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Operations Manual

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This OM has been superceded by OM F1

OM Section 20: Issued on 28 February 2003
Environmental Considerations in ADB Operations

Bank Policies (BP)

Environment Policy Statement

1. The Environment Policy of the Asian Development Bank (ADB) is grounded in ADB's Poverty Reduction Strategy¹ and long-term strategic framework.² The Poverty Reduction Strategy recognizes that environmental sustainability is a prerequisite for pro-poor economic growth and efforts to reduce poverty. Environmental sustainability is also one of three crosscutting themes of the long-term strategic framework. The Environment Policy reinforces and complements the environmental issues and concerns addressed in ADB’s sector and crosscutting policies.

2. To reduce poverty through environmentally sustainable development, ADB’s Environment Policy contains five main elements: (i) promoting environment and natural resource management interventions to reduce poverty directly, (ii) assisting developing member countries (DMCs) to mainstream environmental considerations in economic growth, (iii) helping maintain global and regional life support systems that underpin future development prospects, (iv) building partnerships to maximize the impact of ADB lending and nonlending activities, and (v) integrating environmental considerations across all ADB operations.

3. The Environment Policy will be implemented in a flexible fashion. In general, policy implementation will be tailored to the specific needs and capacities of the DMCs. Country ownership will be a guiding principle, and the mix and depth of environmental interventions will depend on the country strategy and program process. However, the fifth policy element on integrating environmental considerations across all ADB operations will be applied uniformly by ADB to all ADB operations in all DMCs. As it is concerned specifically with internal procedures, implementation of this element of the policy will be subject to ADB’s Inspection Policy.

1. Promoting Environment Interventions to Reduce Poverty

4. ADB will assist DMCs to protect the health and productivity of the poor by improving environmental quality, and to enhance their livelihoods by improving natural resource management and maintaining the long-term productivity of ecosystems, and reducing their vulnerability to natural hazards and disasters. In developing and implementing poverty partnership agreements with DMCs, ADB, through a participatory approach, will seek to identify opportunities for environmental improvements and sustainable natural resource management for poverty reduction.

2. Mainstreaming Environmental Considerations in Economic Growth

5. ADB will assist DMCs to strengthen their policy, legislative, and institutional frameworks to (i) integrate environmental objectives into national and sector economic development; (ii) introduce policies and regulatory systems for environmental management, including the use of economic instruments; (iii) enhance the participatory role of local governments and communities in supporting environmentally sustainable development actions; (iv) promote good governance to ensure compliance and enforcement; (v) mobilize domestic and other resources for environmental improvement, including from private sector interests; and (vi) enhance education, public awareness, and capacity building.

3. Maintaining Global and Regional Life Support Systems

6. ADB will assist DMCs to maintain global environmental life support systems and address regional transboundary environmental issues through (i) promotion of intergovernmental cooperation, (ii) participation in specialized mechanisms arising out of multilateral environmental agreements, (iii) facilitation of the transfer of technology and grant resources under multilateral agreements, (iv) capacity building for DMC policy makers and technical experts to articulate and defend DMC interests in international negotiations, and (v) support for regional cooperation and subregional environment programs and institutions.

4. Building Partnerships

7. ADB will build partnerships with other agencies and institutions to (i) broaden, replicate, and sustain the impact of its efforts; (ii) complement and draw upon the comparative advantage of partners; (iii) mobilize additional knowledge and financial resources; and (iv) ensure coordination, avoid duplication, and maximize effectiveness in the use of scarce resources in DMCs. Partners will include nongovernment organizations (NGOs) and civil society entities, the private sector, multilateral and bilateral environment and development assistance agencies, subregional institutions, and international organizations.

5. Integrating Environmental Considerations in ADB Operations

8. ADB will address the environmental aspects of its operations through systematic application of procedures for (i) environmental analysis for country strategy and programming; (ii) environmental assessment of project loans, program loans, sector loans, loans involving financial intermediaries, and private sector loans; (iii) monitoring and evaluation of compliance with environmental requirements of loans; and (iv) implementation of procedures for environmentally responsible procurement. In the context of policy-based lending and policy dialogue, ADB will identify opportunities to introduce policy reforms that provide incentives to improve environmental quality and enhance the sustainability of natural resource management.

