison: IFC policy applies a quantitative testof measurable impacts; the Bank test is morequalitative. Both require baseline data.

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

GrievanceMechanism

Accessible procedures appropriate to the projectto address grievances in the affected IndigenousPeoples’ communities arising from projectimplementation. When designing the grievanceprocedures, the borrower takes into account theavailability of judicial recourse and customarydispute settlement mechanisms among theIndigenous Peoples. (OP 4.10 Annex B para 2(h))

Displaced persons and their communities, andany host communities receiving them, areprovided timely and relevant information,consulted on resettlement options, and offeredopportunities to participate in planning,implementing, and monitoring resettlement.Appropriate and accessible grievancemechanisms are established for these groups.(OP 4.12 para 13 (a))

If the client anticipates ongoing risks to or adverseimpacts on affected communities, the client willestablish a grievance mechanism to receive, andfacilitate resolution of, the affected communities’concern and grievances about the client’senvironmental and social performance. (PS 1 para23)

Workers: The client will provide a grievancemechanism for workers (and their organizations,where they exist) to raise reasonable workplaceconcerns. The client will inform the workers of thegrievance mechanism at the time of hire, and makeit easily accessible to them. The mechanism shouldinvolve an appropriate level of management andaddress concerns promptly, using anunderstandable and transparent process thatprovides feedback to those concerned without anyretribution. The mechanism should not impedeaccess to other judicial or administrative remediesthat might be available under law or through existingarbitration procedures, or substitute for grievancemechanisms provided through collectiveagreements. (PS 2 para 13)

Land acquisition: The client will establish agrievance mechanism consistent with PerformanceStandard 1 to receive and address specific concernsabout compensation and relocation that are raisedby displaced persons or members of hostcommunities, including a recourse mechanismdesigned to resolve disputes in an impartial manner.(PS 5 para 10)

Indigenous Peoples: The client will establish anongoing relationship with the affected communitiesof Indigenous Peoples from as early as possible inthe project planning and throughout the life of theproject. In projects with adverse impacts on affectedcommunities of Indigenous Peoples the consultationprocess will ensure their

(continued)

Comparison: The Bank’s requirement for agrievance mechanism is triggered for projects whichaffect Indigenous Peoples and which causeinvoluntary resettlement. IFC requires establishing agrievance mechanism if the client anticipatesongoing risks to, or adverse impacts on, affectedcommunities in general.

Guidance: The IFC’s broader standard shouldapply.

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

GrievanceMechanism(cont.)

free, prior, and informed consultation and facilitatetheir informed participation on matters that affectthem directly, such as proposed mitigationmeasures, the sharing of development benefits andopportunities, and implementation issues. Theprocess of community engagement will be culturallyappropriate and commensurate with the risks andpotential impacts to the Indigenous Peoples. Inparticular, the process will include the followingsteps :

• Ensure that the grievance mechanism establishedfor the project, as described in PerformanceStandard 1 paragraph 23, is culturally appropriateand accessible for Indigenous Peoples (PS 7 para9)

25

Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

FPIC/BroadCommunitySupport

This policy contributes to the Bank’s mission ofpoverty reduction and sustainable developmentby ensuring that the development process fullyrespects the dignity, human rights, economies,and cultures of Indigenous Peoples. (OP 4.10para 1)

For all projects that are proposed for Bankfinancing and affect Indigenous Peoples, the Bankrequires the borrower to engage in a process offree, prior, and informed consultation. The Bankprovides project financing only where free, prior,and informed consultation results in broadcommunity support to the project by the affectedIndigenous Peoples. Such Bank-financed projectsinclude measures to (a) avoid potentially adverseeffects on the Indigenous Peoples’ communities;or (b) when avoidance is not feasible, minimize,mitigate, or compensate for such effects. Bank-financed projects are also designed to ensure thatthe Indigenous Peoples receive social andeconomic benefits that are culturally appropriateand gender- and intergenerationally inclusive. (OP4.10 para 1)

