Clean Energy Finance Investment Program (RRP IND 46268) INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY Environmental and Social Management System for ADB Line of Credit CONTENTS I. INTRODUCTION 1 II. ENVIRONMENTAL AND SOCIAL MANAGEMENT POLICY AND APPLICABLE REQUIREMENTS 1 A. Policy 1 B. Applicable Environmental and Social Safeguard Requirements 2 III. CURRENT IREDA’S BUSINESS PROCESS AND SAFEGUARD REQUREMENTS 3 A. Environment 4 B. Social 4 IV. OBJECTIVES OF THE ESMS 6 A. Gaps Between Current IREDA’s and ADB Safeguard Requirements 6 B. Compliance Monitoring and Reporting 14 C. Information Disclosure 14 D. Grievance Redress Mechanism 15 V. ORGANIZATIONAL RESPONSIBILITIES, RESOURCES AND CAPACITY 15 ATTACHMENT 1: ADB PROHIBITED INVESTMENT ACTIVITIES LIST (PIAL) 18 ATTACHMENT 2: SAFEGUARD REQUIREMENTS 1: ENVIRONMENT 19 ATTACHMENT 3: RAPID ENVIRONMENTAL ASSESSMENT (REA) CHECKLISTS 45 ATTACHMENT 4: DEFINITION OF ADB ENVIRONMENT AND SOCIAL SAFEGUARD CATEGORIZATION 71 ATTACHMENT 5: OUTLINE OF AN ENVIRONMENTAL IMPACT ASSESSMENT REPORT FOR SUBPROJECTS 74 ATTACHMENT 6: OUTLINE OF A RESETTLEMENT PLAN FOR SUBPROJECTS 77 ATTACHMENT 7: OUTLINE OF AN INDIGENOUS PEOPLES PLAN FOR SUBPROJECTS 81 ATTACHMENT 8: SUGGESTED OUTLINE OF ENVIRONMENTAL AND SOCIAL DUE DILIGENCE REPORT 84 ATTACHMENT 9: SUGGESTED SCOPE FOR AN ENVIRONMENTAL MONITORING REPORT 86 ATTACHMENT 10: SUGGESTED SCOPE FOR A SOCIAL SAFEGUARD MONITORING REPORT 88 ATTACHMENT 11: OUTLINE OF AN ENVIRONMENTAL AND SOCIAL PERFORMANCE REPORT 90 ATTACHMENT 12: RELEVANT INDIAN LAWS AND REGULATION 94 ABBREVIATIONS ADB – Asian Development Bank DFI – development financial institutions EIA Environmental impact assessment EMP Environmental management plan ESMS – Environmental and social management system ESSP Environmental and Social Safeguard Policy ESSU – Environmental and social safeguard unit E&S – environmental and social IREDA Indian Renewable Energy Development Agency IPP Indigenous peoples plan 1 ENVIRONMENTAL AND SOCIAL MANAGEMENT SYSTEM I. INTRODUCTION 1. Indian Renewable Energy Development Agency Limited (IREDA) is a public limited government company established in 1987, under the administrative control of Ministry of New and Renewable Energy (MNRE). IREDA has been notified as a “Public Financial Institution” and registered as Non-Banking Financial Company (NFBC) with Reserve Bank of India (RBI). IREDA is the single largest renewable energy financier in India, with 27 years of sector experience. IREDA will onlend the ADB funds, as a part of its overall lending portfolio, to private sector renewable energy and energy efficiency subprojects in India, including small scale wind, biomass, small hydro, solar, cogeneration, and energy efficiency. 2. IREDA’s mandate is to minimize the energy sector’s negative environmental impact by promoting cleaner and more environmentally friendly technologies, and thus is committed to avoid and mitigate adverse environmental impacts, if any, resulting from the projects it finances. IREDA’s processes include checking environmental and social safeguards, but the existing system does not meet the ADB requirements. In order to identify and effectively address potential impacts from projects funded with the ADB line of credit, an Environment and Social Management System (ESMS) has been formulated, which is in compliance with Indian national laws and Asian Development Bank (ADB) Safeguard Policy Statement (SPS) 2009. This ESMS will guide IREDA’s actions to safeguard against adverse environmental and social impacts for sub-projects using ADB’s funds. 3. Project developers approach IREDA for financing at various stages of project preparation ranging from advanced states of project design to post-commissioning (for take-out financing). At the time of application, the project sites have been identified, fully studied, and the required clearances obtained, details of which are submitted as part of the application process. The applications are reviewed for technical and financial merit by the technical team without regard to which internal IREDA funding source might eventually be used to finance the project. After the initial appraisal, IREDA identifies potential lines of credit for which the subproject is eligible and begins the process of collecting any additional information required by specific lenders. This framework will apply to any subproject that utilizes the ADB funds. II. ENVIRONMENTAL AND SOCIAL MANAGEMENT POLICY AND APPLICABLE REQUIREMENTS A. Policy 4. IREDA finances renewable energy and energy efficiency projects. As an environmentally informed and socially responsible financial institution, IREDA is committed to avoid or mitigate adverse environmental and social impacts, if any, of the projects in its portfolio. 