Berkeley Energy developed a corporate environmental and social management system (ESMS) initially in 2011 to provide a framework for the identification, assessment and management of environmental and social (E&S) risks and impacts associated with its investments. The ESMS has been revised several times to ensure ongoing adherence with the requirements of the company’s Development Finance Institution (DFI) Limited Partners (LPs) and other LPs. The current ESMS is dated January 2015 and it covers the three funds managed by Berkeley Energy; AREF (Africa Fund), REAF and REAF II (Asia Funds).The ESMS was built around the requirements of the International Finance Corporation (IFC) Performance Standards (PS) on Environmental and Social Sustainability (2012). In addition, the ESMS commits Berkeley Energy to meet the following E&S requirements (collectively known as the E&S Safeguards) where their standards are more stringent than those of the IFC PS:
The E&S Safeguard Requirements specify the E&S performance expectations of Berkeley Energy’s Portfolio Companies, that falls within the specific jurisdiction that the requirements apply, during the lifetime of an investment. The requirements include the need for a robust E&S assessment process, application of effective impact mitigation measures, disclosing information and undertaking meaningful stakeholder consultation, establishing a grievance mechanism, and conducting monitoring and reporting. These requirements are implemented through the E&S assessment process including execution of environmental and social management plans (ESMPs), and through asset specific ESMSs.
The main E&S areas covered by the AREF E&S Safeguard Requirements are:
The corporate ESMS is aligned with the requirements of IFC PS1 and that full implementation of the system would provide an effective mechanism to ensure that Berkeley Energy’s Portfolio Companies adhere to the corporate E&S Safeguards. The ESMS provides a framework for identifying, assessing and managing E&S risks and impacts and defines mechanisms for reporting the company’s E&S performance.
The key elements of the corporate ESMS are outlined below. In addition to the below, each Portfolio Company where AREF invests in is required to develop a project specific ESMSs describing asset specific management measures to be implemented.
The environmental and social policy includes commitments to:
These policy commitments are indicated on the BE website (https://www.berkeley-energy.com/environment-and-social/). The objectives of the ESMS are:
The ESMS includes a documented process for screening of all investment opportunities for environmental and social risk. Pre-screening is undertaken against a Prohibited Investment Activities List (PIAL), which is includes the following 20 categories:
Further screening is conducted to determine the project categorization and to identify key issues. The Environmental and Social Manager classifies projects into one of the following:
The ESMS manual states that in most cases, if the investment falls within Category A and in all cases if investment breaches the PIAL, the prospective Portfolio Company will be informed that the investment will not be considered. If an investment is likely to be classified as a Category A project for any of its environment, resettlement or indigenous people impacts, the Funds shall refer the investment to their respective Investor Advisory Committee for review and clearance before the Investment is approved by the Funds. This approval shall be by majority vote.
Berkeley Energy’s investments are Category B and only two AREF projects are Category A. The preliminary project categorization may be revised following detailed environmental and social due diligence. For example, the Kikagati Hydropower project in Uganda was reclassified from Category B to Category A following a detailed Environmental and Social Impact Assessment (ESIA) that was commissioned by AREF on the project.
Higher risk projects (category A) may require the involvement of an independent consultant depending on the quality and/or timing of the ESIA report and related documents. In situations where the deal team and the Environmental and Social Manager have insufficient evidence to determine whether a project should be categorised as A or B, a due diligence report is prepared by an external E&S consultant to inform the decision-making process by the Investment Committee.
Each prospective Portfolio Company is expected to provide the corporate deal team with information relevant to demonstrating compliance with the applicable E&S Safeguard Requirements. For investments under development, this information includes an ESIA report and an Environmental and Social Management Plan (ESMP). In addition, specialist studies such as a Resettlement Action Plan (RAP), Cultural Heritage Management Plan (CHMP), Biodiversity Management Plan (BMP) and/or an Indigenous Peoples Plan (IPP) are developed if relevant to the project. For example, in the Kikagati Hydropower Project in Uganda a RAP, CHMP and BMP were prepared by consultants.
For investments in development projects, with the exception of Category A projects, if an ESIA report is not yet available for review or a due diligence report has not been completed by an external consultant prior to the final investment review, the deal team submits an E&S questionnaire to the prospective Portfolio Company. A separate E&S questionnaire is submitted to the prospective Portfolio Company for investments in existing facilities with a preliminary classification as Category B.
Following detailed E&S due diligence, a final project categorization is made and an Environmental and Social Action Plan (ESAP) is prepared to identify actions for the project company to take to ensure compliance with Berkeley Energy’s E&S Safeguard Requirements. Where BE is the majority owner, the ESAP is developed internally. In addition, lenders undertake their own due diligence before financing the operations, mainly using consultants. Their findings are integrated into the ESAP for implementation. The ESAP commitments are included in the investee contractual covenants and become legally binding.
The E&S assessment process during Investment Decision Making is summarized below:
After an investment has been approved, each Portfolio Company is required to develop and implement an ESMS, appropriate to the size and the nature of the business and to confirm that it is operating in compliance with all applicable Environmental and Social Requirements. For all Category A projects and some Category B projects (selected by the Environmental and Social Manager) third party audits are performed regularly by independent E&S consultants.The Environmental and Social Manager (or other designated officer) visits all Portfolio company sites to assess compliance with the applicable Environmental and Social Requirements and/or the project ESAP. The frequency of these visits depends on the project categorisation and project phase. A report and corrective action plan is prepared following each site visit, and ESAPs are updated monthly until all actions have been completed.
The E&S reporting requirements are summarized below:
The ESMS has clear description of E&S roles and responsibilities within the organization and at an asset level.
Berkeley Energy has two E&S Managers at the Fund level; one based in Singapore, for REAF and REAF II funds; and one based in Nairobi, for the AREF fund.
As of December 2019, Berkeley Energy had 43 E&S professionals covering all funds and at Portfolio Companies, including 25 covering REAF/REAF II, and 18 focused on AREF. These Berkeley Energy E&S specialists are supported by additional E&S personnel with the EPC contractors and subcontractors.
All new staff at the funds and portfolio project are trained in the ESMS as part of their induction training, and staff are updated when the ESMS is updated. Berkeley Energy also provides training on its E&S Safeguards to members of its Investment committee, Investment Directors/Managers and Project Directors/Managers, and to appropriate members of staff of its Portfolio Companies.E&S training is conducted at the annual off-site meeting for all Berkeley Energy staff, including Investment Committee members, investment staff, project management staff, legal counsel, HR, financial controllers, all senior management and others. Training covered an overview of corporate E&S management each year, plus coverage of selected additional topics.
BE ESMS contains as attachments the various E&S management checklists to be used in the implementation of the ESMS. These include:
The BE ESMS requirements are implemented across all portfolio projects. Each portfolio project develops its own ESMS to meet the BE ESMS requirements applicable to the project. Construction sites have ESMS focusing on the management of E&S risks during construction and operational sites have ESMS relevant for project operational activities. Project level ESMS have detailed implementation procedures to address the E&S risks specific to the project such as stakeholder engagement plan and grievance mechanisms. Project companies report on a monthly basis to the BE E&S manager on the performance of the ESMS.BE also provides a platform on the website for any interested party to directly contact the BE compliance manager should the need arise. (https://www.berkeley-energy.com/contact/#message). This platform allows for interested party to communicate directly with BE Senior management with regard to issues they would like to raise.