I. INTRODUCTION

1. The projects financed, directly and indirectly, by the Inter-American Investment Corporation (IIC) will be subject to an environmental and labor review to ensure that they comply with national environmental and labor laws, regulations and standards and that they are consistent with the general objectives of the Inter-American Development Bank's (IDB) environmental review guidelines, as applicable.¹ The purpose of this document is to outline the five-step procedure to be used by the IIC in environmental review and articulate its requirement with respect to Labor Practices in all IIC projects.

II. ENVIRONMENTAL REVIEW

A. Objective

B. Areas of concern

• Assessment of baseline environmental situation;
• Compliance with applicable national environmental laws, regulations and standards;
• Sustainable use of natural resources;
• Pollution controls (liquid effluents and air emissions) and solid and chemical waste management;
• Use of dangerous substances;
• Major hazard analysis;
• Occupational health and safety;
• Fire and life safety;
• Protection of human health, cultural properties, tribal peoples, endangered species, and sensitive ecosystems; and
• Resettlement issues.

C. Responsibility

4. The Review of IIC projects will be the responsibility of the IIC's Environmental Advisor. This individual will work in close coordination with the IIC Staff Engineer, and will report through him to the IIC Operations Manager. The Environmental Advisor will have complete access to all the resources of the IDB Environment Protection Division.

5. The internal approval of the project, taking into consideration the findings of the Review, will remain the responsibility of the IIC Operations Committee. During the appraisal process, the Environmental Advisor will coordinate his activities through the IIC Staff Engineer. It is the responsibility of the Investment Officer in charge of the appraisal to obtain all relevant information from the project sponsor and to work closely with the Environmental Advisor during the Review. Communications with the sponsor regarding additional information requirements or conditions associated with the Review clearance will be the responsibility of the Investment Officer heading the appraisal.

6. The Review may involve consideration of a number of different disciplines. As required, the Environmental Advisor will seek necessary technical assistance from specialists within the IDB Environment Protection Division and/or from outside consultants. It is the Environmental Advisor's responsibility to determine if the project complies with the national environmental laws, regulations and standards, and is consistent with the general objectives of the IDB's environmental guidelines, as applicable, or to make IIC management aware of any issues that are inconsistent with these requirements.

D. Procedural steps

7. The five steps of the Review are:

• project screening;
  
  
• issuance of terms of reference for the review of issues;
  
  
• Environmental Impact Assessment (EIA);
  
  
• incorporation of environment protection and mitigation measures, if required, in the Investment Agreements; and
  
  
• project supervision.

Information required to complete the Review will vary from project to project depending on the complexity and potential impact on the physical, biological and socio-economic environment(s). The length of time required for the EIA will depend on the completeness of the information provided by the sponsor, and the overall complexity of the problem. The procedures outlined in this document are aimed at ensuring that all project Review clearance is given in a timely fashion prior to submission of the project to the Board.

8. IIC must have sufficient information on environmental aspects of a project to allow for proper screening and project design. Early screening and identification of environmental information requirements will ensure that the project sponsor can address these needs in a cost-efficient manner and that these issues can be duly addressed during the project appraisal process, without delaying the project processing cycle.

a. Step 1: Screening

9. At the Initial Project Review (IPR) stage all IIC projects will be classified into one of the following four categories based on their potential environmental impact and the resulting required level of environmental analysis:

Category I Projects - are designed specifically to have a positive impact in improving environmental quality. These projects do not require an EIA, per se, but will involve detailed analysis of the environmental aspects of project design and supervision of project execution.

Category II Projects - normally do not result in direct or indirect environmental impact and thus do not require an EIA.

Category III Projects - may have moderate, specific negative environmental impact and have recognized, well-defined solutions. These projects usually require only a semidetailed EIA, but in certain cases may require a detailed EIA. Specific environmental design criteria will be developed for individual projects.

Category IV Projects - may result in diverse and significant negative impacts on the environment, thus requiring a detailed EIA.

A preliminary screening classification of approved IIC projects is attached as Annex 1.

10. The Investment Officer will provide the Environmental Advisor with necessary project information for the screening process. The information should be summarized in a brief memorandum, which should also propose the appropriate category for the project. If necessary, the Environmental Advisor will then discuss the memorandum with the Investment Officer prior to approving the category for the project.

11. The Environmental Advisor will also determine the estimated cost involved in conducting an EIA during project appraisal, if required. This cost will be included by the Investment Officer in the proposed Appraisal Fees suggested in the Initial Project Review.

12. During the IPR review process, the IIC Operations Committee will review and approve the initial environmental classification. This classification will be included in the final Appraisal Report.

13. If the project appraisal process reveals environmental impacts which were not considered during the screening process (or vice versa), the Environmental Advisor will re-evaluate the environmental aspects of the project. If a new environmental classification is assigned, the Operations Committee must review and approve this new classification when the Appraisal Report is submitted for its review and before the final Board Report is submitted to the Board. The Review will be an interactive process requiring communication between the Investment Officer, the Environmental Advisor and the project sponsor.

b. Step 2: Terms of Reference for Environmental Impact Assessment

14. Information requirements for the project Review will be determined by the Environmental Advisor as part of the screening process. Immediately after the IPR is presented to and approved by the Operations Committee, the Environmental Advisor will prepare terms of reference for the EIA, documenting the information requirements and appropriate guidelines and policies against which the project will be reviewed. The terms of reference will be provided to the Investment Officer, who will then communicate them to the project sponsor. It is primarily the project sponsor's responsibility to prepare and submit the necessary environmental information during the project appraisal process. However, the Environmental Advisor can provide guidance to project sponsors to ensure that this activity is completed in a responsive manner.

 c) Step 3: Environmental Impact Assessment

15. Specific activities associated with the EIA will depend on the category (I, II, III, or IV) of the project, as follows:

Category I Projects


• desk review of environmental information provided by project sponsor and Investment Officer, and detailed analysis of those aspects of the project designed to improve environmental quality;
  
  
• no EIA required

  Category II Projects

• no EIA required

  Category III Projects

• consultation with consulting engineers involved in project appraisal as appropriate, or site visit to obtain first-hand knowledge of project if required;
  
  
• desk review of environmental information provided by the project sponsor and Investment Officer; and
  
  
• preparation of EIA.

