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  • Ildiko Almasi Simsic

Corporate level ESMS - thoughts on its importance for companies

I noticed a pattern over the past few years with respect to companies that fail to establish a corporate level Environmental and Social Management System. While we largely deal with project finance or financing that is ring fenced, we start our appraisal with the corporate level management systems, policies and processes in place. This is largely due to the assumption that a corporate level policy would cascade down to project level management plans, procedures and practices. Companies that fail to have this corporate level ESMS typically struggle with compliance on the project level as well, because consultants need to develop construction and operations phase management systems from scratch. In an ideal world companies would recognise the importance of a strong corporate level framework to govern E&S considerations, especially focusing on those where national legislation tend to differ significantly from international best practice or IFI standards.

What should this corporate ESMS consist of?

An environmental and social management system (ESMS) on a corporate level typically encompasses policies, procedures, and practices designed to identify, assess, manage, and mitigate environmental and social risks and impacts associated with a company's operations, investments and projects. While specific requirements may vary depending on the industry, company size, risk profile of operations and whether IFIs are involved, the ESMS should typically include the following:

1. Policy Commitment: A clear and comprehensive environmental and social policy that outlines the company's commitment to sustainability, environmental protection, social responsibility, and compliance with relevant laws, regulations and other applicable standards.

2. Risk Assessment and Management: Robust systems to identify, assess, and manage potential environmental and social risks and impacts across the company's operations, supply chains, and products or services. This includes conducting regular risk assessments, implementing risk mitigation measures, and monitoring performance. The risk assessment procedure should also detail required steps to assess risks associated with new projects, new operations or operations of companies acquired through M&A.

3. Legal and Regulatory Compliance: Ensuring compliance with applicable environmental and social laws, regulations, permits, and standards. This involves keeping up-to-date with evolving regulations, obtaining necessary permits, and implementing procedures to track and report compliance.

4. Stakeholder Engagement and Grievance Management: Processes to engage with stakeholders, including local communities, employees, customers, suppliers, and civil society organizations. This includes mechanisms for gathering feedback, addressing concerns, and incorporating stakeholder perspectives into decision-making. A stakeholder engagement framework should also detail how project affected people and communities around project sites need to be consulted prior and during construction and operations phase. The grievance mechanism should have three elements: 1. workers' grievance mechanism handled internally by HR department, 2. community grievance mechanism for external stakeholders and 3. project level grievance mechanism for affected people and communities.

5. Underlying Management Plans/Frameworks: Implementation of management frameworks and plans to specifically describe mitigation and compensation measures to risks and adverse impacts identified during the risk assessment stage. This typically covers: energy and water efficiency, water and wastewater management, waste management, pollution prevention, management of hazardous materials, traffic management, labour management, policy on land acquisition and resettlement, supply chain management, biodiversity, E&S training, emergency preparedness and response, permits register, occupational health and safety, security management plan, worker accommodation, sustainable resource use, frameworks governing monitoring and reporting requirements.

6. Human Rights: Addressing social impacts and respecting human rights throughout the company's operations and supply chains. This includes fair labor practices, health and safety measures, diversity and inclusion, community engagement, and responsible sourcing. There is more and more push for sustainable supply chains where forced labour, child labour and any other human rights violations are screened out and prohibited. The issue of human rights has been a hot topic for renewable energy projects. I have written about this previously and there will be more to come as I will be supporting the preparation of a good practice note on the topic. Link will be shared once it is ready!

7. Training and Capacity Building: Provision of training and capacity building programs to ensure employees and contractors understand and can implement the company's environmental and social commitments. This includes raising awareness, building skills, and promoting a culture of environmental and social responsibility.

8. Performance Monitoring and Reporting: Regular monitoring and measurement of environmental and social performance indicators to track progress, identify areas for improvement, and report on performance to relevant stakeholders. This may involve the development of key performance indicators (KPIs), targets, and sustainability reports.

9. Continuous Improvement: Establishing processes for regular review, evaluation, and improvement of the ESMS. This includes periodic audits, management reviews, corrective actions, and incorporating lessons learned to enhance environmental and social performance.

It is important to emphasise that while there are overlaps between ESMS and ESG, there are also significant differences. When companies submit ESG reporting or sustainability reports during appraisal for IFI funded project we always end up wasting time listening to information that is not useful for our purposes. Taking the time to set up a solid framework for corporate level E&S management would make life easier for us in the IFI world.

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