ASSESSING RISKS AND MITIGATING IMPACTS: THE ROLE OF DUE DILIGENCE IN SUPPORTING RESILIENCE AND INCLUSIVITY

Given its potential to create negative impacts, establishing appropriate strategies to properly identify, assess, and mitigate the risks involved in a linear infrastructure project is vital to making it resilient and inclusive. Risk is the probability of harm arising from activities or the failure to anticipate harm. Harm can either directly affect the project or be experienced indirectly by other stakeholders.

The most common risk assessment approach involves considering the likelihood of a particular impact transpiring against the severity of the consequence of that impact occurring (see below). The higher the risk, the more attention should be paid to limiting that potential negative impact.

Identifying and assessing risks should include addressing the potential cumulative impacts of the proposed project. The concept of cumulative impacts is based on recognizing the impacts of proposed project in relation to their location, surrounding land uses, and other similar projects close by. Relatively small, incremental impacts can result in collectively significant impacts over time. The International Association of Impact Assessment (IAIA) has summarized global approaches to assessing cumulative impacts into six standard steps, an adaption of which is shown in Box 3.

Box 3: General process for assessing the cumulative impacts of project proposals (adapted from IAIA)47

Step 1

Identify the incremental effects of the proposed project within the environs of the project location, based on information related to current or anticipated degraded or stressed conditions, the occurrence of protected species or habitats, and the presence or anticipated presence of other human activities that would adversely affect the same environmental assets. Information on incremental effects is also needed to address direct and indirect effects from the proposed project.

Step 2

Identify other past, present, and reasonably foreseeable future actions within the space and time boundaries that have contributed, are contributing, or could contribute to cumulative effects (stresses) on the environmental assets or their indicators. Based on this knowledge, identify appropriate spatial and temporal study boundaries for each environmental asset.

Step 3

For the selected environmental assets, assemble information on their indicators, and describe and assess their historical to current conditions. The historical information should coincide with the selected past temporal boundary or historical reference point. Further, and depending upon the availability of information, identify trends in the condition of the environmental assets and their indicators and compare these to numerical standards or policies, or to identified thresholds of significance for each environmental asset.

Step 4

Connect the proposed project and other actions in the study area to the selected environmental assets and their indicators. These could be either descriptive or quantitative connections. Predictions related to future effects resulting from multiple actions may be problematic due to the absence of detailed information; however, identification of “upor-down” changes in the environmental assets and their indicators can be useful. Finally, emphasis should be given to the aggregation of effects (that is, to the anticipated cumulative effects on each environmental asset).

Step 5

Assess the significance of the cumulative effects on each environmental asset over the time horizon for the study. Determinations should begin with the incremental effects (direct and indirect) of the proposed action on specific environmental assets. The focus is on the asset, not on the action. The same definition can and should be applied to determine the significance of composited cumulative effects on the environmental assets. Further, the concept of environmental sustainability (including social and economic sustainability) could be considered both in relation to incremental effects and cumulative effects.

Step 6

Develop action-specific mitigation measures for negative incremental impacts from the proposed project for which the cumulative effects are significant. Further, if significant cumulative effects are anticipated on any environmental asset or its indicators, encourage stakeholders to collaborate on developing management measures, either locally or regionally, or both. Such collaboration is important when there are multiple contributors to regional cumulative effects. Stakeholder collaboration in follow-up activities can be both cost-efficient and aid in local and regional planning.

Assessing the cumulative impacts of major linear infrastructure projects is especially relevant to vulnerability and resilience. Because linear infrastructure projects have a long lifespan, the incremental impacts of a proposed project can be extreme and difficult to identify and quantify. Moreover, because linear infrastructure often follows paths in areas vulnerable to climate change, such as coastal lands, the resilience of projects under future climate scenarios needs to be part of risk assessments. A cumulative impact assessment considers both existing projects and future projects and logically should be commissioned by the government, supported by multilateral development banks. International Finance Corporation (IFC) has supported river-based cumulative impact assessments in the hydropower sector in both Laos PDR and Myanmar. 48 Following a risk assessment, strategies should be developed to mitigate potential impacts and follow the mitigation hierarchy (see Figure 5), which outlines a logical sequence for managing impacts and risks:49

1. Avoid impacts before they occur.

2. When avoidance is not possible, minimize the duration, intensity, significance, and extent of impacts.

3. When impacts occur, rehabilitate or restore the environment, site, and communities.

4. Where significant impacts remain, offset or compensate for the impacts.

Implementing the mitigation hierarchy often involves iteration of these steps, with the application of the preventative steps (avoid and minimize) being significantly preferable to the remedial steps (restore, rehabilitate, and offset). 51 The application of the mitigation hierarchy, with examples of measures that can apply at each step, is depicted below in Figure 6.

