March 2005, Overseas Development Institute (ODI)
This report provides guidance to upstream and integrated oil and gas companies onmeeting the social performance standards and good practice guidance issued by international (project) financing institutions (IFIs). It may also be of interest to smaller energy companies and joint venture partners who are considering approaching IFIs. The report presents the findings of a six-month study undertaken by the Overseas Development Institute between May 2004 and January 2005. The contents draw substantially upon recent work commissioned by Shell International. This work generated a ‘road map’ for Shell businesses to assist their project partners in meeting the social performance compliance requirements of international finance institutions, in particular the World Bank Group and European Bank for Reconstruction and Development.
The following report broadens the commissioned work undertaken with Shell. It provides an extended and published version of the guidance aimed at companies in the hydro-carbon business who might be involved in negotiating or delivering social performance commitments to project financing institutions. A perspective on social and political risk is included. In addition, inventories of social performance requirements are given for the World Bank Group and European Bank for Reconstruction and Development, as well as standards relevant to those commercial banks who are signatories to the ‘Equator Principles’.
Section 2 discusses why multi-national oil and gas companies might approach project finance institutions, highlighting the commercial importance of managing social and political risks for operations in low and low-middle income countries. Section 3 looks at the practices of social performance within companies, with reference to the Shell Group as a case example. Categories of social performance standards within IFIs are disaggregated in Section 4. Section 5 is a Road Map for companies to avoid the pitfalls in trying to meet the social performance requirements of IFIs. The Road Map includes key questions to ask at junctures in the negotiation process, and a illustrative ‘gap analysis’ comparing Shell Group and World Bank Group social standards. Section 6 provides a checklist of ‘dos and don’ts’ for companies approaching IFIs.
The views in this paper reflect those of the author alone. The report falls under the programme on Business and Development Performance at the Overseas Development Institute. This programme works to design and align business management tools and public policy instruments to optimise the development performance of corporate investment. Funding for this report has been kindly granted by Shell International.