Operational Procedures (OP)

1. The Asian Development Bank (ADB) brings to bear environmental considerations on ADB operations at various planning levels. Environmental considerations are integrated at the country, region (within a country), sector, and project levels using different approaches and techniques.

Country Environmental Analysis

2. A country environmental analysis (CEA) will be prepared as an input to the country strategy and program (CSP) exercise. The CEA will provide the background information necessary for informed decision making on environmental constraints, needs, and opportunities in a developing member country (DMC), including those that impinge upon poverty partnership agreements, as appropriate. The CEA will outline environmental issues that are most important to a DMC’s development strategy and describe ADB’s role in helping remove the environmental constraints on the DMC’s sustained development. The CEA is directed at the policy, program, and sector levels, although it may highlight issues associated with environmentally sensitive projects in the pipeline. The CEA is envisaged as a participatory process that is initiated before the CSP, and continues through CSP preparation to assess potential environmental issues associated with the CSP.

3. The CEA will be prepared by the regional department concerned, and will focus specifically on relevant sectors and institutional analysis of direct concern to ADB operations.¹ The analysis will be tailored to the requirements of each DMC, and will purposefully build on complementary work by other agencies. In addition to enhancing the consideration given to environmental factors in formulating policies, plans, and programs, the information and analysis contained in the CEAs will support and facilitate the downstream environmental assessment of individual ADB-financed projects. The CEA will also provide a basis for monitoring country environmental performance. ADB’s Environmental Assessment Guidelines provide guidance on the CEA. As experience is gained with CEA, more detailed guidance may be developed.²

General Requirements for Environmental Assessment

4. Environmental assessment is a generic term to describe a process of environmental analysis, management, and planning to address environmental impacts of development policies, strategies, programs, and projects. ADB requires environmental assessment of all project loans, program loans, sector loans, sector development program loans, financial intermediation loans, and private sector investment operations.³ ADB’s environmental assessment process starts as soon as potential projects⁴ for ADB financing are identified, and covers all project components whether financed by ADB, cofinanciers, or the Government. Environmental assessment is ideally carried out simultaneously with the prefeasibility and feasibility studies of the project. However, environmental assessment is a process rather than a one-time report, and includes necessary environmental analyses and environmental management planning that take place throughout the project cycle. Important considerations in undertaking environmental assessment include examining alternatives; identifying potential environmental impacts, including indirect and cumulative impacts, and assessing their significance; achieving environmental standards; designing least-cost mitigation measures; developing appropriate environmental management plans and monitoring requirements; formulating institutional arrangements; and ensuring information disclosure, meaningful public consultation, and appropriate reporting of results.

5. The borrower is responsible for doing the environmental assessment in accordance with its own and ADB’s environmental assessment requirements, and for implementing the recommendations of the environmental assessment. ADB reviews the environmental assessment report to ensure that it meets ADB requirements, and that it provides a sound basis for project processing and implementation. ADB monitors the implementation of agreed environmental mitigation measures by the borrower. Within ADB, the project teams are responsible for ADB’s environmental assessment process, and environment specialists in regional departments will review the environment assessment reports. Quality assurance of projects and programs will be undertaken by the project teams, with formal peer review of category A projects being done through ADB’s environment committee. Internal and external environment networks will facilitate sharing and dissemination of lessons. The chief compliance officer, supported by the Environment and Social Safeguards Division (RSES), will be responsible for monitoring compliance of regional departments with ADB’s environment assessment requirements and advising Management on compliance.

1. Classification

6. The environmental assessment requirements for projects depend on the significance of environmental impacts. Each proposed project is scrutinized as to its type; location; the sensitivity, scale, nature, and magnitude of its potential environmental impacts; and availability of cost-effective mitigation measures. Projects thus screened for their expected environmental impact are assigned to one of the following four categories.

Category A: Projects with potential to have significant adverse environmental impacts. An environmental impact assessment (EIA) is required to address significant impacts.

