envt laws 2

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Workshop on Environmental

Management Framework Session I

June 3, 2006


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E&S risks and their implication for the

financial sector


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Financial

E&S

FI Risks

Risks

Scope.


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Environment - A growing risk.

Bicchri (Rajasthan) - Dye intermediate company

9km stretch groundwater contamination - costs up fromRs.280 million to Rs.1billion.

Medak (A.P.) - Land contamination through disposal ofuntreated effluents. SC order for framing of industry

compensation guidelines .

1100 farmers will be paid a total of Rs.323 million.

CPCB estimates clean up costs of industrial sites to runinto thousands of crores

US spends $40 billion every year on clean up costs.

Source: [Economic Times, 15.11.98]


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Environment - A growing risk.

Taj trapezium (1997) - 12 LMEs, 6300 SSIs; Costapprox. Rs.1.44 billion (SSIs only), Rs.2 billion (IOC)

Vellore case (1996) - 900 tanneries in Tamil Nadu issuedclosure notices

SC ruling for Delhi - Over 1500 units ordered to close &relocate

Grasim (Nagda, MP) - VSF plant shut for 46 days in 1996due to water shortage. 17% drop in net profit.

Global environmental issues - Climate change, Technology

transfer, Trade restrictions, Product standards, etc.


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Funneling effect[Adapted from Natural Step]


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Indian context

Financial liability for compensation & clean up costsassociated with hazardous industries

Tightening of standards e.g. automobile emission norms

Power of unaffected individuals to lodge a complaint

Over 10,000 NGOs (20 times increase in last 15 years)Compliance levels - Approx.45% for all enterprises

Official consents - rubber stamp approvals

Import of toxic substances/ industries

Product standards (Toxicity, LCAs, social criteria) -textiles, leather, foods, spices

Climate change - Emerging opportunity; Long termchallenge for business (India, China)


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Risk linkages

E&S Risks

PollutionHabitat destruction

Hazardous wastes/ mtls

Resource scarcity/ degradation

Social issues (eg. child labour,

wkg conditions, displacement)

Business Risks

Project delays/ cost overrunsBusiness interruptions

Legal fines/ penalties/liabilities

Delays in approvals

Resource shortages/costs

(water, power)Poor worker productivity

Barriers to export mkts

Legal pressures

Public pressures

International standards

Resource shortages

Financial Risk


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Where does E&S risk fit within the Bank?

Credit risk Non-payment of principal/ intt

Collateral security recourse

Lender liability risk

Market risk Intt rate fluctuations

Commodity pricing/ exchange risk

Equity value fluctuations

Operational risk Security

Business interruptions

Regulatory non-compliance


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E&S risk factors => Financial risk

Punitive fines, cost of new treatment

facilities, cleanup costs, litigation costs,project delays, disruption of operations,market barriers, worker unrest

On-site or nearby pollution, Site

contamination, Accidents

Clean-up costs where financier becomesowner of the contaminated site, in case offoreclosure

Project insurance claims to covercompensation costs, cleanup costs, anddamages

Reduced ability to

play( credit worthiness)

Security impairment

risk

Direct liability risk

Financial claims(insurers)

Reputation risk


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What can the financial sector do?

Identification/ Screening based on sector, nature ofproject, location.

To identify projects having significant E&S risks.

Assessment of risk based on audits, EIAs, siteinspections, regulatory disclosures, other info sources

Control of risk through mitigation or avoidance


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Risk Mitigation Strategies

Control the risk (clauses in credit agreement, indemnities,warranties, covenants, certificates). Provides contractualcontrol over client activities

Transferthe risk (guarantee/ indemnifications by 3rd party eg.parent company or govts, syndication)

Financethe risk (establishment of envl contingency fund,reclamation or remediation bond or LC)

Insure the risk (risk transfer for a fee) - to cover sudden orgradual events

Avoidthe riskdecline when risk is unacceptable & cannotbe mitigated. Last recourse option.


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Participants in the E&S risk mgmt process

Bank clients (disclosure; operational control)

Credit officers / Credit risk management deptt

Consultants (expert assessments; advice to clients & banks on riskmitigation; liability/ cost assessments)

Other stakeholders i.e. govt., insurance, investors, public(specific functional contributions depending on client/ unit involved)


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Role of Credit officers

Manage relationship with client

Inquire about & screens for E&S risk issues

Determine optimum risk assessment and mitigation

strategies

Complete internal credit documentation

Monitor on-going operations for implementation of risk

mitigating measures

Review for impact of internal/ regulatory changes


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Role of Credit risk management Deptt (contd.)

