Integrating Environmental Assessment into Project Development Studies

Project development decisions for mining and large infrastructure projects are generally based on feasibility studies. These studies usually take into account an Environmental and Social Impact Assessment (ESIA) which are driven by international best practice and host country legislation but which, like feasibility studies, may need to meet corporate standards and/or lender requirements.

There are no internationally accepted guidelines for linking the contents and timing of feasibility studies and environmental and social impact assessments, though many mining companies have their own Corporate standards. To support project development studies, SRK’s environmental and social impact specialists have been working with their mining and geology counterparts to compare processes and define minimum ‘standards’ for the level of detail required at different stages of a project’s development.

First, it is important to understand the different stages of the two processes. In project development, the stages include the Concept (or Scoping), Pre-Feasibility and Feasibility Study stages. For the environmental and social assessment, the stages include Screening, Scoping (or Plan of Study), Baseline Studies, Environmental and Social Impact Assessment and Environmental and Social Management Planning stages. All of the ESIA stages need stakeholder engagement.

Second, the decision-makers relying on the results of these studies need to be identified. Their decision-making processes often run in parallel and include:

• Go/No Go decision – project developers, including the project design team, the future operations management team and shareholders need to determine if the project is economically viable and technically feasible. This decision will be influenced by the risks and opportunities
posed by the environmental and social consequences of the project

• Permitting – the responsible government authority decides whether to legally approve the project and determines the conditions for approval

• Loan agreements – financiers need to determine the risks associated with their possible investments and develop the covenants or conditions that manage these risks and will be included in the loan agreements

• Social licence to operate – other stakeholders, including local communities, need to evaluate the development proposal and the impacts on their community and environment; their agreement may be required or they may decide that more action is needed to overcome threats or harness opportunities posed by the project

In formulating the linkages between these processes, SRK considered the following key points, while acknowledging that this is a simplified view of complex decision-making processes.

1. According to International standards, feasibility studies need to consider environmental and social issues, including health, safety, labour and security. The Equator Principles and International Finance Corporation (IFC) Performance Standards present the minimum standards for environmental and social impact assessment and management acceptable to many major financiers.
2. The description of the project in the ESIA needs to be identical to that in the feasibility study, including any project description revisions made subsequent to the completion of the feasibility study to ensure that the impacts have been correctly evaluated and suitable management plans devised. However, completing the impact assessment and management planning depends on the final project description, which may only be agreed upon at the end of the feasibility study.
3. The information required to support decisions varies according to the parties involved. The legal frameworks of the country and the government’s institutional capacity often differ. For example, non-OECD countries are likely to call for less stringent requirements than OECD countries, due to weaker regulatory controls and administration. Developers differ according to their corporate requirements. For example, the Health, Safety, Environment and Community policies and capacity of a junior is likely to be less comprehensive than that of a mid-tier or major company. Investors differ according to their risk position. For example, financial institutions will differ depending on whether or not they have signed Equator Principles.
4. The decision making points of each party may influence the other parties’ decision points. For example, some developers will only approve a project once the regulator issues a licence. Investors may manage their risk through the different stages of the lending process (e.g. agreement on the loan, draw downs and completion). The project development deliverables required for each of these stages may vary depending on the financial institution involved (as a function of their risk profile and investing strategy).
5. In our experience feasibility work involving a major mining company or an Equator Principles Financial Institution requires the ESIA process to have proceeded as far as the development of a framework management system to clearly indicate how implementation will occur. Generally, it takes at least six months after the project description is fixed and a full baseline data set is available to complete the ESIA work to this stage.

The outcome of this evaluation is a simplified statement of what SRK considers the minimum level of environmental and social assessment required at each stage of the project development process. A similar process has been undertaken by our mining, engineering and geology colleagues to ensure that project development influences are considered in an integrated way.  SRK acknowledges that each project is unique and that firm and fixed standards cannot always be applied. However, based on extensive ESIA experience and a good understanding of the development process, SRK can apply these principles when undertaking ESIAs and when reviewing ESIAs prepared by other consultants. To meet the needs of the various decision-making processes, SRK recommends:

• Understanding the decision-making processes to determine the requirements of each decision maker and the key milestones in their respective processes
• Early integration of project development engineering teams with the environmental and social specialists (whether in-house or consultants)
• Regular interaction and communication between the engineering and environmental/social teams at all stages of the project development to ensure optimal project design, prevent environmental damage and obtain the social licence needed from stakeholders

Fiona Cessford: fcessford@srk.co.uk
Allison Burger: aburger@srk.co.za

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