Finnfund has always paid attention to environmental issues in its investments. Finnfund’s environmental policy was formally approved in June 2005 and integrates also social issues.
We are at present reviewing and updating our environmental policy into an environmental and social policy. It will better integrate the social responsibility as well as occupational health and safety issues in our investments. We follow and take into account the developments in international practices (e.g. IFC’s new environmental and social performance standards and the new Equator Principles).
ENVIRONMENTAL POLICY
INTRODUCTION
The underlying principles of Finnfund’s strategy are Finland’s policy on development, in which environmental issues have taken an increasingly central position in the past few decades. On an international level, Finland has committed to the principles of sustainable development, by approving among other the Johannesburg Plan of Implementation, ratifying the Kyoto Protocol and ratifying more than a hundred environmental agreements. On a national level, the importance of environmental issues in Finland’s relations with developing countries has been underlined in numerous policy decisions by the government.
In accordance with the development policy programme, approved by the government on 5 February 2004, “Finland promotes changes in production and consumption patterns in the developing countries and supports the reduction of their poverty in a way that avoids the most serious negative environmental impacts that can be caused by economic growth”. The programme states that “consideration of the environment is a cross-cutting theme in all of Finland’s development cooperation”.
Finnfund’s environmental policy sets out the basic principles for incorporating environmental considerations into Finnfund’s activities in a cross-cutting way. A major part can be played by financing decisions that promote favourable environmental impact. This is why Finnfund has focused a significant share of its financing in recent years on projects that improve environmental conditions. In the future it will seek to increase its investments among other in projects for renewable energy, energy efficiency, environmental technology, the reduction of industrial emissions.
The main weight in this policy falls, however, on diligence; on principles and measures designed to ensure that no environmental damage results from Finnfund’s actions. This work has been largely a matter of fine-tuning established practices and formalizing them into documentation that guides Finnfund’s operational work.
GENERAL PRINCIPLES
Finnfund’s objective is to promote economic and social development in developing countries by providing funding for self-financing business activities by private concerns. Economic, social and environmental sustainability and the promotion of favourable environmental impacts are the central starting points when Finnfund is assessing possible investments.
This policy document lays out the environmental principles to be taken into account when assessing the eligibility for financing of projects and other investments. Finnfund attempts to ensure that funded projects are environmentally sustainable. In its overall assessments, Finnfund lays particular stress on favourable environmental impacts and strives to reinforce these.
Projects financed by Finnfund must comply with both national legislation and the demands of Finnfund’s environmental policy. The targets of Finnfund’s financing activity are often developing countries in which local environmental permits or their validity do not necessarily ensure a project’s sustainability. To make certain that projects are realised in a sustainable manner, Finnfund applies internationally-recognised environmental guidelines and standards as and where necessary.
Preventive, mitigating and management measures instituted when executing a project must ensure that adverse environmental impacts and any legal, economic and public repercussions these may have are managed in an appropriate way.
Continuous improvement
The methods associated with Finnfund’s environmental policy evolve. In development work, attention is given, among other items, to Finnfund’s own experience, international progress in dealing with policy matters and the best practices in other organisations engaged in development funding. Finnfund organises training for its personnel in the environmental aspects of projects. In this training, the objective is to see to it that environmental considerations are addressed properly in practical projects and other investments.
Finnfund’s environmental policy and the internal environmental guidelines that define related practices in more detail are updated to reflect successful policy application and changing conditions.
DEFINITIONS
The term project refers to the implementation of construction work and industrial facilities or a plan, and includes exploitation of the earth’s natural resources and other activities that affect the natural environment and the landscape. New industrial facilities and expansions of existing facilities are projects. New integrated plants or industrial zones (in cases where one sector could not be implemented without others) are, as a rule, examined as a single project.
Sensitive areas are locations which are particularly sensitive to adverse environmental impacts. Examples of such zones are national parks, other protected sites and sensitive locations which have international, national or local significance. Such locations include, for example, wetlands, forests which have high levels of biodiversity, areas which are of archaeological or cultural interest, and areas that are important to indigenous peoples or other vulnerable groups.
Sensitive operational sectors are sectors in which operations are likely to result in significantly-adverse environmental impacts.
An Environmental classification is a category assigned by Finnfund which specifies a project’s potential environmental impacts and the level of environmental assessment required.
Environmental impacts are viewed as a project’s direct or indirect effects on the following: 1) people, animals and plants; 2) earth, water, air, climate and landscape; 3) fixed and movable property and the cultural heritage; and interactions between the factors in each of these three categories.
In this connection, environmental impacts also include the following social aspects: the involuntary resettlement of populations, the position of indigenous peoples and cultural property.
Environmental Impact Assessments (EIA) recognise, describe and assess a project’s environmental impacts and take note of opinions expressed by authorities and people whose living conditions or interests may be affected by the project.
SCOPE
Finnfund’s environmental policy covers the traditional environmental elements (see the definition of environmental impacts in the DEFINITIONS section) in Finnfund’s financing operations. In its funding activities, Finnfund focuses on the essential environmental aspects. For each investment commitment, the degree of detail of the analysis is determined with reference to the estimated importance of the key factors.
Finnfund examines each financing project as a whole. If the project to be financed by Finnfund is part of a larger project entity, Finnfund investigates this entity whenever necessary. If the company to receive funding has existing operations other than the project under consideration, Finnfund assesses the risk involved in these operations if such action is considered necessary. Finnfund’s assessments do not include project-related chains of subcontractors who do not receive funding, unless these are considered to be significant in terms of their environmental aspects.
