Reducing permitting red tape and environmental assessments under the Equator Principles

Reducing permitting red tape and environmental assessments under the Equator Principles

Governments, especially in developing countries, often push to reduce red tape or streamline regulatory approval processes to attract foreign investment, facilitate infrastructure development projects and stimulate economic growth. The rationale behind this approach is:

  • Investors are attracted to faster and less complicated approval processes. By reducing bureaucratic hurdles, the time it takes for mining, energy, or infrastructure projects to be approved can be shortened, leading to quicker returns on investments and giving the jurisdiction a advantage over competitor jurisdictions.
  • Reducing project delays creates jobs and stimulates the local economy more rapidly.
  • Prioritising large-scale development projects to improve infrastructure can have wider economic benefits.

While this process may reduce the time in which a project is authorised, it can lead to lax environmental oversight, corruption, and the overlooked rights of local communities and, in the case of projects financed by Equator Principle Banks or similar institutions, delay the environmental assessment process to the financing stage of the project. By doing this, project impacts (such as failing to consult with communities or unsustainable, long-term consequences of the project) may only be identified after the project is authorised. As a result, the Environmental and Social Action Plan contemplated under the Equator Principles may identify several deficiencies in the project which need to be addressed before financial close is reached and funds flow to the borrower. Depending on the nature and extent of these issues, financial close could be delayed and/or it the risk profile of the loan may differ which may have material implications for both the lenders and the borrower.

The most recent example of red tape reduction in South Africa was in respect of the Battery Energy Storage (“BESS”) IPP Power Programme bid windows 2 and 3 (“the BESS IPP”) where the Department of Forestry, Fisheries and the Environment (“DFFE”) published the Adoption of the Battery Storage Exclusion Norm and Exclusion of Identified Activities Associated with the Development and Expansion of Battery Storage Facilities from the Requirement to obtain an Environmental Authorisation GNR 4557 in Government Gazette 50387 (“the Norm”) exempting battery storage projects from the requirement to conduct basic assessments or scoping and environmental impact assessments, as the case may be, where the battery storage facilities are situated within suitably low or medium sensitivity areas in South Africa according to the DFFE’s Screening Tool, a web-based GIS platform, identifying the environmental sensitivity of land across the Republic (“the Screening Tool”). In instances where the BESS will be deployed in suitably low or medium sensitivity areas, the Project need only register and comply with a pre-approved environmental management programme. Projects could also be registered where the screening identified themes of a high or very high sensitivity where an environmental assessment practitioner (“EAP”) conducted a site assessment and confirmed the site to be of a low or medium sensitivity notwithstanding the Screening Tool’s findings. Concerns regarding the robustness of certain of these EAP confirmations were raised during the BESS IPP bidding process. Notwithstanding this, numerous projects were registered under the Norm and bid under the BESS IPP. Many of the projects selected as preferred bidders under the BESS IPP were granted registrations under the Norm. These project are yet to reach financial close.

As the Equator Principles require comprehensive environmental and social assessments in accordance with international standards are completed before the financial institution’s credit committee can grant approval, project timelines may be delayed as more detailed studies, consultations, and mitigation plans are developed. These assessments may also identify concerns with the EAP confirmations regarding the status of the site sensitivity. Financial institutions following the Equator Principles may elect not to fund projects that do not meet comprehensive environmental and social standards or which result in irreversible damage to highly sensitive environments, such as wetlands. If this becomes a common theme, the credibility of and confidence in the BESS IPP may be brought into question.

While the reduction in red tape is encouraged to speed up economic development, particularly in the African continent, regulators must conscious of corporate red tape (such as compliance requirements under the Equator Principles and other similar ESG-related compliance metrics) that may undermine these objectives. Solutions aligned with these requirements should be encouraged including improving the efficiency of the administrative processes and improving the capacity within government to consider, process and approve applications, particularly for critical infrastructure projects.