Avoidance

• Site selection

• Design

• Scheduling

Minimization Preventive Remediative

• Physical controls

• Operational controls

• Abatement controls

• Re-establishing habitat types

• Re-establishing biodiversity values

• Re-establishing ecosystem services

• Restoration offsets

*No

* Yes

* Can potential impacts be managed adequately through remediative measures?

Impact avoidance is only a realistic strategy if it is considered in the very early phases of a project—cost-effective avoidance options can easily be missed or may no longer be considered cost-effective if they are not considered before key planning decisions are made;52 avoidance strategies often involve major design changes such as the location or alignment of a project. The Biodiversity Consultancy has identified examples of how avoidance can apply to the routing of linear infrastructure:53

50 Adapted from The Biodiversity Consultancy (2022) Mitigation Hierarchy, https://www.thebiodiversityconsultancy.com/our-work/our-expertise/strategy/ mitigation-hierarchy/ (last accessed 17 August 2022).

51  The Biodiversity Consultancy (2015) p. 11.

52  The Biodiversity Consultancy (2015) p. 12.

• Micro-routing linear infrastructure around habitat features or areas of importance to biodiversity and ecosystem services

• Burying transmission lines to prevent collisions with birds, or pipelines to avoid blocking animal movements

• Locating support roads in already disturbed habitats to avoid direct damage and risks from increased access

• Aligning new linear infrastructure alongside existing structures (e.g., existing roads or rail corridors) and on disturbed habitats

Accordingly, the mitigation hierarchy is a tool that applies throughout the whole linear infrastructure project cycle, not only in assessing individual project proposals submitted for development approval. Project proponents and financial institutions considering linear infrastructure projects should be identifying and assessing risks and considering impact mitigation from the outset of the linear infrastructure project lifecycle, consistent with due diligence in business operations that includes:54

• Identifying and assessing actual and potential adverse environmental impacts of activities and associated relationships on stakeholders;

• Integrating environmental findings from impact assessments across internal processes;

• Tracking environmental performance to verify whether adverse impacts are being effectively addressed;

• Communicating publicly, including formal reporting, on company responses to actual and potential environmental impacts.

The OECD Guidelines for Multinational Enterprises (OECD guidelines) adopted in 2011 recommend that enterprises conduct due diligence to identify, prevent or mitigate, and account for how actual and potential adverse impacts are addressed. These guidelines address all thematic issues in responsible business conduct, including human rights, labor rights, information disclosure, environment, bribery, consumer interests, science and technology, competition, and taxation. The OECD guidelines include a chapter that provides recommendations for enterprises to raise their environmental performance and help maximize their contribution to environmental protection through improved internal management and better planning. The OECD developed the Due Diligence Guidance for Responsible Business Conduct 2018 to assist enterprises to implement the OECD guidelines “by providing plain language explanations of its due diligence recommendations and associated provisions.”55 be commensurate with risks and appropriate to a specific enterprise’s circumstances and context, and should cover all aspects of an enterprise’s operations and its business relationships.

Due diligence is an integral part of decision-making and risk management systems and is an ongoing, proactive and reactive, process-oriented activity.56 Environmental due diligence supports compliance with domestic environmental protection and resource management laws but goes further to consider best-practice conduct that can have positive environmental benefits. The extent and detail of due diligence processes should 53  The Biodiversity Consultancy (2015) p. 25. 54 Bon, E. T. S. (ed.) (2022) Business and Human Rights in Southeast Asia: A Practitioner’s GuideKit for SMEs on Human Rights Compliance regarding the Environment and Labour, Kuala Lumpur, p. 54. 55 OECD (2018) Due Diligence Guidance for Responsible Business Conduct, p. 3. 56  OECD (2011) OECD Guidelines for Multinational Enterprises, p. 42-3.

The OECD Guidelines list the following as effective approaches to due diligence by enterprises:57

• Due diligence is preventative.

• Due diligence involves multiple processes and objectives.

• Due diligence is commensurate with risk (risk-based).

• Due diligence can involve prioritization (risk-based).

• Due diligence is dynamic.

• Due diligence does not shift responsibilities.

• Due diligence concerns internationally recognized standards of responsible business conduct.

• Due diligence is appropriate to an enterprise’s circumstances.

• Due diligence can be adapted to deal with the limitations of working with business relationships.

• Due diligence is informed by engagement with stakeholders.

• Due diligence involves ongoing communication.

