ROME CONSENSUS - Requirements for Environmental and Social Due Diligence Page 1 of 5

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Hilary Farmer
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1 ROME CONSENSUS - for Due Diligence Page 1 of 5 ROME CONSENSUS: for Due Diligence The European Development Finance Institutions (EDFI) have as a result of their harmonization process mutually agreed on the following for Due Diligence for co-financed projects, which form part of the Rome Consensus. The for Due Diligence described herewith serve as a Guidance Note for the minimum requirements of the due diligence process in projects which are co-financed by EDFI members. The purpose of this Guidance Note is to ensure a compatibility and usability of the due diligence made by members and therefore endeavor to enable a more efficient and timely due diligence process. The for Due Diligence at the various Milestones of the due diligence process are defined by the Mutually Agreed Category of the project. The milestones of the environmental and social due diligence process in EDFI members are the Clearance in Principle (CIP), the Project Approval, the Contractual Agreement and the on-going Monitoring Phase. At CIP, the EDFI making the due diligence must categorize the project according to it s environmental and social impacts separately, the higher impact category then being used to classify the whole project and communication to the participating EDFI member 1. The mutually agreed upon categorization of the project then determines specific for Due Diligence during the following phases of the project cycle detailed below. The results of the Assessment are to be communicated and agreed upon prior to Project Approval. The contractual are to be based on the standard Building Blocks for Agreement according to Common Law Format and are to be communicated and agreed upon prior to Final Contract Discussion. All projects shall be reviewed with respect to adherence to the Exclusion List defined within the Rome Consensus. With regard to Financial Institutions (FI), all FI shall apply the Exclusion List to their total on-lending business. The Monitoring requirements will be fulfilled by the EDFI member in the lead and will follow the requirements set out below. A Monitoring Report should be sent at least annually to the participating EDFI members. Based on the Mutually Agreed Category the following for Due Diligence process are to be fulfilled by the EDFI member in the lead: 1 For example with a project with environmental category B and social category A will be a category A project.

2 ROME CONSENSUS - for Due Diligence Page 2 of 5 High risk (A) Medium High Risk (B+) Medium Low Risk (B) Low risk (C) Category Definition Projects with significant potential impacts that are diverse, irreversible or unprecedented. These impacts cannot be mitigated or remedied or only at significant costs. Projects with generally limited potential impacts that are site-specific and readily addressed through mitigation measures, but having some specific features which can have potential significantly more adverse social or environmental impacts. Projects with limited potential impacts that are site-specific and readily addressed through wellknown mitigation measures. Projects with minimal or no adverse social or environmental Impacts. Assessment Impact Assessment or Audit by a qualified expert 2, in compliance with IFC guidelines (PS1) Impact Assessment or Audit by a qualified expert, in compliance with IFC guidelines (PS1) at least for the determined specific risks and social compliance check as integrated part of the due diligence and social compliance check as integrated part of the due diligence Plausification of categorization through EDFI project manager by means of standard cross-check Verification of client information and assessment by qualified expert. Due-diligence on basis self-assessment of client through a targeted questionnaire and plausification of information Due-diligence on basis selfassessment of client through a targeted questionnaire and plausification of information Self-assessment and statement of compliance to EDFI standards by client Site visit by environmental or social expert from an EDFI institution or comparable qualified expert Site visit by an EDFI project manager or an EDFI environmental or social expert according to assessment of environmental or social specialist Site visit by an EDFI project manager recommended, not necessarily by an environmental and social expert No site visit necessary, but recommended Performance Standards and IFC EHS Guidelines as well as ILO Core Labor Standards and the ILO Basic Terms Performance Standards and IFC EHS Guidelines as well as ILO Core Labor Standards and the ILO Basic Terms Performance Standards and IFC EHS Guidelines as well as ILO Core Labor Standards and the 2 The qualified expert may be an external third party consultant or an EDFI specialist or a specialist from another trusted party with appropriate knowledge base

3 ROME CONSENSUS - for Due Diligence Page 3 of 5 High risk (A) Medium High Risk (B+) Medium Low Risk (B) Low risk (C) (cont.) and Conditions of Employment Comprehensive project, site or product-specific protective or corrective measures are required => environmental and social action plan. / OHS/ Social management system according to international standards (ISO, OHSAS, etc.) officer is and Conditions of Employment Protective or corrective measures for specific risks are required => environmental and social action plan / OHS/ Social management system necessary, advisably according to international standards (ISO, OHSAS, etc.) officer ILO Basic Terms and Conditions of Employment as deemed appropriate Risk specific protective or corrective measures may be required => eventually environmental and social action plan / OHS/ Social management system advisable officer Assignation of and Social Responsibilities advisable. Monitoring Reporting at least once a year and ad-hoc in case of special incidents. During construction and special project phases: reports at shorter intervals may be necessary. Reporting once a year and ad-hoc in case of special incidents. Regular auditing of special risk issues may be indicated (e. g. in due time after project completion). Reporting once a year and adhoc in case of special incidents. Reporting only of changes in the project and ad-hoc in case of special incidents. Monitoring and reporting by independent consultant or verification of the reporting of the project company by qualified expert is advisable. Format should be a risk-specific Format should be a risk-specific

