Investing in the ESIA and Stakeholder Engagement Process to Improve Project Bankability

Twenty years ago, engagement with communities affected by projects was limited, even non-existent in some parts of the world. Today, Project Sponsors invest in stakeholder engagement programmes with affected communities and stakeholders with varying degrees of effort and success. Environmental and Social Impact Assessments (ESIA) and stakeholder engagement programmes are a regulatory requirement for many development projects and a condition of the majority of project financiers who require the Project Sponsor to comply with international environmental and social standards. These can be referred to as “soft laws” or “performance benchmarks”, and include the Equator Principles, IFC’s Environmental and Social Sustainability Framework and EBRD’s Environmental and Social Policy. Compliance with regulatory and international standards should not be the only driver for undertaking ESIA and stakeholder programmes. Such activities can broadly reduce and control environmental and social project risks and improve project bankability. Environmental and social risks and impacts can result in delay, cost increase and can affect the Project Sponsor’s ability to repay existing project finance and access further capital at a reasonable cost. Many Project Sponsors, however, remain unconvinced. This chapter demonstrates that ESIA and stakeholder engagement are not just about compliance with regulations and international standards but an essential part of project risk management. Drawing on practical experience, it gives examples of how risks can be reduced or increased depending on the adopted approach. The chapter concludes with a summary of the business case for using the ESIA and stakeholder engagement processes to support risk management and timely project delivery.