IFC is committed to working with the private sectorto put into practice processes of communityengagement that ensure the free, prior, andinformed consultation of the affected communities.Building on this commitment, when clients arerequired to engage in a process of free, prior, andinformed consultation, IFC will review the client’sdocumentation of the engagement process, and inaddition, through its own investigation, assure itselfthat the client’s community engagement is one thatinvolves free, prior, and informed consultation andenables the informed participation of the affectedcommunities, leading to broad community supportfor the project within the affected communities,before presenting the project for approval by IFC’sBoard of Directors. Broad community support is acollection of expressions by the affectedcommunities, through individuals or their recognizedrepresentatives, in support of the project. There maybe broad community support even if someindividuals or groups object to the project. After theBoard approval of the project, IFC will continue tomonitor the client’s community engagement processas part of its portfolio supervision. (SustainabilityPolicy, para 20)

For projects with significant adverse impacts onaffected communities, the consultation process willensure their free, prior and informed consultationand facilitate their informed participation. Informedparticipation involves organized and iterativeconsultation, leading to the client’s incorporating intotheir decision-making process the views of theaffected communities on matters that affect themdirectly, such as proposed mitigation measures, thesharing of development benefits and opportunities,and implementation issues. The client will documentthe process, in particular the measures taken toavoid or minimize risks to and adverse impacts onthe affected communities. (PS 1, para 22)

The client will establish an ongoing relationship with

Comparison: The Bank applies BCS for all projectsthat affect Indigenous Peoples, regardless ofanticipated impact.

IFC applies BCS for all projects that require theprocess of free, prior, and informed consultation(FPIC). The process of FPIC is a client obligationunder the Performance Standards, and applies to allprojects with significant adverse impacts on affectedcommunities. In addition, IFC also applies the FPICrequirement in projects with adverse impacts onaffected communities of Indigenous Peoples. Therequirement to ascertain Broad Community Supportis an IFC obligation in its Sustainability Policy. It is avalidation by IFC to its Board of Directors of theimpact of the client's FPIC process. It is notpredetermined by the category of project, or sector,or by classification of peoples affected, but is basedon risks.

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the affected communities of Indigenous Peoplesfrom as early as possible in the project planning andthroughout the life of the project. In projects withadverse impacts on affected communities ofIndigenous Peoples, the consultation process willensure their free, prior, and informed consultationand facilitate their informed participation on mattersthat affect them directly, such as proposed mitigationmeasures, the sharing of development benefits andopportunities, and implementation issues. (PS 7,para 9)

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Text from World Bank OPText from IFC Performance

Standards and Policies Comparison & Guidance

LandAcquisition andInvoluntaryResettlement

This policy covers direct economic and socialimpacts that both result from Bank-assistedinvestment projects, and are caused by (a) theinvoluntary taking of land resulting in (i) relocationor loss of shelter; (ii) loss of assets or access toassets; or (iii) loss of income sources or means oflivelihood, whether or not the affected personsmust move to another location; or (b) theinvoluntary restriction of access to legallydesignated parks and protected areas resulting inadverse impacts on the livelihoods of thedisplaced persons. (OP 4.12 para 3)

This policy applies to all components of theproject that result in involuntary resettlement,regardless of the source of financing. It alsoapplies to other activities resulting in involuntaryresettlement that, in the judgment of the Bank, are(a) directly and significantly related to the Bank-assisted project, (b) necessary to achieve itsobjectives as set forth in the project documents;and (c) carried out, or planned to be carried out,contemporaneously with the project. (OP 4.12para 4)

To address the impacts covered under paragraph3(a) of this policy, the borrower prepares aresettlement plan or a resettlement policyframework (see para 25-30) that covers thefollowing:

(a) The resettlement plan or resettlement policyframework includes measures to ensure that thedisplaced persons are (i) informed about theiroptions and rights pertaining to resettlement; (ii)consulted on, offered choices among, andprovided with technically and economicallyfeasible resettlement alternatives; and(iii) provided prompt and effective compensationat full replacement cost for losses of assetsattributable directly to the project.

