IFC Environmental and Social Performance Standards

The environmental and social responsibility of each investment is assessed before the investment decision, after which it is monitored throughout the investment period.

Environmental and social responsibility and related risks are assessed in relation to the IFC Environmental and Social Performance Standards (IFC PS) and the World Bank Group Environmental, Health, and Safety Guidelines (EHS Guidelines).

Based on the harmonized guidelines of the European Development Finance Institutions (EDFI), they are the standard for all high and medium risk (A-B) projects. For low-risk (C) projects, the minimum level is set by local legislation.

IFC Environmental and Social Performance Standards define a minimum level of requirements for an investment in eight areas of environmental and social responsibility:

• Performance Standard 1: Assessment and Management of Environmental and Social

Guides companies to assess and manage environmental and social risks related to their operations, and create an appropriate environmental and social management system (ESMS) to integrate plans and standards into their core operations — so they can anticipate environmental and social risks posed by their business activities and avoid, minimize, and compensate for such impacts as necessary. A good management system provides for consultation with stakeholders and a means for complaints from workers and local communities to be addressed.

• Performance Standard 2: Labor and Working Conditions

Requires companies to treat their workers fairly, provide safe and healthy working conditions, avoid the use of child or forced labor, and identify risks in their primary supply chain.

• Performance Standard 3: Resource Efficiency and Pollution Prevention

Guides companies to integrate practices and technologies that promote energy efficiency, use resources—including energy and water—sustainably, and reduce greenhouse gas emissions.

• Performance Standard 4: Community Health, Safety, and Security

Requires companies adopt responsible practices to reduce risks to local communities through development of adequate emergency preparedness and response, security force management, and design safety measures.

• Performance Standard 5: Land Acquisition and Involuntary Resettlement

Advises companies to avoid involuntary resettlement wherever possible and to minimize its impact on those displaced through mitigation measures such as fair compensation and improvements to and living conditions. Active community engagement throughout the process is essential.

• Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources

Recognizes that protecting and conserving biodiversity, maintaining ecosystem services, and managing living natural resources adequately are fundamental to sustainable development. It also sets clear monitoring and mitigation requirements for projects according to the type of environmental setting.

• Performance Standard 7: Indigenous Peoples

Seeks to ensure that business activities minimize negative impacts, foster respect for human rights, dignity and culture of indigenous populations, and promote development benefits in culturally appropriate ways. Informed consultation and participation with IPs throughout the project process is a core requirement and may include Free, Prior and Informed Consent under certain circumstances.

• Performance Standard 8: Cultural Heritage

Guides companies in protecting cultural heritage from adverse impacts of project activities and supporting its preservation. It also promotes the equitable sharing of benefits from the use of cultural heritage.

In addition, each investment is assessed, for example, from the perspective of human rights and responsible tax. Depending on the investment, the assessment also takes into account industry-specific standards and other international principles.

Every investment is always required to comply with local legislation.

What if the investment does not meet the standards?

If the operations do not comply with applicable standards and guidelines, an Environmental & Social Action Plan (often abbreviated as ESAP) is agreed with the company. It sets out measures and a time schedule for compliance. Finnfund’s experts monitor the progress of the Action Plan as part of regular monitoring.

It is very typical that prior the investment decision, the company’s operations do not yet meet all applicable standards. Therefore, it is essential to assess the company’s ability to develop its operations within an agreed timeframe.

Typically investments close compliance gaps within the first 1-3 years of the Finnfund investment.