Category B: Projects judged to have some adverse environmental impacts, but of lesser degree or significance than those for category A projects. An initial environmental examination (IEE) is required to determine whether or not significant environmental impacts warranting an EIA are likely. If an EIA is not needed, the IEE is regarded as the final environmental assessment report.

Category C: Projects unlikely to have adverse environmental impacts. No EIA or IEE is required, although environmental implications are still reviewed.

Category FI: Projects are classified as category FI if they involve a credit line through a financial intermediary or an equity investment in a financial intermediary. The financial intermediary must apply an environmental management system, unless all subprojects will result in insignificant impacts.

7. A project’s environmental assessment category is determined by the category of its most environmentally sensitive component, including direct and indirect impacts. The process of determining a project’s environment category is initiated by the regional department sector division, which prepares a project environment screening checklist, taking into account the type, size, and location of the proposed project. The sector division director submits the checklist and proposed environment category to the director of RSES, for concurrence or further discussion as required. Final classification will be the responsibility of ADB’s chief compliance officer. Projects are tentatively classified at initial screening of anticipated potential environmental impacts on the basis of a concept document, and this classification is reconfirmed by the chief compliance officer at the time of the management review meeting.⁵ However, classification is an ongoing process, and the environment category can be changed at any time with the approval of the chief compliance officer as more detailed information becomes available and project processing proceeds. Project categorization lists⁶ are updated periodically by RSES as additional information on the project becomes available during preparation.

2. Environmental Assessment Reports

8. The borrower prepares EIA reports⁷ for category A projects and IEE reports⁸ for category B projects. The borrower also prepares the summary EIA (SEIA) or summary IEE (SIEE) reports highlighting the main findings of the IEE or EIA. ADB recognizes that conventional project-focused EIA has limited application to policy-based lending instruments, like program loans. Such interventions benefit from upstream policy-analysis tools, such as strategic environmental assessment. The format of the environmental assessment report for program loans is therefore flexible, but includes a matrix describing the environmental consequences and mitigation measures for the policy actions underpinning the program loan. The content of the environmental assessment report for sector loans will include a description of the institutional arrangements and process to be followed for environmental assessment of subprojects to be approved during implementation. For projects that are classified as category FI, the environmental assessment report will include a description of the environmental management system to be applied by the financial intermediary. The results described in environmental assessment reports, including environmental management plans, should be reflected in the report and recommendations of the President (RRP).

3. Public Consultation and Information Disclosure

9. Public Consultation. ADB requires public consultation in the environmental assessment process. For category A and B projects, the borrower must consult with groups affected by the proposed project and local nongovernment organizations. The consultation should be carried out as early as possible in the project cycle so that views of affected groups are taken into account in the design of the project and its environment mitigation measures. Such consultation will also take place during project implementation to identify and help address environmental issues that arise. For category A projects, the borrower will ensure that consultation will take place at least twice: (i) once during the early stages of EIA field work; and (ii) once when the draft EIA report is available, and prior to loan appraisal by ADB. The public consultation process needs to be described in the EIA and SEIA reports. ADB’s Environmental Assessment Guidelines describe the best practice for consulting stakeholders and providing access to information.

10. Information Disclosure. Environmental assessment reports for ADB projects are accessible to interested parties and the general public. The SIEE and SEIA reports are required to be circulated worldwide, through the depository library system and on the ADB web site. The full EIA or IEE reports are also made available to interested parties on request. ADB's “120 day rule” requires that the SEIA, or in the case of category B projects that are deemed environmentally sensitive,⁹ the SIEE, is available to the general public at least 120 days before ADB's Board of Directors considers the loan, or in relevant cases, before approval of significant changes in project scope or subprojects. The 120 day rule applies to all public and private sector category A projects and to those category B projects deemed to be environmentally sensitive. To facilitate the required consultations with project-affected groups and local nongovernment organizations, the borrower will provide information on the project’s environmental issues in a form and language(s) accessible to those being consulted.

