Compact Development Guidance: Compact Development Guidance | February 2017

Environmental and Social Assessment of Projects Proposed During Compact Development

MCC recognizes that sustainable economic growth depends on healthy people and healthy environments. Development that does not adequately address environmental and social risks can leave the poor vulnerable and leave society with fewer options for the future. Conversely, sound environmental and social management contributes to equitable and sustainable development. Broad stakeholder engagement and participation throughout compact development is a critical element for the preparation of a successful compact proposal.

Environmental & social standards

MCC compacts should be environmentally and socially sound and designed in compliance with applicable eligible country laws, regulations and standards, as well as international agreements by which the eligible country is bound. MCC’s expectations and requirements for the environmental and social performance of the programs it supports are outlined below:

  • MCC’s Enabling Legislation. Sec. 605(e)(3) of the Millennium Challenge Act of 2003 prohibits MCC funds from being used to support any compact activity that is “likely to cause a significant environmental, health, or safety hazard.” MCC’s Environmental Guidelines (see below) further elaborate on this prohibition: a project is deemed “likely to cause a significant environmental, health, or safety hazard” if “as a result of the project, even with mitigation efforts and proper use, there exists or will exist a substance, condition, or circumstance that represents a significant risk of harm to the environment or to human health because of the physical, chemical or biological effects of such substance, condition or circumstance.”
  • MCC Environmental Guidelines. MCC’s Environmental Guidelines describe the principles of environmental and social impact assessment that compact-eligible counties will be expected to apply; the Guidelines also establish a process for assessing potential environmental and social risks and opportunities. This process is designed to ensure that the level of environmental and social analysis and review is commensurate with the risks and opportunities of each project. The process also helps to ensure that MCC-supported projects meet applicable laws and regulations (including those of the eligible country), are not likely to cause a significant environmental, health or safety hazard, and integrate environmental and social considerations into project design and implementation, thereby improving performance and sustainability. Further, the Environmental Guidelines require compact-funded activities to be developed and implemented in a manner consistent with the Performance Standards on Environmental and Social Sustainability of the International Finance Corporation (IFC Performance Standards).
  • Performance Standards. MCC adopted the International Finance Corporation’s (IFC) Performance Standards on Environmental and Social Sustainability in June 2012. The Performance Standards are an internationally-accepted framework for managing the environmental and social risks of development projects and are a key part of MCC’s approach to risk management and how MCC puts the Environmental Guidelines into practice at an operational level.The Environmental Guidelines describe MCC’s process for categorizing projects and assessing environmental and social risks. The Performance Standards complement the Environmental Guidelines by specifying the required standard of environmental and social performance compact-funded activities are expected to meet.

The Performance Standards help MCC and its partner countries manage and improve compact environmental and social performance through an approach that is systematic, outcomes-oriented, and commensurate with the level of project risks and impacts.  By helping to manage environmental and social risks and opportunities, they contribute to larger and more sustainable development benefits.

There are eight Performance Standards (PS):

  • PS1 – Assessment and Management of Environmental and Social Risks and Impacts
  • PS2 – Labor and Working Conditions
  • PS3 – Resource Efficiency and Pollution Prevention
  • PS4 – Community Health, Safety, and Security
  • PS5 – Land Acquisition and Involuntary Resettlement
  • PS6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
  • PS7 – Indigenous Peoples
  • PS8 – Cultural Heritage

IFC provides a set of eight Guidance Notes that correspond to each Performance Standard. While MCC has not adopted the Guidance Notes as official policy, they provide useful information and guidance on the requirements contained in the Performance Standards and on good sustainability practices that will help MCC’s partner countries meet the Performance Standards and improve project performance.  MCC has prepared a Performance Standards Implementation Note that provides additional guidance on how MCC expects its partner countries to put the Performance Standards into practice. The Implementation Note will be updated from time to time as needed to reflect MCC’s experience and lessons learned through its use of the Performance Standards.

Operational aspects

Given the importance of incorporating analysis of environmental and social risks and opportunities from the outset of Compact Development, MCC requires that the Compact Development Team include an Environmental and Social Performance Director (ESPD). The Director’s role is important and requires a seasoned professional who understands the country’s environmental, resettlement, health and safety regulations and requirements, has experience conducting or reviewing environmental and social impact assessments (ESIAs) and Resettlement Action Plans (RAPs), and can work with the country Compact Development Team to ensure that environmental and social considerations are appropriately integrated into the identification and design of the compact proposal. MCC also requires that the core team include a social scientist with gender expertise who will work with the ESPD.

MCC’s Environment and Social Performance (ESP) staff collaborate closely with counterparts on the Compact Development Team. The shared objective is to promote sound environmental and social performance throughout all stages of compact development and implementation. MCC’s ESP staff will also engage outside technical experts to assist in the review of project concepts, feasibility studies, and designs. While the completion of the requisite environmental and social analyses (e.g. environmental and social impact assessments, resettlement action plans, health and safety plans, etc.) is the responsibility of the eligible country, MCC’s ESP staff will work closely with the country Compact Development Team to identify and manage environmental and social risks and enhance project opportunities and outcomes.