Presentation by James M Pearson

Implementing SRI Strategies Implementing SRI Strategies for Investment Fundsfor Investment Funds

James PearsonJames PearsonCEOCEO

Pacific Risk AdvisorsPacific Risk Advisorswww.pacificriskadvisors.com

Sustainable Risk and Asset Management

Pacific Risk Advisors

IntroductionIntroduction

Investment Fund CriteriaInvestment Fund Criteria

Fund Manager’s RequirementsFund Manager’s Requirements

Hurdles and ObstaclesHurdles and Obstacles

Risk Assessment and MitigationRisk Assessment and Mitigation

Case Studies and ExamplesCase Studies and Examples



Investment Fund CriteriaInvestment Fund Criteria

Need to gauge the ESG risk profileNeed to gauge the ESG risk profileCompliance status and ImplementationCompliance status and ImplementationMeet WB/IFC/ADB/EP guidelinesMeet WB/IFC/ADB/EP guidelinesFuture issues and deal killersFuture issues and deal killersGrowthGrowth

Understanding and managing these issues can be Understanding and managing these issues can be turned to the investors advantageturned to the investors advantage



Fund Manager’s RequirementsFund Manager’s Requirements

Business orientated approachBusiness orientated approach““Board Room Presence”Board Room Presence”Realistic and Practical AdviceRealistic and Practical AdviceCost and time estimatesCost and time estimatesLocal regulatory understandingLocal regulatory understandingUnderstand investment processUnderstand investment processIntegral part of due diligence teamIntegral part of due diligence teamConvince Investment Committee!Convince Investment Committee!Plan for adding valuePlan for adding value

Need an Advisor not an IdealistNeed an Advisor not an Idealist



Hurdles and ObstaclesHurdles and Obstacles

% and type of investment – what leverage?% and type of investment – what leverage?

Competition for the investmentCompetition for the investment

Investee’s perception and understanding of Investee’s perception and understanding of issuesissues

Legal frameworks and implementationLegal frameworks and implementation

Technical and timing constraintsTechnical and timing constraints

Cost of the risk assessment is not a constraintCost of the risk assessment is not a constraint



Risk AssessmentRisk Assessment

Detailed briefing note – local languageDetailed briefing note – local language

Site visit – interviews – doc reviewSite visit – interviews – doc review

Reporting – combined Action Plan and datesReporting – combined Action Plan and dates

Liaison with DD teamLiaison with DD team

Report part of agreementReport part of agreement

Ongoing advice to Fund Manager and CompanyOngoing advice to Fund Manager and Company

Reduce the Risk Profile during the Investment PeriodReduce the Risk Profile during the Investment Period



Case StudyCase Study

20% (10m USD) in old SOE, China20% (10m USD) in old SOE, China

Operating 30 years, similar factories in vicinity Operating 30 years, similar factories in vicinity

Under ground and above ground chemical storageUnder ground and above ground chemical storage

400 workers, 300 contractors400 workers, 300 contractors

Dormitories and canteenDormitories and canteen

Local villages have grown and merged into a town Local villages have grown and merged into a town of over 50,000of over 50,000

Local water source is undergroundLocal water source is underground



Issues and SolutionsIssues and Solutions

Contamination of water supply – Contamination of water supply – Potential Potential Deal KillerDeal KillerHazardous waste disposal – 250$/tonHazardous waste disposal – 250$/tonEffluent discharges – treatment costsEffluent discharges – treatment costsOccupational exposure to carcinogens – Occupational exposure to carcinogens – long term health costslong term health costsWorkers on less than minimum wage – Workers on less than minimum wage – additional costsadditional costsNo unions – lost jobs? – reputational risksNo unions – lost jobs? – reputational risks



Expensive Issues!Expensive Issues!

20m USD investment – EHS 5m - China20m USD investment – EHS 5m - ChinaHaz waste relocation – 2.5m USD – IndiaHaz waste relocation – 2.5m USD – IndiaUG tank removal – 300K USD – ThailandUG tank removal – 300K USD – ThailandContamination – Deal Killer – ChinaContamination – Deal Killer – ChinaEffluent compliance – 100K – ChinaEffluent compliance – 100K – ChinaContamination – 75K – ChinaContamination – 75K – ChinaAir emissions – 50K – MalaysiaAir emissions – 50K – MalaysiaIllegal labour – 200K – IndonesiaIllegal labour – 200K – IndonesiaContamination – 450K – IndonesiaContamination – 450K – IndonesiaAsbestos – 450K – KoreaAsbestos – 450K – Korea