Specific Requirements by Lending Modality

1. Project Loans

11. Project loans follow the general requirements for environmental assessment.

2. Environmental Assessment of Program Loans

12. ADB requires that the environmental impacts of policy actions associated with program loans be evaluated, and that appropriate mitigation measures be identified and incorporated as loan covenants. The environmental assessment will focus on the policy actions to be supported by the program loan. While IEEs and SIEEs or EIAs and SEIAs do not have to be prepared for program loans, except as stated in this paragraph, a matrix of potential environmental impacts of each policy action, together with appropriate mitigation measures, will be prepared for each program loan, with a qualitative indication of the likely order of magnitude of each impact and brief reasons for the judgment. The principles followed in preparing the matrix include screening of potential environmental impacts (including indirect impacts); mitigation of potential adverse impacts to the levels of “no significant harm to third parties”; polluter paying for mitigation measures; least-cost mitigation; and ensuring that the institutional basis for implementing mitigation measures, including environmental monitoring, is in place. Strategic environmental assessment, which facilitates systematic evaluation of the environmental impacts of a policy, plan, or program and its alternatives, may be usefully applied in the preparation of program loans. If an investment component is included in the program loan and specific projects are identified as a part of the program loan, these projects will follow the general project environmental assessment requirements. They will be classified as detailed in paragraph 6, and an EIA or IEE undertaken.

3. Environmental Assessment of Sector Loans

13. Under the sector lending modality, ADB finances the capital investment needs of a given sector (i) in a specified geographical area, (ii) over a specified period of time, or (iii) both. Policy and institutional changes introduced as conditions under a sector loan may have an impact on the environment, directly or indirectly. Accordingly, policy and institutional changes proposed in a sector loan will also be examined to determine their environmental implications, and appropriate environmental interventions will be introduced. Under the sector lending modality, subprojects are not necessarily identified prior to loan processing, and ADB-financed sector loans normally include only small subprojects.

14. To establish the broad criteria (including environmental parameters) for selecting subprojects to be financed under the loan, a few subprojects could be identified and appraised prior to loan approval. Feasibility studies are prepared for such subprojects during the formulation of the sector loan, and provide the executing agency with some indication of and experience with how feasibility studies, including EIAs or IEEs, should be prepared and cost and benefit parameters established. These studies also help refine the eligibility criteria being developed for the sector loan, including specific environmental criteria and concerns that need to be carefully examined during subproject selection, design, appraisal, and implementation.

15. For environmentally sensitive sample subprojects, the SEIA or SIEE will be submitted to the Board of Directors at least 120 days before it considers the sector loan, to demonstrate the manner of treating environmental issues that may arise during and after subproject selection.¹⁰ The SEIA or SIEE should also describe the institutional arrangements (including budget and capacity requirements) and process that will be followed for environmental assessment of subprojects after the sector loan is approved. After the sector loan is approved, for subprojects confirmed by ADB as environmentally sensitive, the proposal and the IEE or EIA of the subproject will be forwarded to ADB for review. The SEIA or SIEE will be made available to the general public at least 120 days before the subproject is approved.

16. More strategic upstream environmental assessment can be undertaken as part of the comprehensive sector study during program formulation to address social and environmental issues and the sector’s development needs, and to identify potentially beneficial policy interventions that can be included in the policy matrix. Strategic environmental assessment can help identify better and more responsive environmental criteria for selecting subprojects and policies for implementing the sector loan. Strategic environmental assessment is especially useful for assessing the cumulative and synergistic environmental impacts of a series of projects proposed for a sector.

4. Environmental Assessment of Sector Development Program Loans

17. In addition to the general requirements, the sector development loan component follows the procedures described in paragraphs 13–16, while the policy-based loan component follows the requirements in paragraph 12.

5. Environmental Assessment of Financial Intermediation Loans and Equity Investments

18. Under the FI category, ADB's involvement may be in the form of either equity investment in, or a credit line through, a financial intermediary. Where ADB involvement is by way of an equity investment, where ADB funds will not finance specific subprojects but where the financial intermediary may have operations with adverse environmental impacts, the financial intermediary must adopt an appropriate environmental management system, comprising policy, procedures, and capacity, to comply with all relevant government environmental regulations and requirements in its operations. If required, ADB may also address any need to strengthen capacity of the financial intermediary or the relevant environmental agency to deal with the environmental issues.