4 ROME CONSENSUS - for Due Diligence Page 4 of 5 For following Due Diligence should be fulfilled: High Risk (FI-A) Medium Risk (FI-B) Low Risk (FI-C) Environ-mental and social impacts with business activities or projects with significant potential adverse social or environmental impacts that are diverse, irreversible or unprecedented, i. e. category A projects, e. g.: Business and development banks, funds and specialized institutions with a significant portion (e. g. more than 15 %) of their portfolio volume in Category A-Projects with business activities or projects with limited potential adverse social or environmental impacts that are site-specific and readily addressed through well-known mitigation measures, e. g.: Insurance companies Leasing companies (e. g. financing heavy machinery for industry clients) Micro finance institutions Mortgage banks (with development and construction) Business and development banks, funds and specialized institutions with a less significant portion (e. g. less than 15 %) of their portfolio volume in Category A-Projects with business activities or projects with minimal or no adverse social or environmental impacts, e. g.: Focus on private clients (for example mortgage banks, insurance companies, education finance) Leasing companies (e. g. financing light equipment, cars for private clients) Assessment Assessment carried out by the responsible EDFI project manager together with an qualified expert (in most cases an EDFI expert). and social compliance check as integrated part of the due diligence carried out by the responsible project manager. Statement of compliance with all relevant local environmental, health & safety and labor laws by the client. Detailed analysis of the environmental and social relevance of the portfolio and business activities of the bank and the bank s capability to manage the environmental and social risks related to its activities. Due-diligence on basis of a self-assessment of client through a FI-Type specific questionnaire Verification of client information and analysis by qualified expert; Site visit by qualified expert, if deemed necessary Verification of client information by project manager, to be assisted by expert where required. Plausification of categorization by project manager. Preparation and Coordination of training and advice measures through qualified expert where advisable Preparation and Coordination of training and advice measures through qualified expert where advisable

5 ROME CONSENSUS - for Due Diligence Page 5 of 5 High Risk (FI-A) Medium Risk (FI-B) Low Risk (FI-C) Standard 1. Compliance with relevant local environmental, health & safety and labor laws and regulations, including ILO Core Conventions as ratified by the country 2. For Category A-Projects: Compliance with applicable IFC Performance Standards and IFC EHS Guidelines 3. Contractually bind Sub-Borrowers to comply with 1. and Compliance with EDFI Exclusion List 5. Development, implementation and continuous improvement of an adequate and Social Management System (ESMS) 6. officer is 7. Specifically for funds: ESMS must be functional before first investment (e. g. before disbursement). 1. Compliance with relevant local environmental, health & safety and labor laws and regulations, including ILO Core Conventions as ratified by the country 2. For Category A-Projects: Compliance with applicable IFC Performance Standards and IFC EHS Guidelines 3. Contractually bind Sub-Borrowers to comply with 1. and Compliance with EDFI Exclusion List 3 5. Development, implementation and continuous improvement of an adequate and Social Management System 6. officer is 7. Specifically for funds: it is advisable to have the ESMS functional before first investment (e. g. before disbursement). 1. Compliance with relevant local environmental, health & safety and labor laws and regulations, including ILO Core Conventions as ratified by the country 2. Assignation of Responsibilities advisable. Monitoring Annual Monitoring Report once a year and ad-hoc in case of an unusual event. Annual Monitoring Report once a year and ad-hoc in case of an unusual event. Reporting only in case of significant changes in the business activities and in case of an unusual event. Review of the Annual Monitoring Report by qualified expert. Review of the Annual Monitoring Report by project manager, to be assisted by qualified expert on request. Project manager to confirm Category. Remediation measures to be coordinated between project manager and qualified expert where necessary. Remediation measures to be coordinated between project manager and qualified expert where necessary. 3 In those cases where the credit line usage is with full certainty separable from all other financing business of the FI (i. e. a mortgage line in a corporate bank), the FI need only apply the Exclusion List to the financed projects, insofar the FI in question is not otherwise substantially involved in excluded activities.

IFC PROJECT CYCLE. The project cycle illustrates the stages a business investment goes through as it becomes an IFCfinanced

IFC PROJECT CYCLE. The project cycle illustrates the stages a business investment goes through as it becomes an IFCfinanced IFC PROJECT CYCLE The project cycle illustrates the stages a business investment goes through as it becomes an IFCfinanced project. IFC PROJECT CYCLE 1. BUSINESS DEVELOPMENT Guided by IFC's strategic goals,