(b) If the impacts include physical relocation, theresettlement plan or resettlement policyf k i l d h h

This Performance Standard applies to physical oreconomic displacement resulting from the followingtypes of land transactions:

Type I: Land rights for a private sector projectacquired through expropriation or other compulsoryprocedures;

Type II: Land rights for a private sector projectacquired through negotiated settlements withproperty owners or those with legal rights to land,including customary or traditional rights recognizedor recognizable under the laws of the country, ifexpropriation or another compulsory process wouldhave resulted upon the failure of negotiation. (PS 5para 5)

The applicability of this Performance Standard isestablished during the Social and EnvironmentalAssessment process, while implementation of theactions necessary to meet the requirements of thisPerformance Standard is managed through theclient’s Social and Environmental ManagementSystem. The assessment and management systemrequirements are outlined in Performance Standard1. (PS 5 para 4)

In the event of adverse economic, social, orenvironmental impacts from project activities otherthan land acquisition (e.g., loss of access to assetsor resources or restrictions on land use), suchimpacts will be avoided, minimized, mitigated, orcompensated for through the process of Social andEnvironmental Assessment under PS 1. If theseimpacts become significantly adverse at any stageof the project, the client should consider applying therequirements of PS 5, even where no initial landacquisition was involved. (PS 5 para 6)

In the case of Type I transactions (acquisition of landrights through the exercise of eminent domain) orType II transactions (negotiated settlements) thatinvolve the physical displacement of people, theclient will develop a resettlement action plan or aresettlement framework based on a Social and

Comparison: The approaches of the two policiesare complementary. IFC policy requires that whenland acquisition and resettlement are theresponsibility of the host government, the clientshould collaborate with the responsible governmentagency, to the extent permitted by the agency, toachieve outcomes consistent with the objectives ofPS 5. In addition, where government capacity islimited, the client should play an active role duringresettlement planning, implementation, andmonitoring.

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framework includes measures to ensure that thedisplaced persons are (i) provided assistance(such as moving allowances) during relocation;and (ii) provided with residential housing, orhousing sites, or, as required, agricultural sites forwhich a combination of productive potential,locational advantages, and other factors is at leastequivalent to the advantages of the old site.

(c) Where necessary to achieve the objectives ofthe policy, the resettlement plan or resettlementpolicy framework also include measures to ensurethat displaced persons are (i) offered support afterdisplacement for a transition period based on areasonable estimate of the time likely to beneeded to restore their livelihood and standards ofliving; and (ii) provided with developmentassistance in addition to compensation measuresdescribed in paragraph 6(a); (iii) such as landpreparation, credit facilities, training, or jobopportunities. (OP4.12 para 6)

The borrower is responsible for preparing,implementing, and monitoring a resettlement plan,a resettlement policy framework, or a processframework (the "resettlement instruments"), asappropriate, that conform to this policy. Theresettlement instrument presents a strategy forachieving the objectives of the policy and coversall aspects of the proposed resettlement.Borrower commitment to, and capacity for,undertaking successful resettlement is a keydeterminant of Bank involvement in a project.(OP4.12 para 18)

The full costs of resettlement activities necessaryto achieve the objectives of the project areincluded in the total costs of the project. The costsof resettlement, like the costs of other projectactivities, are treated as a charge against theeconomic benefits of the project; and any netbenefits to resettlers (as compared to the"without-project" circumstances) are added to thebenefits stream of the project. Resettlementcomponents or freestanding resettlement projectsneed not be economically viable on their own, but

Environmental Assessment that covers, at aminimum, the applicable requirements of thisPerformance Standard regardless of the number ofpeople affected. The plan or framework will bedesigned to mitigate the negative impacts ofdisplacement, identify development opportunities,and establish the entitlements of all categories ofaffected persons (including host communities), withparticular attention paid to the needs of the poor andthe vulnerable (see Performance Standard 1paragraph 12). The client will document alltransactions to acquire land rights, as well ascompensation measures and relocation activities.The client will also establish procedures to monitorand evaluate the implementation of resettlementplans and take corrective action as necessary. Aresettlement will be considered complete when theadverse impacts of resettlement have beenaddressed in a manner that is consistent with theobjectives stated in the resettlement plan orframework as well as the objectives of thisPerformance Standard. (PS 5 para 12)