Screens & adjudicates credit applications for E&S

risk

Ensure adherence to internal policy and riskallocation procedures

Formulate risk monitoring & mitigation reqts.


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Bank E&S Policies

Ensures consistency & continuity

Made to fit applicable E&S risk management reqts

Defines roles & responsibilitiesIdentifies specific thresholds for E&S risk

management

Identifies bank specific risk mitigation strategies


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What can the financial sector do?(Part 2)

Apart from

- addressing E&S risk in lending/ investment decisions, and

- tracking implementation of risk mitigation measures

Facilitate adoption of better technologies/ production systems

Influence decision making at board level - encourage corporategovernance and social responsibility

Recognise link between environmental performance, quality

systems & management maturity


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Indian Financial Institutions which have

Developed Environment & Social Risk

Management Framework

IDFC

ILFSICICI

Bank of Baroda

TNUIDFSIDBI


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International initiatives

UNEP Statement on Envt. & Sustainable Devt. (160 banks

& 85 insurance cos.)

World Bank, ADB, IFCE&S norms/ caveats for lending

Credit Suisse Group, Union Bank of Switzerland, Bank of

America, HSBC, Swiss Bank Corpn., Cooperation Bank

UNEPs 1997 survey of FIs - Over 90% respondents had

managers/ deptts in place to identify envl risks

Rise of green funds - $1.19 trillion (10% of total), 144

funds [USA]; 2.2 billion, 19 funds [UK]; DM 2 billion

[Germany]


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Environment & Social Issues


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What Cause Environmental Risk?

ISSUES

Air Emissions

Wastewater Discharge

Hazardous Waste

Resource Consumption

Improper operational

Practices

IMPACTS

Health Impacts onHumans

Land Contamination

Degradation of

Environmental Resources.

Accidents / emergencies

Occupational Hazards

RISK DRIVERSEnforcement of legal Requirement

Community Pressure

Judicial Intervention

Expectations of Foreign partners

Environmental

Risk


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Key Environmental Issues

Air Pollution

Water Pollution

Hazardous Waste / Materials

Use of Ozone Depleting Substances

Use of Persistent Organic Pollutants POPs

Use of Poly-chlorinated Biphenyl


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Sector Polluting Streams Key Pollutants

1. MiniCement Plant

Raw Material HandlingCrushing

Cement Mill

SPM, RPM, Traceelements in dust.

2.Pesticides Boilers,

Process emissions

SPM, NOx, VOCs,

HCL, PAH, POPs3.Dye &

Dye

Intermediates

Boilers,

Process emissions

Drying & grinding

NOx, SOx, SPM, Cl2,,

H2S, VOCs, HCl.

4. Foundry Scrap & chargepreparation

Fluxing & metal

melting

Quenching

VOCs, HAPs, HC, CO,NOx, metal oxides

fumes.

Air Pollution


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1. Textile Bleaching

Mercerising

Dyeing & Printing

Washing

Heavy metals, phenoliccompounds, spentcaustic, COD.

2.Dye &

DyeIntermediat

es

Left over motherliquor

Washing &

FinishingFiltration

Batch Reactions

BOD, COD, chlorides,phenolic compounds,heavy metals, organic

chemicals, tracemetals,

Water Pollution


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3.SmallDistilleries

MaltingSteeping/germinationDryingKilning

BrewingExtractionFermentation

BOD, COD,Suspended solids,Ammonical nitrogen.

4.Tannries SoakingChrome SplittingShavingFinishing

TDS, suspendedsolids, BOD,Chromium, Boron,

sulphides

Water Pollution


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Sector Polluting Streams Key Pollutants1. Textile ETP sludge.

Boiler ash

Textile Chemical Residue

Heavy metals,

phenolic

compounds

2.Pesticides Pesticide residue

ETP sludge

Expired Pesticides

Dust from APCEs

Heaxchlorocyclohe

xane, Hexa-

chlorobenzene

cyanides, phenols,heavy metals &

traces of pesticides

Hazardous Waste


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3.Dye &

Dye

Intermediates

Process sludge

ETP Sludge

Sodium sulphate,

Naphthalene, Heavy

metals, organic

compounds, dust from

air filtration system,incinerator ash

4.

