ENVIRONMENTAL AND SOCIAL SAFEGUARDS POLICY

February 2020
Contents

Abbreviations.............................................................................................................................................. ii
A. Background, Purpose and Objective..................................................................................................1

B. Definitions............................................................................................................................................3
C. Scope................................................................................................................................................... 3

D. Guiding Principles.............................................................................................................................10
E. Roles and Responsibilities...............................................................................................................11
F. Complementary Policies...................................................................................................................11

G. Adoption and Effectiveness.............................................................................................................12

i
Abbreviations

AoA IsDB’s Articles of Agreement

BP Bank Procedure
DoA Delegation of Authority
ESG Environmental, Social and Governance
ESIA Environmental and Social Impact Assessment
ESSP Environmental and Social Safeguards Policy
FI Financial Intermediary
GRMs Grievance Redress Mechanisms
IsDB Islamic Development Bank
MCs Member Countries
MDBs Multilateral Development Banks
OP Operational Policy
SDGs Sustainable Development Goals

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 OPERATIONAL POLICY (OP)

ENVIRONMENTAL AND SOCIAL SAFEGUARDS POLICY

A. Background, Purpose and Objective

Background:

1) Development projects and programs have a wide range of environmental and social impacts,
both beneficial, which justifies the activity, and adverse, for which mitigation measures should
be devised. The mechanisms used to assess the impacts and devise mitigation measures to
avoid or minimize adverse impacts in a development project are known as Safeguards.

2) Safeguards represent an important dimension of development. While playing a critical part in

helping countries manage their assets, both human and physical, they also help address
reputational risk to the multilateral development banks (MDB)s that finance development
activities.

3) Over the years, most Member Countries (MCs) have adopted environmental laws and
regulations to protect natural resources and minimize irreversible undesirable changes.
Devising and applying measures to mitigate adverse impacts of development projects helps to
avoid additional transaction costs that may constitute an intergenerational burden.

4) Aware of the potential adverse environmental and social impacts of some of its projects, the
Bank thus far has either relied on the respective MC’s governing laws and regulations to
mitigate such impacts or has agreed to implement the environmental and social safeguard
policies of co-financing development partners. However, unlike other Multilateral
Development Banks (MDBs), all of which have a formal operational policy to assess
environmental and social risks and to adopt mitigation measures, where necessary, the Bank
lacks a formal operational policy and structured framework to consistently apply Safeguards
in its projects.

5) The absence of ESSP limits the Bank’s capacity to foster effective partnership in some cases
with other MDBs, Bilateral, and special multilateral funds. The ESSP will contribute to
meeting the requirements to being accredited by the global funds such as GIF, GCF and GEF
and to establish more sustained partnerships with the Bilateral, and Multilateral development
partners. The development partners such as ADB, and AfDB have been accredited by the
GEF and GCF. Therefore, the opportunity cost of not having an ESSP is substantial in terms
of lost partnerships.

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 6) Moreover, with the increasing size and complexity of the Bank’s interventions (a larger
portfolio in environmentally and socially sensitive sectors, such as energy, transport, urban
development and agriculture etc.); its prospective financing of investments that fill
Sustainable Development Goals (SDG) gaps; and the importance of Environmental, Social
and Governance (ESG) ratings of international rating agencies such as Moody’s, S&P and
Fitch, the adoption of a structured framework of best industry environmental and social
safeguards is necessary.

7) Therefore, the Bank has taken a pragmatic approach by adopting principle of proportionality
and flexibility by allowing selective use of country systems and other development partners’
policies, and developed its first Environmental and Social Safeguard Policy (ESSP) to i)
reflect global best practices, ii) demonstrate the Bank’s unique situation as a Shariah-
compliant MDB, iii) enhance the Bank’s global position as a AAA+ MDB, and iv) bring
benefits to its MCs by taking necessary action to access global grant resources related to
environmental protection.

Purpose:

8) Over the past twenty years, ESSPs have become a standard element of the major operational
policies of MDBs for both sovereign and non-sovereign operations. They have made major
contributions to improved development outcomes by integrating environmental and social
considerations into the identification, preparation, and implementation of the projects
supported by MDBs. The implementation of the ESSP will serve as catalyst for the realization
of SDGs in the MCs.

9) Such policies provide a framework for stakeholder engagement and disclosure of

environmental and social documents at the project level. They also provide for the
establishment and use of project level Grievance Redress Mechanisms (GRMs). Provisions
allowing for the use of the ESSPs and strategies of other MDBs or bilateral development
organizations in co-financed operations have been recently incorporated into the policies of
several MDBs. In addition, these policies now increasingly provide for the selective use of
national or corporate environmental and social safeguards systems, which, when these
systems are robust, have a strong implementation record.

