Environmental and social due diligence (ESDD) is the independent review a lender or investor commissions before committing funds to a project. It answers a specific question: does the project meet the IFC Performance Standards and the Equator Principles? And if not, what is missing, how much does it matter and how can it be closed?
When environmental and social due diligence is needed
- Financial close of a project. Equator Principles banks, development finance institutions and export credit agencies require an independent review for Category A projects and, as appropriate, Category B projects.
- Acquisition or sale of assets. Buyers and sellers use due diligence to identify environmental and social liabilities before agreeing price and terms.
- Refinancing or a new investor. An operating asset is reviewed against the incoming lender's standards, which do not always match those of the original one.
- Developer readiness. A review commissioned by the project itself (vendor due diligence) lets the developer come to the table with the gaps identified and a plan to close them.
What we review
We assess the project against the eight IFC Performance Standards, the World Bank Group Environmental, Health and Safety Guidelines, the Equator Principles (EP4) and applicable national law.
- PS1 Assessment and management of risks and impacts: quality of the impact assessment, management system, stakeholder engagement and grievance mechanism.
- PS2 Labor and working conditions: human resources policies, contractors, occupational health and safety, worker accommodation.
- PS3 Resource efficiency and pollution prevention: emissions, effluents, waste, greenhouse gases.
- PS4 Community health, safety and security: traffic, labor influx, emergencies, security personnel.
- PS5 Land acquisition and involuntary resettlement: physical and economic displacement, livelihood restoration.
- PS6 Biodiversity conservation: natural and critical habitat, mitigation hierarchy, offsets.
- PS7 Indigenous Peoples: identification, consultation and, where applicable, free, prior and informed consent.
- PS8 Cultural heritage: preventive archaeology and chance find procedure.
Where the Equator Principles apply, we also review the climate change risk assessment and the human rights due diligence introduced by EP4. For a refresher on what each standard requires, see our guide to the IFC Performance Standards.
How we work
- Kick-off and request for information. We agree the scope with the client and issue a request for information (RfI) organized by standard, so the project knows exactly which documents to upload to the data room.
- Document review. We analyze licenses and permits, studies, management plans, contractor agreements, and land acquisition and engagement records.
- Site visit and interviews. We verify on the ground what the documents say and speak with the project team, contractors and, where appropriate, communities and authorities.
- Findings report. Each gap is rated by materiality and explained with evidence: what the standard requires, what we found and what it means for the lender.
- Action plan. We turn the gaps into an environmental and social action plan (ESAP) with deliverables, owners, deadlines and completion indicators, ready to be attached to the loan agreement.
- Support through to close. We answer lender questions and take part in the meetings where the action plan is agreed.
Deliverables
- Request for information (RfI) by Performance Standard.
- Red flag report, where a quick first read is needed.
- Environmental and social due diligence report, with a compliance matrix against PS1 to PS8 and the Equator Principles.
- Environmental and social action plan (ESAP).
- Executive summary for credit or investment committee.
We deliver in English or Spanish, as the lender group requires.
A useful due diligence is not a list of non-compliances. It is a document that lets the lender decide and the project know what to do next. That is why our findings separate what conditions financial close from what can be resolved during construction.
Who it is for
- Lenders and investment funds that need an independent environmental and social consultant who knows the Latin American context.
- Developers and sponsors who want to know their gaps before the banks' consultant finds them. At an early stage, a gap analysis is usually the best first step.
- Buyers and sellers of operating energy and infrastructure assets.