5. For this purpose, IREDA has an Environmental and Social Safeguard Policy (ESSP), approved by the Chairman and Managing Director, IREDA on 20th May 2014 and states that to achieve a balance between developmental imperatives and environmental sustainability and social well-being in its operations, IREDA: (i) gives due importance to environmental and social (E&S) considerations in appraising and financing renewable energy and energy efficiency projects in order to avoid, minimize, and mitigate environmental and social adverse impacts and risks, if any; and 2 (ii) is committed to comply with all relevant environmental and social policies, laws, and regulations of the Government of India (GOI) and states of India, and also remains responsive to E&S safeguard policy requirements of DFIs wherever DFI’s line of credit is involved. 6. The ESSP is guided by IREDA’s commitment to integrate environmental protection and social development into its mandate in a proactive manner in order to contribute to sustainable development. The ESSP takes note of environmental and social safeguard requirements of its financial partners and lenders, including multilateral and bilateral development financial institutions (DFIs). 7. The ESMS provides an enabling mechanism to IREDA to meet environmental and social safeguard requirements associated with projects that it finances. It defines roles, responsibilities, and provides procedures to avoid, minimize, and mitigate any direct, indirect, and potential: (i) adverse impacts/risks on the environment, (ii) adverse impacts and risks of involuntary resettlement, and (iii) adverse impacts on tribal peoples and their communities that may arise from the implementation of such projects. 8. The ESMS has been approved by the IREDA management and will be applied to all sub- projects using the ADB line of credit B. Applicable Environmental and Social Safeguard Requirements 9. IREDA will ensure that: (i) all subprojects using ADB funds are screened against the Prohibited Investment Activities List (PIAL) of the ADB Safeguard Policy Statement (Attachment 1); (ii) all subprojects using ADB funds with potential significant environmental and/or social impacts are reviewed and evaluated against Safeguard Requirements 1-3 of the ADB Safeguard Policy Statement (2009) (Attachment 2)1; (iii) all proposed subprojects are reviewed and evaluated against the national laws, regulations, and standards on environment, health, safety, involuntary resettlement and land acquisition, indigenous peoples/ scheduled tribes and physical cultural resources2. (iv) gender and development issues will be addressed. Specifically, the subproject will include (i) gender analysis as part of the environmental and social impact assessment, (ii) conduct meaningful consultations that include women and are tailored to the needs of disadvantaged and vulnerable groups; and (v) ensuring that the subproject's contracts with civil works contractors, subcontractors and other providers of goods and services include provisions to employ local labor, whenever possible, and ensure compliance with ADB's social protection requirements (Attachment 2). 1 Applies to ADB Category A projects. 2 Physical cultural resources- Movable and immovable objects, sites, structures, groups of structures, and natural features and landscapes that have archeological, paleontological, historical, architectural, religious, aesthetic or other cultural significance. Physical and cultural resources may be located in urban or rural settings and may be above or below ground or under water. 3 III. CURRENT IREDA’S BUSINESS PROCESS AND SAFEGUARD REQUREMENTS 10. IREDA has integrated verification of compliance with national and local laws related to environmental and social protection into their loan processing procedures. A mapping of project life cycle with IREDA’s project funding mechanism is given in Figure 1, which includes existing input points for safeguard monitoring. Figure 1: Safeguard Inputs During IREDA’s Project Financing Mechanism Project Life Project Financing Mechanism Cycle Project Promoter Preparation (Pre-feasibility, DPR, Consent Application Environmental & to establish) / Form Social Input EIA 1. Type of land & clearance from relevant authorities 2. Power evacuation clearance Project 3. Consent to establish Application Stage Appraisal Environmental & Social Input Form Project Appraisal Stage Pre Sanction Inspection (Initial Technical, Social Financial & Initial Environmental Assessment) Closure Loan Project Sanction Construction 1st Tour Report (Technical, Loan Disbursement Environmental & Social Monitoring) (1st Disbursement & Last Disbursement) Subsequent Tour Reports (Technical, Environmental & Social Monitoring) and Consent to Operate Project C ommissioning & Operation DPR = detailed project report; EIA = environmental impact assessment. 