Objective:

10) IsDB’s ESSP is considered as an important tool for enhanced development effectiveness, with
an overarching goal to facilitate achievement of the environmental and social soundness and
sustainability of IsDB-financed projects. The ESSP demonstrates institutional values and
commitment to:

 Address environmental and social risks and impacts in a structured operational

framework across the project cycle,

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  Ensure environmental and social soundness and sustainability of investments,
 Support integration of environmental and social aspects into the decision- making
process, and
 Public consultation and disclosure of information.

B. Definitions

11) For purposes of this ESSP, the following terms have the following meanings.

 “Client” means the beneficiary of the IsDB’s financing for a Project and any other
entity responsible for implementation of the Project.

 “Environmental and Social Documentation” means the environmental and social

management plan or framework for the Project that the Client may be required to
prepare and implement pursuant to this ESSP, and any environmental and social
covenants included in IsDB’s financing agreements for the Project.

 “Project” means a project financed or proposed to be financed by the IsDB whether

out of its own resources or trust fund resources, and whether or not the financing is
Sovereign or Non-sovereign.

C. Scope

Policy Anchors:

12) The Islamic Development (IsDB) seeks to ensure, on the basis of Islamic principles, that the
Projects it finances are environmentally and socially sustainable, thereby assisting its Member
Countries (MCs) in managing their physical and human resources for the universal common
good of all creation.

13) The guiding principles that inform the adoption of this ESSP are derived from the Islamic
principles of Maqasid Al-Shari’ah: (a) Trust – Thiqa; (b) Well-Being – Falah; (c) Justice –
Adl; (d) Fairness – Insaf; and (e) Equality – Musawat, aiming at ensuring social and
economic wellbeing of humankind.

14) More specifically, the OP on ESS is grounded in the Shari’ah and the following provisions of
the IsDB’s Articles of Agreement (AoA):

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  Recognition in the Preamble of the AoA “the need for fostering the well-being of the
people (…) and achieving harmonious and balanced development (…) on the basis of
Islamic principles and ideals”.

 Desirability expressed in the Preamble of the AoA establishing the IsDB as a

“development, investment and welfare-oriented ” institution “based on Islamic
principles and ideals (…)”.

 The IsDB’s purpose, articulated in Article 1, to “foster economic development and

social progress of member countries and Muslim communities (…) in accordance
with the principles of the Shari’ah”.

 In fulfillment of this purpose, inclusion among the IsDB’s functions specified in

Article 2 of the AoA, of investing and/or participating in economic and social
infrastructure as well as productive Projects.

15) Other principles that inform this ESSP include the following, articulated in the IsDB Group
Principles of Corporate Governance 6, approved by the Board of Directors in 2009: Principles
3.2 “Voice and Participation”, 4.1 “Social and Environmental Responsibility”, 5.1
“Accountability” and 6.1 “Transparency”.

Policy Overarching Goal and Pillars:

16) The overarching goal of this ESSP is to facilitate achievement of the environmental and social
soundness and sustainability of Projects financed by the IsDB.

Figure 1: Policy Framework

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17) The Policy pillars on which the overarching goal of this ESSP rest are the following:

 Inclusiveness: Promotion of inclusiveness in development through disclosure of information

and consultation with and involvement of stakeholders in the overall decision-making
process.

 Resilient Development: Promotion of adaptation to climate change by supporting strategies and

investments that build resilience to current and future climate variability.

 Leveraging Resources: Enhancement of IsDB’s role in sustainable partnerships and

implementation of global concessional funds and leverage on partnership opportunities to
maximize financing available for MCs.

Policy Enablers:

18) The following are the three policy enablers for mainstreaming the ESS policy in the
Bank’s operations:

 Identification: Identification and assessment of potential environmental social risks and impacts
of Projects proposed for financing by the IsDB.

 Integration: Integration of consideration of environmental and social risks and impacts of these
Projects through incorporation of sound environmental and social management into Project
design.

 Implementation: Effective implementation by beneficiaries of IsDB financing of sound

environmental and social management plans to properly address the environmental and social
risks and impacts of these Projects.

Project Screening and Categorization:

19) In order to identify the potential environmental and social risks and impacts of each
Project, the IsDB screens and categorizes each Project as follows:

 The IsDB screens and categorizes each Project, as early as possible during Project
preparation, to determine the nature and level of the environmental and social
assessment, information disclosure and stakeholder engagement required of the Client
for the Project. In its screening and categorization, the IsDB takes into consideration
the type, nature, location, sensitivity and scale of the Project, so that the Client’s
subsequent assessment is proportional to the significance of the Project’s potential
environmental and social risks and impacts.