ASSESSMENT PROCESS FOR PROJECTS AND INDIRECT INVESTMENT
All projects and indirect investments which Finnfund is considering as possible targets for funding are assessed in accordance with the process outlined in this section.
Environmental classification
Using the basic information about a project and other sources, favourable and unfavourable aspects connected with a project are identified. Finnfund uses the following three categories to classify a project based on it’s potential environmental impacts:
Environmental Category A: Projects that may have significant adverse environmental impacts which could extend to an area wider than the project location. In practice this means new production facilities and the significant expansion of such facilities in sensitive areas, and projects that are located in sensitive areas or their immediate vicinity.
Environmental Category B: Projects that have moderately-adverse environmental impacts, i.e. effects that are smaller in scope than those resulting from Category A projects and which are easier to control.
Environmental Category C: Projects which do not have the potential for adverse environmental impacts or in which any such impacts are minimal.
Indirect investments (see below) which may have adverse environmental impacts are classified as Environmental Category FI. Indirect investments which do not have the potential for adverse environmental impacts, or those in which any such impacts are minimal, are categorised as Environmental Category C.
Information required
For projects categorised as Environmental Category A, Finnfund requires an international-level Environment Impact Assessment (EIA). This consists of a an assessment of environmental impacts and, if necessary, an investigation of the social aspects specified in Finnfund’s environmental policy, public hearings involving people who the project will affect, and a management plan for environmental and social issues (e.g. an ESMP = Environmental and Social Management Plan). Management plans specify actions that will be taken to prevent, minimise and mitigate any adverse impacts.
Environmental information for projects categorised as Environmental Category B allows assessment of their environmental impacts and compliance with the target country’s legislation as well as its compliance with internationally-recognised environmental guidelines and standards. If necessary, a project categorised as Environmental Category B can be required to have an Environmental and Social Management Plan (ESMP) to mitigate its adverse impacts.
No additional information is required in connection with projects categorised as Environmental Category C.
Assessment of project performance
Finnfund carries out further examination of projects categorised as Environmental Category A or Environmental Category B. Further examination is not undertaken in connection with projects categorised as Environmental Category C.
Projects are assessed through comparison with the requirements of internationally-recognised environmental guidelines and standards. The documents used in this comparison are determined on the basis of the functions which the candidate project encompasses. Primary among these are the environmental guidelines and standards and safeguard policies published by the World Bank Group and the International Finance Corporation (IFC) 1) . If the company or other financing organisation involved is more familiar with guidelines published by a regional development bank, these are an acceptable substitute.
Every project must comply with the target country’s legislation and the essential requirements in the above-mentioned internationally-recognised environmental guidelines, standards, safeguard policies or other similar criteria.
Assessment of existing operations
If necessary, Finnfund assesses the existing operations of the company which is a target for funding. Matters which require clarification can, for example, be the compliance of existing operations with target country’s rules and regulations and the company’s ability to comply with international environmental guidelines and standards, potential environmental risks and liabilities, possible accidents and other risks. Consideration can also be given to the possibility of developing the company’s operations.
Assessment of indirect investments
Among Finnfund’s indirect investments are investments in financing companies and funds. These placements are further invested in, for example, projects or companies which are already trading. In such situations, matters requiring consideration in connection with Finnfund’s environmental policy differ from those involved in cases of direct investment. In cases of indirect investment, Finnfund does not negotiate directly with the final recipients of funding, but with financing companies and funds.
Finnfund only investigates environmental matters in connection with indirect investments that have been categorised as Environment Category FI. If finance provided by Finnfund is targeted at specific projects via a financing company or fund, the focus of the Finnfund assessment will be on these specific projects, and the assessment is conducted by applying the principles and requirements outlined in the Assessment of project performance section of this policy document. Finnfund also examines the performance of environmental management systems in financing companies and funds.
If financing provided by Finnfund is channelled through financing companies and funds but not directed at any specified project, Finnfund will examine the performance of the environmental management systems employed by the financing organisations. The basis for this principle is that the financing company or fund oversees the environmental aspects of the projects it is funding by means of its own environmental management system. It is a Finnfund requirement that financing companies or funds in which it invests comply with the legislation in target countries and have an environmental management system that represents good international practice and is adequate in respect of the potential impact of investments being funded. The projects being financed by financing companies or funds should strive to comply with the essential requirements of internationally-recognised environmental guidelines, standards, safeguard policies or other similar criteria.
Environmental evaluation
Finnfund’s environmental experts prepare an environmental review of every project and indirect investment. This review contains the information pursuant to Finnfund’s environmental policy on the project or investment in question, and is appended to the documentation used in decision making. The review takes account of a project’s eligibility for financing from the viewpoint adopted on matters dealt with in the review, and includes proposals about measures that may have to be taken to prevent, minimise or mitigate adverse impacts.
TERMS AND CONDITIONS; MONITORING
Satisfactory performance in projects and other investments in respect of issues dealt with in this policy document is secured, if necessary, by the terms and conditions written into financing agreements and subsequent monitoring. If other development financing institutions or sources of finance that follow similar environmental policies (for example providers of export finance) are involved in the project, cooperation and a suitable division of labour is encouraged when assessing environmental impacts, setting environmental requirements and monitoring.
Finnfund monitors environmental matters in projects categorised as Environmental Category A on an annual basis, and in Environmental Category B and Category FI projects as and when required. In practice, the monitoring work in project locations and consequent reporting is carried out by an entity authorised for this purpose by the finance provider. Monitoring reports are then forwarded to Finnfund.
1) The International Finance Corporation (IFC) is the part of the World Bank Group that finances projects in the private sector.