4 A. Environment 11. IREDA checks all projects against compliance with environmental regulations. Under Indian law, solar, wind and energy efficiency projects generally do not require Environmental Impact Assessment (EIA), Environmental Management Plan (EMP) and public consultation procedures. Hydropower, cogeneration, and biomass projects above certain threshold require EIA, EMP and public consultation procedures. Step 1: Application Form 12. The project proponent submits a project application in the prescribed application format of IREDA. At present, IREDA’s application indicates information required on environmental aspects. The application is submitted along with a detailed project report (DPR) to IREDA, which includes a chapter on environmental appraisal. If the project does not require EIA or EMP as per national law then IREDA checks whether “Consent to Establish” has been obtained by the project proponent from State Pollution Control Board and forest clearance if required. Step 2: Project Appraisal 13. Prior to putting up the project file for approval, IREDA officers undertake field visit to project sites at least one before sanction, once before first disbursement and once after Commissioning. At present, there are no clear guidelines for appraising the environmental safeguards issues in the project. Upon completion of the field visit, a project detailed inspection report is submitted. Step 3: Loan Sanction and Disbursement 14. IREDA’s environmental safeguard due diligence is currently concentrated in this step of the project cycle. IREDA procedure requires permission from State Pollution Control Board , if required for the specific sector, before signing of loan agreement/disbursement of loan. As per current requirement permission from State Pollution Control Board is required for setting up of projects a) Cogeneration and Biomass projects b) Hydro projects . Step 4: Project construction 15. During project construction, the monitoring focus is mainly on technical aspects and on maintaining a timely construction schedule, which is linked to loan disbursement. The project proponent is expected to follow the law of the land, including environmental laws and norms; however, compliance monitoring is not done by IREDA Step 5: Project Operation 16. IREDA checks whether project proponent has obtained “Consent to Operate” from the State Pollution Control Board before the project becomes operational, in case of Biomass, Cogeneration and Hydro Projects.) 17. At present, IREDA does not require project proponents to implement a grievance redressal mechanism. B. Social Step 1: Application Form 5 18. The project proponent submits a project application in the prescribed application format of IREDA. The application is submitted along with a DPR to IREDA. At present, IREDA has no specific guidelines on inclusion of specific social safeguards, land acquisition and resettlement and rehabilitation (R&R) details in the DPR. IREDA requires project proponent to submit a ‘No- Objection Certificate’ of the local Gram Panchayat3 for the project, if required as per respective state government policies. In addition, IREDA requires the project proponent to declare the employment generation details and socio & economic benefits/impact accruing out of the project. Step 2: Project Appraisal 19. Prior to putting up the project file for approval, IREDA officers undertake field visit to project sites. At present, there are no clear guidelines for appraising the social safeguards issues during the site visit. Post-field visit, a detailed inspection report is submitted. Step 3: Loan Sanction and Disbursement 20. IREDA’s social safeguard due diligence is currently concentrated in this step of the project cycle. IREDA requires the promoter to submit the project land purchase document in original (to be in the name of the Project Proponent) and mortgage the same to IREDA before loan disbursement. In other words, possession of legal land title serves as collateral for the loan. This policy requires the project proponent to purchase the project land, transfer the land titles in their respective name, and submit the original land sale and purchase document to IREDA. IREDA has a well-established system for legal compliance on verifying land titles. The independent legal department verifies 30 years past ownership of land to be used for project purposes. Until the legal department clears the land title documentation, no disbursements can be made to the project proponent. This practice ensures that land with any conflict on legal title or related legal issues are not used for the project purposes. In case of consortium financing, original land titles are kept with security trustee after verification by legal counsellor and not with IREDA. Further for projects with low-gestation period like wind, where land is purchased by land aggregator/developer of the project, disbursement is done prior to transfer of land title in the name of the borrower company. A reasonable timeline is provided for perfection of security for such projects financed either through consortium/co-financing mode or for sole financing. Step 4: Project construction 21. During project construction, the monitoring focus is mainly on technical aspects and on maintaining a timely construction schedule, which is linked to loan disbursement. The project proponent is expected to follow the law of the land (including labor laws and norms). However, monitoring of the same is not done by IREDA. At present, IREDA does not require project proponents to implement a grievance redressal mechanism. 