ENVIRONMENTAL HEALTH SAFETY AND LABOUR ASSESSMENT OF ABC

EXECUTIVE SUMMARY

A number of local regulatory and environmental contamination concerns were identified during the Non Financial Risk Assessment (NFRA) of ABC . Mitigation actions have been recomm ended to address the regulatory and contamination issues. Comparison against World Bank and International Labour Organisation guidelines indicates no major concerns, however actions have been recommended to improve worker conditions and reduce potential h azards. Chinese environmental laws in general meet and in places exceed the World Bank guidelines . China is on the governing body of the International Labour Organisation and has ratified 20 conventions. A summary of the main findings is provided below: Topic Issue Estimated Costs Permits and Approvals

Environmental health and safety permits (fire fighting equipment, pressure vessels, safety work permits) for the expansion have yet not been issued , howeve r the environmental inspection application (thr ee synchronies) for Phase II was made on 1 January 2003 . Recommendation: Ensure all permits are updated and acquired and all necessary actions stated under the permits implemented .

Internal Resources

Waste Management

Oily rags (hazardous wastes) were in cinerated in onsite boilers. However, the site does not have an appropriate license or approval for onsite incineration. Recommendation: Onsite waste incineration sh ould be stopped and wastes appropriately stored until all necessary approvals have been o btained , or identify an appropriate alternative licensed waste disposal contractor .

Internal Resources

Asbestos Potential asbestos containing materials ( PACMs) were observed as heat lagging and gaskets. Friable P ACM was observed on one generator . Recom mendation : The site sh ould consider conducting a comprehensive ACM survey to identify all asbestos present and develop an appropriate asbestos management and mitigation plan for all ACM identified .

5,000 -15,000

Soil and Groundwater

Waste material s were noted to have been dumped on bare soil on the western boundary . Corrosion stains were identified in B section at the acid storage area by the water treatment facility for boiler. Recommendation: Conduct a site investigation to determine if soil and ground water contamination has occurred in these areas and establish a baseline of the conditions.

15,000 - 20,000

INVESTMENT CATEGORY

Based on the NFA findings and information provided by ABC , and compared against WB and ILO guidelines the operations have be en assessed to fall within ADB Environmental Category C .


Example Report Page and Action Plan Issue

Findings Summary

Status and /or Citation

Actions and Recommendations

Est. Cost (USD) Time

Date and Responsible Person

Status on 1 June 06

WASTE WATER MANAGEMENT -

Liquid effluents produced by the site operat ions include: • Process wastewater • Water leak s from process • Desalination wastewater

• Domestic wastewater

Process wastewater s are directed to the effluent collection system and treated in two waste water treatment plants (WWTPs) .. Water is recycled as the cooling water for gas generation and desulphurisation process . Water which leak s from the process , after treat ment and from the desalination wastewater are discharged into the municipal sewer system located to the north of the site. Domestic wastewat er and storm water were discharged into municipal sewers located to the east of the site.

Good Practice Review and improve process and effluent piping to reduce leakages and maximise resource efficiency

Internal Resources (6 month s)

Joe Chan Ongoing revie w. Identif ied opportunities to save 5% water usage so far.

According to the approved EIA , wastewater discharge from the site is subject to Class II limits of the Integrated Wastewater Discharge Standard (GB 8978 -1996) . No wastewater monitoring reports were available for review . The EMS conduct monitoring on a random basis and no reports are issue d to the company unless a violation or concern is detected in the monitoring. Site management indicated that the EMS ha s not contacted them regarding any con cern or violation. Given that no notice or fine has been raised the site management considers that there have been no recorded violations in the environmental monitoring.

Potential Compliance

The site shall contact the local EMS for the monitoring reports to compare with applicable standards for compliance. The site management should consider conducting their own regular effluent monitoring programme to ensure continual compliance and help ascertain operational consistency.

Internal Resources (1-3 month s)

Joe Chan M onitoring data indicates irregular effluent quality – further review ongoing


ConclusionsConclusionsEHSS risks and costs cannot be ignoredEHSS risks and costs cannot be ignoredIncreasingly stringent regulations and Increasingly stringent regulations and enforcement create greater riskenforcement create greater riskCompliance is necessaryCompliance is necessaryCustomer pressures are increasingCustomer pressures are increasingOpportunities are being missedOpportunities are being missedSRI portfolios need ongoing management to SRI portfolios need ongoing management to maximize value and reduce riskmaximize value and reduce risk

Sustainable Risk and Asset ManagementSustainable Risk and Asset Management



Presentation by James M Pearson

Business

Transcript of Presentation by James M Pearson