 The IsDB bases its categorization of the Project on a combined review of both
environmental and social risks and impacts and determines the Project’s

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category on the basis of the Project’s component presenting the highest environmental
or social risk and potential impacts (including direct, indirect, cumulative and induced
impacts, as relevant, in the Project area). It reviews these risks and impacts regardless
of the categorization being considered and may adjust the categorization during the
life of the Project, if warranted by changes in the environmental and social risks and
impacts. The IsDB assigns each proposed Project to one of the following four
categories:

 Category A: A Project is categorized ‘A’ if it is likely to have significant adverse

environmental and social impacts that are irreversible, cumulative, diverse or
unprecedented, and whether temporary or permanent. The IsDB requires the
Client to conduct a comprehensive environmental and social impact assessment
(ESIA) for each Category ‘A’ Project, which examines the Project’s potential
environmental and social impacts, both positive and adverse, compares them with
those of feasible alternatives (including the “without Project” situation), and
recommends any measures needed to avoid, minimize, mitigate, or compensate
for adverse impacts and improve the environmental and social performance of the
Project. On the basis of the ESIA, the IsDB requires the Client to prepare and
implement appropriate Environmental and Social Documentation.

 Category B: A Project is categorized as ‘B’ if it has a limited number of

potentially adverse environmental and social impacts; the impacts are not
unprecedented; few if any of them are irreversible or cumulative; they are limited
to the Project area; and can be successfully managed using good practice in an
operational setting. The IsDB requires the Client to conduct an initial review of
the environmental and social risks and impacts of the Project. On the basis of this
review, the IsDB determines the appropriate instrument for the Client to assess
these risks and impacts, on a case-by- case basis. This assessment will often be an
ESIA that is more narrowly focused than a Category A ESIA. The Client’s
assessment examines the Project’s potentially adverse and positive environmental
and social impacts and recommends any measures needed to avoid, minimize,
mitigate, or compensate for adverse impacts and improve the environmental and
social performance of the Project. Based on this assessment, the IsDB may require
the Client to prepare and implement appropriate Environmental and Social
Documentation.

 Category C: A Project is categorized ‘C’ if it is likely to have minimal or no

adverse environmental or social impacts. The IsDB does not require an
environmental and social assessment but does require the Client to prepare an
analysis of the environmental and social implications of the Project.

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  Category FI: A Project is categorized ‘FI’ if the financing structure involves the
provision of funds or a line of financing to or through a financial intermediary (FI)
for the Project, whereby the IsDB delegates to the FI the decision-making on the
use of the IsDB funds, including the selection, appraisal, approval and monitoring
of subprojects financed by the IsDB. The IsDB requires the FI Client, through the
implementation of appropriate environmental and social policies and procedures,
to screen and categorize sub-projects as Category A, B or C; and to review,
conduct due diligence on and monitor the environmental and social risks and
impacts associated with these sub- projects.

Integration into Decision-making and Management:

20) The IsDB supports the integration by the Client of consideration of environmental and social
risks and impacts in the Project as follows:

 IsDB Due Diligence: The IsDB conducts an environmental and social due diligence as an integral
element of the preparation of its financing and its appraisal of the Project, in a manner that is
appropriate to the nature and scale of the Project and proportional to the level of its
environmental and social risks and impacts. This due diligence informs the IsDB’s decision of
whether to finance the Project and if so, how the Client is required to address these risks and
impacts in designing and implementing the Project.

 Client’s Environmental and Social Assessment and Documentation: If the IsDB determines that the
Project has potentially adverse environmental or social risks and impacts, it requires the
Client to: (i) conduct an environmental and social assessment of these risks and impacts that
is proportional to their nature and scale; and (ii) design, document and implement appropriate
actions, recorded in Environmental and Social Documentation acceptable to the IsDB, that are
designed to avoid, minimize, mitigate, offset or compensate for these risks and impacts.

 Review of Client’s Environmental and Social Assessment and Documentation: The IsDB reviews the
Client’s environmental and social assessment and Environmental and Social Documentation
in order to determine whether appropriate measures are in place to avoid, minimize, mitigate,
offset or compensate for environmental and social risks and impacts of the Project.

