Project finance comes increasingly with more pressure on borrowers to manage environmental and social risk – but the focus of this risk is also constantly shifting.
According to Sharon Jones, partner and principal environmental consultant at SRK Consulting, until fairly recently investors and lending institutions tended to scrutinise land acquisition and involuntary resettlement aspects, but there is now elevated interest in working conditions, resource efficiency and pollution prevention (to manage climate change). Indeed, certain types of projects –such as those requiring diesel power – were finding it more difficult to find any funding at all.
Jones highlighted that the reputational risk to investors and lenders remains a critical informant in financial decision-making, putting project owners under growing pressure to recognise environmental and social risks. This burden is becoming more pronounced as shareholder activists and civil society groups highlight investment decisions they perceive to be controversial.