Where land acquisition and resettlement are theresponsibility of the host government, the client willcollaborate with the responsible government agency,to the extent permitted by the agency, to achieveoutcomes that are consistent with the objectives ofthis Performance Standard. In addition, wheregovernment capacity is limited, the client will play anactive role during resettlement planning,implementation and monitoring, as described belowin paragraphs 23-25. (PS 5 para 22)

In the case of Type I transactions (acquisition of landrights through expropriation or other legalprocedures) involving physical or economicdisplacement, and Type II transactions (negotiatedsettlements) involving physical displacement, theclient will prepare a plan (or a framework) that,together with the documents prepared by theresponsible government agency, will address therelevant requirements of this Performance Standard(the General Requirements, except for paragraph13, and requirements for Physical Displacement andE i Di l b )

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they should be cost-effective. (OP 4.12 para 20)

The borrower’s obligations to carry out theresettlement instrument and to keep the Bankinformed of implementation progress are providedfor in the legal agreements for the project. (OP4.12 para 23)

The borrower is responsible for adequatemonitoring and evaluation of the activities set forthin the resettlement instrument. The Bank regularlysupervises resettlement implementation todetermine compliance with the resettlementinstrument. Upon completion of the project, theborrower undertakes an assessment to determinewhether the objectives of the resettlementinstrument have been achieved. The assessmenttakes into account the baseline conditions and theresults of resettlement monitoring. If theassessment reveals that these objectives may notbe realized, the borrower should propose followupmeasures that may serve as the basis forcontinued Bank supervision, as the Bank deemsappropriate (see also BP 4.12 para 16). (OP4.12para 24)

Economic Displacement above).

The client may need to include in its plan: (i) adescription of the entitlements of displaced personsprovided under applicable laws and regulations; (ii)the measures proposed to bridge any gaps betweensuch entitlements and the requirements of thisPerformance Standard; and (iii) the financial andimplementation responsibilities of the governmentagency and/or the client. (PS 5 para 23) In the caseof Type II transactions (negotiated settlements)involving economic (but not physical) displacement,the client will identify and describe the proceduresthat the responsible government agency plans touse to compensate affected persons andcommunities. If these procedures do not meet therelevant requirements of this Performance Standard(the General Requirements, except for paragraph12, and requirements for Economic Displacementabove), the client will develop its own procedures tosupplement government action. (PS 5 para 24)

If permitted by the responsible government agency,the client will, in collaboration with such agency: (i)implement its plan or procedures established inaccordance with paragraph 23 or 24 above; and (ii)monitor resettlement activity that is undertaken bythe government agency until such activity has beencompleted. (PS 5 para 25)

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Annex E: National Environmental and Social Legislation

Note: This summary is provided for information purposes only, and is not necessarily an exhaustive or World Bank Group approved list of all relevant environmental and social legislation.

Environmental Legislation

Overall management of the environment is under the responsibility of the Ministry of Environment (MoE), which was created in 1993. The MoE is responsible for implementation of the Law on Environmental Protection and Natural Resources Management. At the provincial and city levels, there are corresponding provincial/city environment departments. These local departments have the responsibility of enforcing the environmental legislation coming under the competence of the MoE. However, the daily operation functions of these departments would normally be under the direct control of the provincial authorities. The framework law calls for an IEIA or EIA to be conducted for every private or public project, to be reviewed by the MoE before submission to the Government for a final decision. All proposed and existing activities are to be covered under this requirement. Recently, The Declaration on General Guidance, N 376 BRK.BST, for conducting initial and full environmental impact assessment has been signed and enacted on 2 September 2008 by the Minister of Environment. The goal of the guidance is to implement initial environmental impact assessment (IEIA), full environmental impact assessment (EIA), and to provide general guidelines and checklists. IEIA or EIA is required for every project, depending on type and activity and the site of the project (Article 1 and 2 of Sub-Decree of IEIA/EIA process). The Ministry of Environment is responsible for review the EIA reports, the required follow-up, and monitoring. Environmental Protection and Natural Resources Management Law