 Phased Approach at the Project Level: The IsDB shall elaborate in a Bank Procedure certain
exceptional circumstances and conditions under which the Client may, following the IsDB’s
approval of the Project, adopt a phased approach to conducting its environmental and social
assessment of the Project. An example of when the IsDB may determine that a phased
approach is warranted would be in a case where the Client is deemed by the IsDB to be in
urgent need of assistance because of a natural or man- made disaster or conflict.

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  Associated Facilities: The IsDB shall elaborate in a Bank Procedure circumstances under which
the Client is required to consider the environmental and social risks and impacts of associated
facilities activities that are not included in the description of the Project set out in the
agreement governing the Project, but which directly and materially related to the Project.

 Disclosure by the Client and by IsDB: (i) The IsDB requires the Client to ensure that relevant
information about environmental and social risks and impacts of the Project is made available
in the Project area in a timely and accessible manner, and in a form and language(s)
understandable to the Project-affected people, other stakeholders and the general public, so
they can provide meaningful inputs into the design and implementation of the Project. (ii) The
IsDB also discloses the same information as soon as it becomes available. The IsDB shall
elaborate in a Bank Procedure (BP) the timing for such disclosure as well as exceptional
circumstances under which deferral of such disclosure may be permitted.

 Meaningful Consultation: The IsDB requires the Client to engage in meaningful

consultation with stakeholders during the Project’s preparation and implementation,
in a manner commensurate with the risks to, and impacts on, the Project-affected
People. This consultation covers Project design, mitigation and monitoring measures,
sharing of development benefits and opportunities under the Project and
implementation issues.

 Project-level Grievance Redress Mechanism: The IsDB requires the Client to: (i) establish
a suitable grievance mechanism, scaled to the Project’s risks and impacts, to receive
and facilitate resolution of the concerns or complaints of people who believe they
have been adversely affected by the Project’s environmental or social impacts; and (ii)
inform Project-affected people of its availability.

 Incorporation of the Client’s Environmental and Social Documentation into the Project:
The IsDB requires the Client to incorporate the actions required under the Project’s
Environmental and Social Documentation as an integral part of the Project, once this
documentation has been approved by the IsDB. This includes integrating the budget
and schedule for implementing these actions within the overall cost and schedule for
the Project. These actions (as well as those set out below in Section E (Roles and
Responsibilities)) are covenanted in the IsDB’s financing agreement for the Project.

Implementation of the Project in an Environmentally and Socially Sustainable Manner:

21) The IsDB facilitates effective implementation by the Client of the Project in an
environmentally and socially sustainable manner in accordance with the Environmental and
Social Documentation, as follows:

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  Client Implementation and Monitoring: Because the Client is responsible for implementing the
Project, the IsDB requires the Client to: (i) implement the Project in compliance with the
Environmental and Social Documentation for the Project; (ii) establish and maintain policies
and procedures adequate to enable it to monitor this implementation; (iii) furnish the IsDB
with periodic monitoring reports on the Client’s implementation of the Environmental and
Social Documentation; and (iv) take corrective action as necessary to ensure continued
compliance with the Environmental and Social Documentation. The extent of the Client’s
monitoring activities, including their scope and periodicity, is proportional to the Project’s
environmental and social risks and impacts.

 IsDB Monitoring: The IsDB monitors the Client’s compliance with the Environmental and Social
Documentation on an ongoing basis, as part of its overall Project supervision activities, until
Project completion. The scope and periodicity of such monitoring is proportional to the
Project’s environmental risks and impacts, and incudes: (i) review of the Client’s periodic
monitoring reports, (ii) periodic site visits if the Project has adverse environmental or social
risks and impacts; (iii) consultations with the Client on corrective measures needed; and (iv)
an assessment, reflected in the completion report, whether the objective and desired outcomes
of the Project’s environmental and social measures have been achieved, taking into account
the baseline conditions documented in the Environmental and Social Documentation, and the
results of monitoring. If corrective measures are needed to bring the Client back into
compliance with the Environmental and Social Documentation, the IsDB supports the
Client’s efforts to achieve compliance, failing which, the IsDB may exercise its available
contractual remedies under its financing agreements for the Project within a time frame it
deems appropriate.

 Project Changes: If, following approval of IsDB’s financing for the Project, changes are
proposed to the nature and scope of the Project that may have material environmental or
social risks and impacts, the IsDB conducts environmental and social due diligence of the
proposed changes. As a result, it may re-categorize the Project and require the Client to carry
out additional environmental and social assessments and consultations, incorporate new risk
mitigation measures, and update and disclose the Project’s Environmental and Social
Documentation.

Applicability to Projects:

22) This ESSP applies to all Projects, except as provided below in paragraph 23 (Development
Partner Policies) and paragraph 24 (Use of Country or Corporate Systems).