3 India’s Gram Panchayats are governing bodies working at the village or small town level. 6 IV. OBJECTIVES OF THE ESMS 22. The objectives of the ESMS are to: (i) avoid any direct, indirect, and potential adverse environmental and social impacts/risks of projects that it supports; (ii) minimize or mitigate adverse environmental and social impacts/risks; (iii) ensure that minimization or mitigation of environmental and social impacts and risks meet the requirements of laws and regulations of GOI and states, and environmental and social safeguard requirements of ADB; (iv) guide IREDA and borrowers in preparing projects for appraisal by IREDA, and in monitoring, reporting, and in undertaking corrective actions, if any; (v) ensure that effective mechanisms are in place for safeguard compliance during project implementation, and to undertake corrective actions, if required; and (vi) develop institutional capacity among sub-borrowers for safeguard compliance. A. Gaps Between Current IREDA’s and ADB Safeguard Requirements 1. Environment 23. IREDA’s current business practice ensures compliance with laws and regulations related to environmental safeguards. To bring IREDA’s environmental safeguards practice in line with ADB’s SPS2009 would require the institutionalization and strengthening described below. (i) IREDA’s project screening and categorization process could be strengthened. (ii) IREDA could standardize the process across technologies and implement screening, project categorization based on the level of impacts, and due diligence procedures that follow international best practices. This could build on IREDA’s current process of ensuring EIA/EMP preparation as per national guidelines, but with further evaluation of the EIA/EMP’s quality. (iii) IREDA could ensure project proponents undertake meaningful consultations (prior & post) and adequate information dissemination along with proper disclosure to ensure the project affected persons are made aware of environmental impacts and mitigation measures. (iv) Adequate grievance redress mechanisms could be established to ensure that environmental safeguards concerns are addressed. (v) Monitoring and reporting activities could be established that are commensurate with the projects’ risks and impacts. 2. Social 24. IREDA’s current business practice ensures compliance with laws and regulations related to social safeguards. To bring IREDA’s social safeguards practice in line with ADB’s SPS2009 would require the institutionalization and strengthening described below. (i) In cases of private land purchase, IREDA could request an impact assessment by socio economic status of the households with an associated livelihood development plan. In cases of land acquisition, IREDA could require project proponents to develop a resettlement plan. Impacts on both legal and non- titleholders could be considered during planning and implementation. 7 (ii) In case of impacts on indigenous people, an indigenous peoples plan could be developed. (iii) IREDA could require that meaningful consultations and adequate information dissemination along with proper disclosure is undertaken by the project proponents whereby the project affected persons are made aware of their entitlements, especially the vulnerable. (iv) IREDA could develop procedures to ensure transparent, consistent and equitable negotiated settlement for subprojects. This would help ensure that those people who enter into negotiated settlements will maintain the same or better income and livelihood status. (v) IREDA could require compensation and other resettlement entitlements are paid to affected persons before physical or economic displacement. (vi) IREDA could require adequate grievance redress mechanisms in place to ensure that the affected persons receive adequate compensation and assistance paying particular attention to the impacts on the vulnerable groups. (vii) IREDA could develop a monitoring and reporting procedure that is commensurate with the projects risks and impacts. 3. New Safeguard Management Requirements 25. The ESMS is fully integrated with the project cycle of IREDA. The environmental and social due-diligence process described will get triggered when a project is being considered for use of the ADB line of credit. If compliance of all E&S safeguard requirements of ADB cannot be met, IREDA will not use the ADB line of credit for that project. For all subprojects financed under the ADB line of credit, the processes described in the ESMS will remain active until IREDA’s exposure to the project is completed. The Environmental and Social Safeguard Procedures are shown in Charts 1 and 2, respectively. These include screening, categorization, due diligence, compliance monitoring, and reporting, all of which are described in the following sections.