Pharmaceutic

al Industry

Process residues

Spent catalyst

Expired drugs

Off specification

products

Methanol, ethanol,

acetone, isopropanol,

phenol, waste starches.

Hazardous Waste


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Ozone Depleting Substances

Sector Process Pollutants

1. Engineeringunits

Manufacturing ofrefrigerators and ACs

Use of Solvents for

degreasing like CTC

CFCs

2. Cosmetics Mixed with perfumes

3.Plastic &

allied Products

Production of

Polyurethane

Production of Polystyrene


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Persistent Organic Pollutants


1. Pesticide

industries

Production of POPs

2. Agroproducts

Use of POPs for pestcontrols


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Poly Chlorinated Biphenyl


1. Organic

Chemical

Industries

Production of PCBs

2.Electronic &

electrical

industry

Used in transformers


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Sector Process Occupational Hazards

1. Dye & Dye

Intermediates

Charging

Process reactions

Steam generation

Fugitive Emissions

Exposure to Hazardous

Chemicals

Exposure to High Temp.

2. Foundry Scrap & charge

preparation

Metal MeltingMilling

High Nose levels.

Exposure to High Temp

Injuries due to moving

machine parts

3.Engineering

units

Metal Cutting

Fabrication

Milling

High Nose levels.

Injuries due to moving

machine parts

Occupational Health and Safety Hazards


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Sector Process Accidents

1. Pesticide

Industry

Storage of Poisonous

Chemicals / gas.

Storage of Fuel

Leakage of poisonous

gases / Chemicals

Explosion

2. Foundry Metal Melting Explosion of Furness

due to high concentration

of CO.

3.Organicchemical

industry

Storage of PoisonousChemicals / gas (Cl2).

Storage of Fuel

Leakage of poisonousgases / Chemicals

Explosion

Occupational Health and Safety Hazards


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Key Social Issues

Child Labour

Forced Labour

Wages

Discrimination

Freedom of expression and Right to collective

bargaining

Disciplinary Action Resettlement and Rehabilitation


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Use of Sectoral Guidebook

Process Description Basic Polluting Process

Critical Pollutants

Summary of Key Environmental Issues Recommended P2 Measures

Cleaner Production Initiatives

Regulatory Obligations


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Environmental laws


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Environmental Regulations in India

Year Environmental Regulations

1974 The Water (Prevention and Control of

Pollution) Act, Amendments,1988

1975 The Water (Prevention and Control ofPollution) Rules

1977 The Water (Prevention and Control of

Pollution) Cess Act Amendments. 20031978 The Water (Prevention and Control of

Pollution) Cess Rules

i l l i i di


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1981 The Air (Prevention and Control of

Pollution) Act, Amendments, 1987

1986 The Environment (Protection) Act,Amendments,1991

1986 The Environment (Protection) Rules

Amendments, 2003

E i t l R l ti i I di


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1989 The Hazardous Wastes (Management

and Handling) Rules, Amendments,

2003

1989 Manufacture, Storage and Import ofHazardous Chemical Rules,

Amendments, 2000

1991 The Public Liability Insurance Act/

Rules, 1992

1996 The Chemical Accidents (Emergency

Planning, Preparedness and Response)

Rules,



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1994 Environmental (Protection) Rules

Environmental Clearance

1994 Amendments in the Environment(Protection) Rules, "Public Hearing

made mandatory




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Year Environmental Regulations1997 The National Environment Appellate

Authority Act

1999 Draft notification on Siting Guidelines forIndustrial Projects

2000 Noise Pollution (Regulations and Control)

Rules

2000 Ozone Depleting Substance Rules


C li P


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New Units

Application to SPCB for CONSENT TO ESTABLISH

Consent Granted

Project

Conception

Stage

Permission for Trial Run

Performance Evaluation

by SPCB Not

Satisfactory

Grant OfCONSENT TO OPERATE

Monitoring by SPCB

Construction

Stage

Operational

Stage

Renewal Of Consent

Change In

Process

/ Raw

material /

Expansion

of facility

Compliance Process

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