Development Partner Policies:

23) The IsDB may agree on a case-by-case basis to the application, in lieu of this ESSP, of the
environmental and social policies and procedures of Multilateral Development Banks and
Bilateral Development Organizations who are co-financing the Project, provided that the
IsDB is satisfied: (i) that they are consistent with the AoA and

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 materially consistent with this ESSP and the BP on ESS; and (ii) that they are supported by
appropriate monitoring procedures on the part of these co-financiers. In such cases, the IsDB
may rely on these co-financiers’ determination as to whether compliance with their policies
and procedures has been achieved under this approach.

Use of Country or Corporate Systems:

24) The IsDB may agree to offer the Client the option to use all or part of the Client’s existing
environmental and social management system for all or part of the Project, if it determines
that: (i) the Client’s existing environmental and social management system relevant to the
Project is adequate to address the environmental and social risks and impacts of the Project in
a manner materially consistent with the objectives of this ESSP; (ii) the Client has the
capacity and commitment to apply the environmental and social management system
proposed for use in the Project; and (iii) the system’s capacity would enable the Project to
achieve the desired environmental and social outcomes. The IsDB shall elaborate in a Bank
Procedure the conditions under which the Client’s system may be used for the Project.

D. Guiding Principles

25) The guiding principles that underpin the Policy pillars and the overarching goal consist of an
environmental and social management approach, proportional to the potential environmental
and social risks and impacts of each Project, that is designed to avoid, minimize, mitigate,
offset or compensate for environmental and social impacts of Projects, by the following:

 Support to Decision-Making: Support to the IsDB’s sound decision-making and management of

operational and reputational risks in relation to the environmental and social risks and impacts
of each Project financed by the IsDB.

 Provision for Screening and Categorization: Provision for a process of environmental and social
screening and categorization of the Project.

 Analysis of Risks and Impacts: Analysis of the Project’s environmental and social risks and
impacts.

 Identification of Management Measures: Identification of appropriate actions to address and

manage these risks and impacts.

 Environmental and Social Management and Monitoring: Integration into the Project of the actions
required to ensure sound management of environmental and social risks and impacts, and
monitoring of their implementation.

 Stakeholder Engagement: Engagement of Project stakeholders through: (i) meaningful

consultation on these risks, impacts and actions; (ii) disclosure of information on these

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 risks, impacts and actions; and (iii) inclusion of project level grievance redress mechanisms.

 Client Undertakings: Inclusion of undertakings relating to these actions in the IsDB’s

financing agreement for the Project.

E. Roles and Responsibilities

Bank Procedure:

26) The IsDB shall issue a Bank Procedure elaborating measures designed to implement this
ESSP, and includes both: (i) environmental and social safeguard standards, setting out
detailed standards to be complied with by the Client, depending on the nature of the Project,
covering environmental and social assessment and management, involuntary resettlement and
Indigenous Peoples; and (ii) an environmental and social exclusion list, setting forth activities
and items that are excluded from financing by the IsDB and that the Client is required to
exclude from the Project (BP on ESS).

Responsible Units:

27) The implementation of the policy described in this ESSP is the responsibility of the relevant
department and/or division of the IsDB identified in the corresponding BP. Such
implementation shall be in accordance with (a) the applicable provisions of the Delegation of
Authority (DOA) matrix and (b) the specific procedures set out in that BP.

F. Complementary Policies

28) This ESSP is intended to complement the following approved policies of the Bank:

 Sector Policies: Such as, Agriculture and Rural Development; Energy; and
Transport1;

 Thematic Policies: Such as, Climate Change; Fragility and Resilience; Women
Empowerment; Civil Society Engagement; and

 Other Policies: Such as, Regional Cooperation and Integration, Information

Disclosure, and Communications.

1
Further Sector/Thematic policies to be developed. will take into consideration ESSP requirements.

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G. Adoption and Effectiveness

Adoption:

29) This ESS Policy is being submitted to the Board of Executive Directors Meeting No. BED-
334.
Effectiveness:

30) This ESSP shall become effective in a phased manner [as elaborated by the IsDB
President in the BP on ESS] as follows:

(a) All IsDB financings submitted to the Board on or after January 1 st, 2021 (or such later
date as the Board may determine) shall be subject to all the requirements of this ESSP and
the associated BP on ESS.
(b) Prior to the date specified above in (a), Management shall select Projects on a case- by-
case basis, to which the requirements of this ESSP shall apply and shall notify the Board
of such application when the financing for the Project so selected is submitted to the
Board for approval.

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