19. Where ADB involvement is a credit line for subprojects,¹¹ the financial institution must adopt an appropriate environmental management system that will cover the environmental assessment process of all subprojects to be financed with ADB funds. Any need to strengthen the environment agency and/or the financial institution in the DMC should be addressed. For category A and environmentally sensitive B subprojects above the "free limit,"¹² the EIA or IEE must be cleared by ADB before subproject approval. The SEIA or SIEE must be disclosed to the public at least 120 days before the subproject is approved (paragraph 10). For these subprojects, ADB will review compliance with its environmental assessment requirements, including those related to consultation and information disclosure. For subprojects below the free limit, ADB reserves the right to review the subproject proposal and its EIA or IEE.

20. The environmental assessment report for a category FI project includes a description of the environmental management system to be applied. Useful attributes of environmental management systems are given in ADB’s Environmental Assessment Guidelines. However, financial intermediation projects, generally microfinance projects, where all subprojects will result in insignificant environmental impacts, will be treated as category C and are not required to adopt an environmental management system or environmental assessment report.

6. Environmental Assessment of Private Sector Operations

21. Private sector entities and implementing institutions are a diverse group with varying environmental awareness and capabilities, and ADB generally adopts a flexible procedure in dealing with private sector loans and investments, to tailor environmental requirements to the investment vehicle, project and expected subprojects. Nevertheless, the substance of ADB’s environmental assessment requirements for private sector investments is the same as the requirements that apply to the public sector. For loans and equity investments with specific identified projects or subprojects, the general environmental assessment requirements will be applied (paragraphs 4–10). For indirect assistance in the form of credit lines to or equity investments in a financial intermediary or an investment vehicle where subprojects to be financed with ADB funds will be known only during project implementation, ADB’s environmental requirements for category FI loans and equity investments will apply.

Cofinancing

22. ADB’s Environment Policy covers all components of projects, whether financed by ADB, governments, or cofinanciers. Cofinancing comprises financing from official sources (e.g., official loans and grant cofinancing) as well as commercial sources (e.g., commercial banks, insurance companies, institutional investors, and export credit agencies). Commercial cofinancing may be provided with or without an ADB credit enhancement instrument (i.e., a partial credit guarantee, a political risk guarantee, or the complementary financing scheme). Project components that use cofinancing in any form must have environmental assessments carried out in accordance with the requirements set forth in this Operations Manual. Wherever possible, a single environmental assessment will be conducted to satisfy the requirements of ADB and the cofinanciers.

Environmental Standards and Emission Levels

23. In determining appropriate environmental standards for ADB projects, ADB will follow the standards and approaches laid out in the World Bank’s Pollution Prevention and Abatement Handbook.¹³ This handbook describes generally acceptable pollution prevention and abatement measures and emission levels. However, the environmental assessment for any individual project may recommend adoption of alternative emission levels and approaches to pollution prevention and abatement. This flexibility is required to best reflect national legislation and local conditions in determining the appropriate standards and emissions levels. In all such cases, the environmental assessment report will provide justification for the levels and approaches chosen for the particular project or site.

Environmentally Responsible Procurement

24. The environmental assessment process will examine considerations related to environmentally responsible procurement. Borrowers and executing agencies should, wherever possible, ensure that the goods and services procured under ADB-financed projects have been produced in a responsible manner with a view to resource efficiency, waste minimization and environmental considerations. Suitable provisions will in due course be included in loan and project agreements as well as bidding documents to ensure environmentally responsible procurement. The form and content of such provisions will be developed in coordination with other multilateral financial institutions.