These characteristics align with key principles in international environmental law, which are also commonly applied in national environmental law and policy, including in ASEAN member states. These principles include the:

• Precautionary principle

• Prevention principle

• Polluter pays principle

• Principle of public participation, access to information, and access to justice

An environmental management strategy (EMS) is a structured set of processes used by an organization to help enhance its environmental performance, comply with environmental duties, and achieve its environmental objectives in line with its environmental policy.58

An enterprise’s EMS can provide the backbone of its environmental due diligence processes by establishing clear internal steps for considering environmental objectives, risks, obligations, decision points, information disclosure, and accountabilities. As an EMS should apply throughout the whole company or organization, it is a way to mainstream environmental and social obligations. Companies involved in the construction or operation of infrastructure projects should be required to have an EMS for their operations. Proponents and implementing enterprises for linear infrastructure should have their EMS certified to the ISO 14001 standard by a third-party certification body. The ISO 14001 standard involves five main stages for an EMS:

1. Environmental policy—the enterprise’s environmental commitments

2. Planning—identification of environmental aspects of the enterprise’s operations and its legal obligations as the basis for setting environmental objectives, targets, and action plans (including clear steps and responsibilities)

3. Implementation—creating structures and operating procedures, allocating resources, and programming training on the action plan, including training on documentation and communication

4. Evaluation—monitoring of operations and implementation of the action plan to evaluate compliance, performance against targets, and the need for corrective action

5. Review—management reviews evaluation results, determines the EMS’s effectiveness, and revises the environmental policy to improve performance

The U.S. Environmental Protection Agency (USEPA) provides extensive guidance on developing an EMS that addresses environmental impacts including land, air, and water, pollution, waste (including toxic and hazardous waste), climate risk, operational health and safety, and other impacts.59 Pollution control standards include technological parameters and benchmarks, such as emissions standards and ambient quality standards, and also refer to the best available technology for activities and practices that have potential environmental impacts. Many countries also use World Health Organization (WHO) guidelines as a basis for national standards. WHO guidelines include environmental causes of harm to human health such as pollution, climate change, and environmental health in general.60 WHO guidelines reinforce the substantive link between pollution control laws that national environmental enforcement authorities are responsible for enforcing and the human rights to health and a healthy environment.

The key to an effective EMS is regular monitoring and performance reporting against an enterprise’s environmental policy and targets. In addition to helping meet the environmental due diligence recommendation on making information about the environmental impacts of an enterprise’s activities public, reporting of broader performance against an environmental policy is in line with the OECD Guidelines dedicated disclosure chapter, which covers timely and accurate information disclosure, preparation of disclosure policies, and high-quality environmental reporting standards. An EMS should also include processes for handling complaints, which could be designed to align with operational-level grievance mechanisms.

Inherent to due diligence is characteristics and effective implementation based on internationally recognized standards that apply irrespective of the legal requirements of jurisdictions in which the enterprise operates. At the same time, enterprises must also comply with regulations within the operational jurisdiction; these cannot be avoided by reference to an enterprise’s corporate processes. The OECD guidelines are explicit that “obeying domestic laws is the first obligation of enterprises.”61 Due diligence can help enterprises observe their legal obligations while ensuring that risk assessment is undertaken to levels that meet international standards. In other words, due diligence and environmental regulations collectively provide a floor for responsible business conduct irrespective of the jurisdiction in question.

59 In addition to the general guidance included in the ISO 14001 standard, see for example: ISO 14004:2016 Environmental management systems General guidelines on implementation; ISO 14001: Environmental management systems A practical guide for SMEs (https://www.iso.org/publication/PUB100411. html); USEPA’s Environmental Management Systems: An Implementation Guide for Small and Medium-Sized Organizations (https://www.epa.gov/ems/ environmental-management-systems-implementation-guide-small-and-medium-sized-organizations); and EMAS User’s Guide (https://ec.europa.eu/ environment/emas/emas_publications/guidance_en.htm).

60  World Health Organization (2021) Health Topics. https://www.who.int/health-topics/#B Accessed 30 July 2021.

61  OECD (2011) OECD Guidelines for Multinational Enterprises, p. 17

Significantly, governments are increasingly mandating due diligence as part of businesses’ legal obligations, while courts are relying on the concept when adjudicating environmental cases.62 In particular, the relevance of due diligence is being considered when addressing questions of companies’ (including their directors and managers) liability for environmental harm. Accordingly, the role of due diligence in systematically applying risk assessments and mitigation hierarchy to business activities, including the development of linear infrastructure, can be expected to intensify.

62  See OECD Centre for RBC (2021) Policy Trends in Environmental Due Diligence, https://mneguidelines.oecd.org/policy-trends-in-environmental-duediligence.pdf.