Environmental and Social Guidelines
The Manager will make an environmental and social review of projects
prior to investment to enhance the screening and selection procedure for
investments by the Fund.
The review is intended to minimise negative environmental and social
impacts of the Fund’s investments rather than enhance environmental/social
objectives of any entity. It is intended to allow the Fund to avoid investing
in business which contravene national environmental or social regulations
or significantly contribute to environmental or social degradation. It
is not intended that the Manager should develop specific technical expertise
in this area, engage in more detailed analysis of a business than would
normally be the case or advise or coerce investees to perform activities
not required by law.
The guidelines present a procedure for environmental/social screening.
The appendix shows examples of activities in various categories related
to environmental impact.
One aspect of the Fund’s investment objective is “sustainable development”.
This demands a long term growth strategy that accounts for external costs,
particularly environmental pollution.
Over half the world’s people live below the poverty line (less than
US$ 1 per day). The natural resources of developing economies are consumed
by rapid development and the demands on resources are compounded by urbanisation,
industrialisation and the lack of, and slow, development of infrastructure.
Problems stem from market and policy failures, high population density
and high poverty, uncontrolled urbanisation, unplanned industrialisation,
limited financial resources, limited technology and technical skills and
weak environmental institutions. The impacts may be on physical resource
(topography, soils, water, geology), ecological resources (flora and fauna),
human and economic development (population, infrastructure, land use,
energy, agriculture, tourism etc) and quality of life (socioeconomic values,
health, culture etc).
The following areas are of particular environmental concern:
The Fund intends to avoid investments which exacerbate environmental
Industrial activities are classified according to four environmental
categories. Category 1 is minimal impact activities, such as small scale
craft businesses, Category 2 is moderate impact activities, such as construction
or food processing, Category 3 is high risk/impact activities, such as
manufacture of fertilisers and Category 4 is prohibited activities, such
as any business involving radioactive materials. These are detailed in
Appendix A of these guidelines.
Environmental/Social Screening Procedure
As part of the normal screening and due diligence procedure the Manager
will include the following as required.
Classification of proposed investment according to the four categories
outlined above by referring to Appendix A. If the Manager considers that
the entity falls into Category 1 or 4 no further review is necessary (if
the entity is Category 4 the investment will not be made), although a
summary of the basis for classification should be recorded by completing
an Environmental Screen Report (see Appendix B).
If the activity appears to fall into category 4, but operations offer
an environmentally benign substitute for a conventional technology, the
target may be pursued.
If the entity requires an environmental review the following procedure
should be adopted as appropriate to each case:
1.Determine what permits, licenses and other documents have been issued
by environmental authorities and obtain copies if possible. Complete an
Environmental Screen Report.
2.Review documents (of the entity) that characterise environmental issues.
3.Attempt to identify issues and risks that should be considered. It is
not necessarily incumbent on the target to police the activities of suppliers
4.Attempt to identify any additional permits, licenses or other documents
that will or may be required to pursue proposed business objectives.
At this point decide whether the proposal should be pursued or not based
The degree of current environmental regulatory compliance (including
ministerial approvals and permits for natural resource use and pollution
The expected degree of compliance required and the willingness and ability
of the entity to adhere to regulations.
Whether a full environmental audit and/or environmental impact assessment
should be required.
If it is decided to consider the proposal further and an environmental
audit or environmental impact assessment is likely to be required, the
target must provide these prior to investment.
The Manager may liaise with environmental authorities and/or consultants
Prior to investment, an Environment Screen Report should be completed
again. In addition, the Manager will include appropriate representations
and warranties and appropriate conditions (precedent or subsequent) in
Appendix A - Environmental Impact Categories
Category 1 - Minimal Environmental Impact
Examples of activities in this category are:
Employee training and education;
Manufacture of wood products (small scale);
Stone crafting (small scale);
Metal working (small scale);
Health and family planning;
Warehousing and archiving;
Consulting, professional or technical services;
Computer equipment trading;
Recreational businesses and hotel, restaurant and related businesses;
Trading of crops or food;
Transportation businesses (small scale and excluding transport or hazardous
Category 2 - Moderate Environmental Impact
Examples of activities in this category are:
Manufacture of refrigeration equipment;
Large scale transportation;
Manufacture of tools, hardware and silverware;
Large scale metal working or metallurgical businesses;
Manufacture of vaults;
Trading of metal industry equipment;
Manufacture of medical equipment, tools or products;
Production or packaging or basic industrial chemicals (dry ice, inorganic
Manufacture of cosmetics;
Manufacture of wax products;
Manufacture of rubber products;
Manufacture of plastic products;
Trading of rubber or raw plastics;
Livestock industries and processing;
Vegetable/animal oil processing;
Use of irrigation equipment;
Trading of agricultural materials or products;
Manufacture, assembly or repair of engines, machinery, electrical, optical
Manufacture of jewellery;
Manufacture of sports equipment;
Manufacture of office and artist equipment;
Manufacture of gliders;
Manufacture of vitreous and non-vitreous clay products;
Manufacture of glass products;
Spinning, weaving and finishing of natural and synthetic fibres;
Manufacture of textiles and garments;
Manufacture of leather products;
Paper production and products;
Printing and trading of printing equipment;
Wood processing, carpentry and wood products;
Small ship manufacture and repair;
Manufacture or assembly of vehicle parts
Category 3 - High Risk Environmental Impact
Generally large scale activities will fall into this category irrespective
of other characteristics. In addition, examples of Category 3 activities
Manufacture of cement, plaster and lime;
Chemical and petrochemical businesses;
Ferrous and non-ferrous metal processing;
Production, distribution and storage of pesticides and herbicides;
Port and waterway development;
Manufacture and trade of hazardous substances;
Manufacture of fertilisers and pesticides;
Manufacture of detergents;
Thermal and hydropower development;
Airports, highways and railway lines;
Manufacture of leaded glass;
Tanning and dyeing;
Large scale tourism;
Urban water supply and waste water.
Category 4 - Prohibited Activities.
This category includes extremely high risk activities including:
Production of lead paint;
Trading in wildlife or wildlife products prohibited by the Convention
on Trade in Endangered Species of Wild Fauna and Flora (1973);
Introduction of genetically altered organisms;
Production, proliferation and sale of illegal pesticides;
Use of drift nets in fishing;
Any activity involving radioactive materials;
Activities involving the production or use of products containing chlorofluorocarbons
(CFCs) or materials prohibited under the Montreal Protocol on Substances
that Deplete the Ozone Layer (1987);
Production of electronic products containing polychlorinated biphenyls
Products containing asbestos.