Implementation, and Monitoring and Evaluation

25. Environmental Management Plans and Loan Covenants. Category A and environmentally sensitive category B projects require, as part of the environmental assessment process, the development of environmental management plans (EMPs) that outline specific mitigation measures, environmental monitoring requirements, and related institutional arrangements, including budget requirements. Loan agreements include specific environmental covenants that describe environmental requirements, including the EMPs. The provisions for the EMPs must also be fully reflected in the project administration memorandums. To ensure proper and timely implementation of the EMPs and adherence to the agreed environmental covenants, ADB requires, for all category A projects and all environmentally sensitive category B projects (footnote 9), that (i) borrowers and executing agencies submit semiannual reports on implementation of EMPs, and this requirement is reflected in the loan agreements; and (ii) review missions from ADB regional departments conduct an annual review of environmental aspects of the project. The purpose is to ensure that the borrower and executing agency are implementing the EMPs and fulfilling the environmental covenants. The outcome of such reviews will be reflected in the aide memoire of the review mission.

26. Project Completion and Performance Audit Reports. To ensure proper documentation of the actual environmental impacts of the project and the success of the EMP, the project or program completion report (PCR) prepared by ADB’s regional departments will include (i) a concise history of the environmental aspects of the project to completion, including an account of the performance of environmental indicators during project implementation; (ii) an evaluation of the implementation of the EMP and environmental loan covenants; and (iii) an assessment of the performance of the executing agency. The environment section of the PCR is based on the facts documented in executing agencies’ semiannual reports and review missions' back-to-office reports. ADB’s Operations Evaluation Department prepares project and program performance audit reports that are independent evaluations and include an analysis of the effectiveness of the EMP in achieving the intended objectives. The reports will also assess the PCR’s environmental reporting for its adequacy, and focus on specific environmental issues as documented in the PCR.

27. Changes in Scope. A major change is one that materially alters or fundamentally affects the project’s purpose (immediate objectives), components, costs, benefits, procurement, or other implementation arrangements as approved by the Board.¹⁴ All major changes in scope will be screened for environmental significance, and classified in accordance with paragraphs 6 and 7 above. All proposed changes that are classified as category A will require an EIA and those classified as B will require an IEE. In the case of environmentally sensitive changes, the SEIA or SIEE will be made available to the general public, as well as the Board of Directors, at least 120 days before the change in scope is approved.

28. Uncertainties in Locations and Alignments of Infrastructure. For most environmentally sensitive projects, especially category A projects, major site selection issues will have been addressed by the time of Board approval. Where uncertainty exists about specific locations or alignments of major infrastructure or project facilities at the time of Board approval, the EIA or IEE will include an EMP that presents full details on the agreed process to be followed for environmental assessment, including any special studies of environmental issues and specification of environmental mitigation measures during project implementation. The pertinent details will be presented in the SEIA or SIEE, and summarized in the RRP. The details will also be reflected in the loan agreement.

29. Unanticipated Environmental Impacts. Where unanticipated environmental impacts become apparent during project implementation or after project completion, ADB will assist executing agencies and other relevant government authorities to assess the significance of the impacts, evaluate the options, and estimate the costs of mitigation. ADB will also help DMCs find the resources needed to mitigate the damage. Project completion review missions will place special emphasis on reviewing project-induced environmental concerns, and will be expected to make appropriate recommendations to address them. ADB resident missions will take on an increasing role in working with DMCs to resolve outstanding issues. If unanticipated impacts are identified after a loan is closed, ADB will encourage, and assist as required, the borrower to plan and implement remedial measures.

Borrower’s Responsibilities in Preparing and Reviewing EIAs, SEIAs, IEEs, and SIEEs

30. The following are essential in the preparation and review of IEEs, SIEEs, EIAs, and SEIAs.

1. All government and ADB environmental requirements must be met.

2. ADB staff will request the borrower to follow the ADB-prescribed environmental assessment format wherever possible. Some departure from ADB's recommended report format may be accepted, provided that all the major elements to be covered by the report (see footnotes 7 and 8) are properly addressed.

3. In preparing the environmental assessment reports, ADB will require the borrower to take into account the views of affected groups, including nongovernment organizations, in accordance with paragraph 9 above.

4. Wherever possible, the borrower should have given its final clearance of the EIA or IEE before the SEIA or SIEE is submitted to the Board. Where this is not possible, and final government clearance has still not been received before the conclusion of loan negotiations, a loan covenant requiring government clearance of the EIA or IEE will be included in the loan agreement.

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