  Category IV Projects

• project site visit to gain first-hand knowledge of the project.
  
  
• meetings with the project sponsor to discuss environmental information needs and to determine the issues to be addressed in the EIA;
  
  
• desk review of environmental information provided by the project sponsor and Investment Officer; and
  
  
• preparation of EIA.

16. Required site visit for Category III and IV projects will be undertaken by either the Environmental Advisor or a consulting engineer or environmental specialist as appropriate. However, the review of environmental information will in all cases be completed by the Environmental Advisor. During the Advisor's review, incremental costs associated with required Review measures, data gaps or other deficiencies may be identified in the documentation. Should questions or concerns about the Review information arise, the Investment Officer will contact the project sponsor to seek necessary clarification or additional information.

17. The Environmental Advisor will review the proposed project cost to ensure that adequate provision has been made for the cost of required environmental measures. In addition, the incremental cost of actions recommended by the Environmental Advisor to resolve problems identified during the EIA will be determined. Any required adjustments to the project cost estimates will be discussed with the Investment Officer and project sponsors. Agreed-to changes in the proposed project cost will be included in the Appraisal Report.

18. The purpose of the EIA is to ensure that the project is environmentally feasible, does not adversely affect natural and human resources, complies with the national environmental laws, regulations and standards, and is consistent with the general objectives of the IDB's environmental guidelines, as applicable. Specific actions should be recommended to mitigate potential negative environmental impact and to ensure sustainability of the project. The results of the EIA and recommended solutions to problems identified will be included in the Appraisal Report.

19. When the project is deemed by the Environmental Advisor to comply with the national environmental laws, regulations and standards and the general objectives of the applicable IDB environmental guidelines, the Advisor will issue a Review clearance in writing to the Investment Officer stating his opinion to that effect. The Review clearance will clearly identify any specific actions or obligations required of the project sponsor during project implementation. Monitoring requirements will also be identified in the Review clearance, as will recommendations regarding any other obligations or reporting requirements of the sponsor.

 d) Step 4: Incorporation of Environmental Requirements

20. The Investment Officer will convey the requirements specified in the EIA and Review clearance to the project sponsor. Agreed-to environment protection, mitigation and monitoring requirements will then become part of the Investment Agreements.

 e) Step 5: Supervision

21. During project implementation it will be necessary to monitor the project to ensure compliance with the conditions contained in the Review clearance. Project monitoring will occur in one or more of the following ways:

(i) periodic reports prepared by the sponsor as a requirement of the Investment Agreement;

(ii) supervision mission carried out by the Operations Department; and/or

(iii) Project site visited by the Environmental Advisor.

22. The Environmental Advisor will be responsible for this environmental monitoring activity. In the case of non-compliance with specified requirements, the Environmental Advisor will discuss an appropriate course of action with the Investment Officer responsible for the project. The project sponsor will be notified of this action and any necessary follow-up requirements. The project completion report should evaluate the environmental impacts of the project, noting whether they were anticipated in the EIA, and effectiveness of mitigating measures adopted by the project sponsor.

E. Special project considerations

 Corporate Investment Programs

23. If IIC's investment is aimed at financing a diverse corporate investment program, each major subproject will be subject to Review. For investments in general corporate activities, the overall environmental performance of the sponsor will be assessed and, if necessary, recommendations made to strengthen and improve corporate performance.

Expansions

24. In expansion projects the entire plant (existing and proposed new facilities) will be subject to the Review. The new plant financed by IIC will have to conform to the national environmental laws, regulations and standards and appropriate IDB environmental guidelines. In addition, the sponsor will be made aware of the findings of IIC's EIA of its existing plant. IIC will issue recommendations and discuss with the sponsor programs to improve the environmental situation if necessary. For this purpose, IIC may propose to finance environmental improvements for the existing plant.

Intermediary Lending

25. For loans provided to or administered by financial intermediaries, sub-borrowers' projects must comply with national environmental and labor laws, regulations and standards. In this regard, the intermediary institutions will be required to obtain certification to this effect. Additionally, financial intermediaries will be informed of the IIC's Review guidelines and procedures and labor practices and asked to certify that subprojects are consistent with them.

III. LABOR PRACTICES

26. The Corporation will not invest in projects that use Forced Labor or Harmful Child Labor practices. Projects should comply with national laws of the host countries, including those that protect core labor standards² and related treaties ratified by said countries.

"Forced Labor"consists of all work or service, not voluntarily performed, that is extracted from an individual under threat of force or penalty.

"Harmful Child Labor" consists of the employment of children that is economically exploitive, or is likely to be hazardous to, or interfere with the child’s education, or to be harmful to the child’s health, or physical, mental, spiritual, or social development.

¹The IDB is in the process of preparing Environmental Impact Assessment guidelines for various industry sectors to be published in early 1991.

²The core labor standards as applied by the national laws of the host countries are inter alia, (1) freedom of association; (2) right to organize and collective bargaining; (3) abolition of forced labor; (4) elimination of exploitative/harmful child labor; and (5) non-discrimination in employment and occupation.