The Environmental Protection and Natural Resources Management Law was enacted by the National Assembly and launched by the Preah Reach Kram/NS-RKM-1296/36. It was enacted on 18 November 1996. This law has the following objectives: • Protect and promote environment quality and public health through prevention, reduction and

control of pollution; • Assess the environmental impacts of all proposed projects prior to the issuance of a decision

by the Royal Government; • Ensure the rational and sustainable conservation, development, management and use of the

natural resources of the Kingdom of Cambodia; • Encourage and provide possibilities for the public to participate in the protection of

environment and the management of the natural resources; and • Suppress any acts that cause harm to the environment. Under this law the developers or project owners need to prepare an IEIA or EIA report for their proposed or existing development projects.

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Environmental Impact Assessment Process Sub-decree

The sub-decree No 72 ANRK.BK on Environmental Impact Assessment Process is dated 11 August 1999. The main objectives of this sub-decree are: • Determine an Environmental Impact Assessment (EIA) upon every private and public project

or activity, which must be reviewed by the Ministry of Environment (MoE), prior to the submission for a decision from the Royal Government.

• Determine the type and size of the proposed project(s) and activities, including existing and ongoing activities in both private and public sector prior to undertaking the process of EIA.

• Encourage public participation in the implementation of the EIA process and take into account their conceptual input and suggestions for re-consideration prior to the implementation of any project.

Water Pollution Control Sub-decree

The sub-decree No 27 ANRK.BK on Water Pollution Control is dated 6 April 1999. The purpose of this sub-decree is to regulate water pollution control in order to prevent and reduce the water pollution of public water areas so that the protection of human health and the conservation of bio-diversity shall be ensured. This sub-decree applies to all sources of pollution and all activities that cause pollution of public water areas. The sub-decree also gives the pollution types, effluent standards, and water quality standards in different areas. Solid Waste Management Sub-decree

The sub-decree No 36 ANRK.BK on Solid Waste Management is dated 27 April 1999. The purpose of this sub-decree is to regulate solid waste management in a proper technical manner and safe way in order to ensure the protection of human health and the conservation of biodiversity. This sub-decree applies to all activities related to disposal, storage, collection, transport, recycling, and dumping of garbage and hazardous waste. Air Pollution Control Sub-decree

The sub-decree N0 42 ANRK.BK on Air Pollution Control and Noise Disturbance dated 10 July 2000. This sub-decree has a purpose to protect the environment quality and public health from air pollutants and noise pollution through monitoring, reduction, and mitigation activities. This sub-decree applies to all movable sources and immovable sources of air and noise pollution. National IPM Program, 1993

Integrated Pest Management (IPM) in Cambodia was established in 1993 after conducting national workshop on “Environment and IPM.” The overall goal of National IPM program is to promote food security in Cambodia by enhancing the sustainability of intensified crop production system through the promotion of integrated crop management (ICM) skills at farm level. The objectives of this program are: • Reduce dependence on agricultural chemicals, especially pesticides, in agricultural

production and to minimize hazards to the human health, animals and environment.

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• Develop the capacity of farmers and agricultural technical officers in conducting training and experiments so that they are able to identify problems occurring in agricultural production and find appropriate solution to deal with the problem.

• Educate farmers on agricultural technology by enhancing their knowledge on field ecology and by developing skills among farmers in monitoring and analyzing field situations that enable them to manage crops properly.

