Environmental Impact Assessment: Just another Project or a 1.5-aligned infrastructure strategic opportunity?

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The Future Challenge

Enormous amounts of upfront capital, rather than slow incremental investments, will be required within the next three decades if we are serious about delivering innovative infrastructure solutions and partnerships that limit climate change to 1.5C above pre-industrial levels.  An earlier and better integrated understanding of climate change risks and impacts should help trigger this transformation.  However climate change and impact assessment professionals in general are rarely used to support the early investment phases of projects and seldom work closely with investors to significantly influence the climate change outcomes of a bespoke project.  Perhaps now is the time for a change?

Accessing the necessary finance for the development and delivery of large infrastructure projects is increasingly being tied into climate change impact funding, wider ESG considerations and increasingly the requirement to demonstrate the sustainability of the proposed investment upfront.  However, whilst there is a growing understanding of physical climate change, environmental and social impact risk within the investment community in the ‘development’ phase and also within the engineering community during the ‘delivery’ phase, the role of the Environmental Impact Assessment (EIA) professional, and in particular specialists in climate change impact assessment (CCIA), should be becoming easier.  Yet there is often no strategic linkage in projects between what climate change conversations are influencing either community and the substance of those conversations in terms of funding impact.  Too often client communication, project management and procurement barriers halt the transfer of knowledge and break the continuity of professional advice.

Climate change is visibly starting to manifest itself in our lives through physical risks such as altered weather patterns, changes in rainfall intensities, coastal flooding through sea level rises, wildfires and drought.  The need to stabilise the global climate through collaboration between nations, and the activities on-going in human societies must soon start to deliver a pathway towards net-zero emissions as quickly as possible – globally by 2050 at the latest, if we are to stand any chance of addressing the issue and mitigating the risks.  The scale of the challenge means that there is very little time for investors, financiers, governments, client businesses and their infrastructure service teams to enact a radical shift in how critical infrastructure projects are brought through to delivery, and how climate risks are incorporated within the strategic decision steps necessary.

Large financing and pension investment institutions are already taking action as reflected within their reporting of climate risks, evaluation of portfolio exposure and in their consideration of impact assessment funding.  Insurers and the banking community are also being urged to adopt strategies that tie in scenario analysis within their business governance systems. Yet we still need greater debate of climate change risk and how it can be passed from funding concept into operational delivery.  This is where the EIA community has specialist knowledge and skills that can benefit both parties to a greater extent than at present.

Investment pressure and regulatory initiatives will undoubtably help place climate change considerations as an integrated component of any eventual capital release. No doubt making investor seekers aware of climate-related risks and how they are expected to present business cases that address and manage them will ultimately assist the longevity of their desired asset or development project.  How long it takes them to appreciate this as a ‘benefit’ is an interesting question!

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Yet with these changes happening slowly within the investment community, it is rare for the engineering project development team, and in particular the EIA/CCIA professionals to have been briefed on or be aware of what evaluation, commitment or agreement has previously been determined during financing talks, or what are commitments funders seek to implement within the terms of their own policies or agreements.  Both engineering and environmental teams often start from ‘scratch’ and whilst committed to project delivery may have different views on how that final outcome sits within the clients needs, the local environment, its legacy impact on that environment and its contribution to the client’s corporate sustainability policy or a 1.5-aligned climate change scenario.

This lack of information and awareness of the entire funding and delivery cycle wastes time, leads to unnecessary conflict, delay construction, consents and permits, and ultimate delay delivery time schedules.  The cost of obtaining upfront capital can be enormous – in some mega-projects it can cost the investment seeking government or private sector $billions, and yet the acquisition of detailed environmental information is often left to a distant point downstream.

It is acknowledged by many EIA professionals that when they are called into the financing and design debate. it is often too late to make a larger positive contribution – opportunities have been missed and the design process has become fixed on a solution that may be optimal to build but is not necessarily optimal in terms of its operational/construction carbon footprint, risk reduction and importantly deliverability through the consent and permitting process.  Indeed whilst vast sums are spent upstream during financing a project, money for environmental (and social) evaluation is often begrudgingly allocated into the delivery budget.