Legislation regarding Involuntary Resettlement

The Constitution of Cambodia provides for land acquisition for public purposes. In Article 20 it states that ”Nobody shall be forced to transfer his or her ownership, if forcing is necessary in public interest and if no proper and just indemnity has been paid to owner”. Regarding compensation, Article 40 of the Constitution states that “The right to confiscate (land) possession from any person shall be exercised only in the public interest as provided for under law and shall require fair and just compensation.” Some protection for vulnerable groups is also specified in the Constitution in Article 73: “The State shall give full consideration to children and mothers. The State shall establish nurseries, and help support women and children who have inadequate support” and Article 74: “The State shall assist the disabled and the families of combatants who sacrificed their lives for the nation.” The new 2001 Land Law provides that no person shall be “deprived of their ownership unless this action is for the public interest consistent with formalities and procedures provided by laws and regulations, and after just and fair compensation” there are currently no such “laws and regulations” and there continues to be an absence of definition for “just compensation.” In addition, a person holding illegally possessed property cannot claim compensation, even if there is a title (Article 19); moreover, any “illegal and intentional or deceitful acquisition of the public domain of the State or public legal entity shall be punished” with a fine and/or imprisonment. This penalty can be doubled if the landholder is held to damage or delay work in favor of the common interest, especially the possession of land necessarily reserved for maintaining roads. Under the new Land Law, those who have occupied a right of way or public properties may not be entitled to any compensation or social support, regardless of their being an affected person or a member of a vulnerable group. Although individual rights to ownership and compensation are protected by present laws, there are no clearly defined specific provisions or a mechanism for land acquisition by the State through expropriation. The expropriation of immovable properties is based on decisions of government staff and implementation in an ad-hoc manner varying from one project to another. Traditional private land ownership was abolished during the Khmer Rouge period (1975-1979) and was not re-introduced until the late 1980s. Determining ownership and obtaining documentation to prove ownership is a cumbersome and time consuming process which many landholders have not utilized. The boundaries of public land still remain unclearly defined and it can be difficult to distinguish between public and private land. Presently, the Government’s Inter-ministerial Resettlement Committee (IRC) is charged with determining entitlements, valuation of affected assets and in fixing of compensation rates. Current legal provisions governing land acquisition, compensation and resettlement in Cambodia do not meet the objectives and principles of World Bank‘s Operational Policy (O.P.) 4.12 on Involuntary Resettlement.

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Legislation regarding Indigenous Peoples

Under the Cambodian constitution, the Highland Peoples are afforded Cambodian citizenship. However, at present there is no comprehensive legislation or regulation relating specifically to protection of Highland Peoples rights or interests. In 1997, a special Inter-Ministerial Committee for Highland Peoples Development released a draft “General Policy for Highland Peoples Development.” The draft, culminating from a long process of consultations among local groups, NGOs, international development agencies and government, has never been formally adopted by the government. The policy statement would provide a number of protections for Highland Peoples, many relating to land rights and access to resources. Of particular importance are these provisions in the general policy statement: • the government “shall promote understanding and respect of cultural diversity and ensure

that Highland Peoples can practice their own cultures” (paragraph 1);• “Highland Peoples shall have the right to be fully informed about, determine the priorities for

and to exercise control over their economic, social and cultural development” (paragraph 6), and this provision in the policy guidelines section of the document;

• “Highland Peoples’ communities shall be given the opportunity to participate and take responsibility in all decisions regarding infrastructure projects that affect them. The affected community and persons must have agreed, after being fully informed in a language that they clearly understand, of the project and all its consequences for them and their natural environment, before any development project may proceed” (paragraph 7.2).

World Bank Policy on Indigenous Peoples. The financial institution should also seek to ensure consistent application of the World Bank policy regarding indigenous peoples. As with any situation where the financial institution cannot ensure such application of a relevant World Bank Group policy or standard will take place, the financial institution should immediately notify IFC to obtain guidance and assistance. The World Bank Indigenous Peoples Policy (OP 4.10) uses the term “Indigenous Peoples” in a generic sense to refer to a distinct, vulnerable, social and cultural group possessing the following characteristics in varying degrees: • Self-identification as members of a distinct indigenous cultural group and recognition of this

identity by others; • Collective attachment to geographically distinct habitats or ancestral territories in the project

area and to the natural resources in these habitats and territories; • Customary cultural, economic, social, or political institutions that are separate from those of

the dominant society and culture; and • An indigenous language, often different from the official language of the country or region

The following table summarizes current World Bank understanding of the presences of Highland Peoples, who under Bank OP 4.01 would be considered Indigenous Peoples.

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# Villages # Villages

P N T V H PH P

BK CK SK TKM KP VPR KS RP SS TO M