Budgeting for Climate Change advice

The EIA budget is often a small element of the entire budget – <0.25% during financing and <4% during construction delivery, yet its contribution is ultimately critical to success:

  • No statutory approval – No Project!
  • If the project is pushed through by governments for political reasons, the objection of its citizenry and the verification of adverse environmental impact can still terminate the project.
  • Even when they are pushed through regardless, the life and efficacy of the asset can ultimately be compromised – e.g. siltation behind dams reducing energy production, secondary impacts to other national industries and interests, reductions in agricultural productivity, etc can all mitigate against the ROI.
  • Too Climate change adverse – Future stranded asset!

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It makes sense therefore, that if we are serious about climate change risks to future well-being, and now accept that vast amounts of early upfront capital, rather than incremental investment, will be needed within the next 30 years to bring forward innovative solutions that help limit climate change to 1.5C, then we need to bring climate change experts into the funding discussions earlier.

Key investment decision makers with responsibility for capital will need additional help and support in evaluating climate change scenario risks and their associated impacts early on within their strategic evaluations.  Climate risk cannot be left to a random % point allocated into the risk pot by economists.  As the bullet points above demonstrate, they ultimately will be key to the projects life-cycle and longevity, and not just limited to project delivery.  The active steps taken from the start by implementing EIA and climate change risk advise and thinking into the project can have a significant positive effect on whether the project is sustainable or ultimately a stranded asset.

In these decisions, the financing and funding communities will need early impact assessment advice to a much greater extent than the Engineering project manager will when it is commissioned several years further down the project pipeline.  It is always a wise decision to invest upfront in the management of strategic risk, yet too often it seems that those with the most to lose fail to engage with the one group of experts that are comfortable in determining the significance of climate change impacts, the risk to delivery and whether the design strategy ensures future longevity of investment return.

Calling in the impact assessment community and the tools that define EIA ensures that the knowledge that will arise downstream in the delivery phases when seeking consent is brought upstream and earlier into play when strategic options are still open to debate. The EIA costs will have to be banked at some point in the process, it therefore makes sense to access its strategic information at the funding phases, and have it still available during then delivery phase.

In a recent series of workshops run by Leading Green, the five key areas in which senior IA professionals feel they can make the greatest contribution, benefit and leadership to a large infrastructure project were identified as:

  1. Embedding sustainability and env/soc thinking into decision-making, and being influencial in promoting environmentally (inc climate change) inclusive design.
  2. Defending the project outcomes when EIA & consenting elements are impacted on by engineering parameters.
  3. Ensuring that the voice of the EIA team are heard by the project team.
  4. Safeguarding client (internally) and stakeholder (externally) interests, and
  5. Leading thinking regarding operational and decision-making phases.

Points 1, 4 and 5 clearly have a strategic advantage to investors during the investment phase, whilst points 2 and 3 reflect the continued need for safeguarding client interest when the needs of the engineering project team  to deliver raise risk elements that threaten statutory delivery or the overall legacy risk profile of the investment.

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So my advice is simple, start waking up to the role of EIA early as a design tool and investment guide for the funding decision maker.  In particular how it can assist you deliver a 1.5-aligned infrastructure strategic opportunity.  It makes much more strategic sense than letting your consultant project delivery team view its role solely as an additional project step and a ‘compliance’ tool for regulators!

 

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Leading Green offers its clients specialist advice, training and project management services in 3 key areas:

  1. Client Project Board representation & specialist environmental support in Infrastructure Investment Programmes & Projects (investment planning, site acquisition, project planning, construction and delivery) for large-scale built infrastructure and asset management programmes – Governance, Risk Management, EIA/ESIA & SEA, climate change adaptation strategies, sustainability and stakeholder risk management.
  2. Support to Executive & Operational leadership teams as they develop and deliver environmental and sustainability strategies.
  3. Environmental Leadership & Sustainability in Business training programmes.

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