Guidance CCRA - May 2023

GUIDANCE NOTE
ON CLIMATE CHANGE
RISK ASSESSMENT
EQUATOR
PRINCIPLES
GUIDANCE NOTE ON CLIMATE CHANGE
RISK ASSESSMENT
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of the requirements in, and implementation of, the Equator Principles and does not establish new
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situation where there would be a clear conflict between applicable laws and regulations and any
information presented in this document, the laws and regulations of the relevant host country shall
prevail.
CONTENTS
PREAMBLE ............................................................................................................................................... v
1. INTRODUCTION ................................................................................................................................ 1
1.1 Purpose of the Guidance Note on CCRA ......................................................................................... 1
1.2 Definitions of Climate-related Risks and Opportunities ................................................................. 2
1.3 Guidance Note Structure ................................................................................................................ 2
2. REQUIREMENTS AND APPLICABILITY ............................................................................................... 4
2.1 Climate Change-Related Requirements and Commitments under EP4 ......................................... 4
2.1.1. General Requirements................................................................................................................. 4
2.1.2. CCRA-Specific Requirements ....................................................................................................... 5
2.1.3. Defining Materiality ................................................................................................................... 10
2.1.4. Compatibility with National Climate Commitments ................................................................. 13
2.1.5. Responsibilities for NCC Compatibility Review and CCRA Development .................................. 14
2.1.6. Client Disclosure Requirements ................................................................................................ 15
2.2 Applicability .................................................................................................................................. 16
2.2.1. Applicability of Requirements on Physical and Transition CCRA .............................................. 16
2.2.2. Applicability for sovereign loans ............................................................................................... 17
3. CCRA GUIDANCE APPROACH.......................................................................................................... 19
3.1 Objective of CCRA ......................................................................................................................... 19
3.2 Overview of CCRA Framework ...................................................................................................... 19
3.3 Governance, Management and Monitoring ................................................................................. 22
3.4 Timing of the CCRA ....................................................................................................................... 23
4. PRELIMINARY NCC COMPATIBILITY REVIEW .................................................................................. 26
4.1 Introduction .................................................................................................................................. 26
4.2 Preliminary NCC Compatibility Review of Physical Risks .............................................................. 27
4.2.1. Objectives .................................................................................................................................. 27
4.2.2. Approach ................................................................................................................................... 27
4.3 Preliminary NCC Compatibility Review of Transition Risks........................................................... 28
4.3.1. Objectives .................................................................................................................................. 28
4.3.2. Approach ................................................................................................................................... 28
5. RESILIENCE TO PHYSICAL CLIMATE RISKS....................................................................................... 34
5.1 Definition of Physical Risk ............................................................................................................. 34
5.2 Physical Risk Screening ................................................................................................................. 35
5.2.1. Climate Hazard .......................................................................................................................... 35
5.2.2. Sector Vulnerability ................................................................................................................... 36
5.3 Physical Risk Assessment .............................................................................................................. 37
5.4 Physical Risks Management .......................................................................................................... 39
6. RESILIENCE TO TRANSITION RISKS ................................................................................................. 42
6.1 Introduction .................................................................................................................................. 42
6.2 Definition of Transition Risk.......................................................................................................... 42
6.3 Approach....................................................................................................................................... 43
6.4 Transition Risk Screening .............................................................................................................. 44
6.4.1. Sectoral considerations ............................................................................................................. 44
6.4.2. Jurisdictional considerations ..................................................................................................... 46
6.5 Transition Risk Assessment ........................................................................................................... 47
6.5.1. Transition risk assessment approach ........................................................................................ 48
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6.5.2. Scenario analysis considerations ............................................................................................... 49
6.5.3. Documentation of the Transition Risk Assessment ................................................................... 50
6.6 Transition Risks Management ...................................................................................................... 52
LIST OF ABBREVIATIONS ....................................................................................................................... 57
ANNEX 1 DATA REFERENCES FOR SECTOR VULNERABILITY ................................................................. 58
ANNEX 2 ADDITIONAL GUIDANCE ON CLIMATE CHANGE DATA PROCUREMENT AND
ASSESSMENT ......................................................................................................................................... 59
ANNEX 3 EXAMPLE SCENARIO ANALYSIS TABLES................................................................................. 70
ANNEX 4 LIST OF REFERENCES AND SOURCES ..................................................................................... 74
TABLE OF TABLES
Table 2-1: Summary of CCRA Implementation Requirements Under EP4 16
Table 4-1: Overview of Preliminary NCC Compatibility Review of transition risks 29
Table 4-2: Specific Assessment Criteria for Conditional Projects 32
Table 5-1: Definition of risk components as per IPCC AR6 35
Table 5-2: Example of typical sector sensitivities for Electricity Transmission and Distribution 36
Table 5-3: Physical climate change risk factors and financial risks 38
Table 5-4: Physical climate change risk factors and management considerations 40
Table 6-1: Overview of CCRA transition approach 43
Table 6-2: Transition risk factors and screening considerations. 45
Table 6-3: Transition Risk Assessment checklist. 47
Table 6-4: Transition Management Plan checklist. 53
Table 6-5: Transition risk factors and management considerations. 53
Table A3-1: Example transition screening checklist 71
Table A3-2: Example of qualitative transition scenario analysis. 72
TABLE OF FIGURES
Figure 1.1: Structure of the Guidance Note on CCRA 3
Figure 2.1: Double materiality 11
Figure 3.1: Climate Change Resilience Process 21
Figure 3.2: Financing Lifecycle, Project Lifecycle and Climate Change Resilience Process
Requirements 25
Figure 4.1: Levels of alignment with national and international climate goals. 29
Figure 4.2: Preliminary NCC compatibility review. 30
Figure A2.1: Global surface temperature change relative to 1850-1900. Source: AR6 IPCC report. 68
TABLE OF BOXES
Box 1-1: Who is this Guidance Note on CCRA intended for? 1
iii MAY 2023

Box 1-2: Key definitions 2
Box 2-1: Project Categorisation 7
Box 2-2: Greenhouse Gas Quantification and Reporting 8
Box 2-3: Paris Agreement 13
Box 2-4: National Climate Commitments 14
Box 4-1: Project’s NCC Alignment (Physical Risks) 27
Box 6-1: Scenario Analysis Requirements 50
Box 6-2: Documenting the transition risk assessment and outputs - suggested report structure 51
Box A2-1: Examples of Physical Risk 60
iv MAY 2023
PREAMBLE
The adoption of the Equator Principles (EPs) ensures that the financing of Projects is developed in a
manner that is socially responsible and reflects sound environmental management practices, while
negative impacts on Project-affected ecosystems, communities, and the climate are avoided where
possible. This document provides guidance to support the development of Climate Change Risk
Assessments (CCRA) as required under Principle 2 of the fourth version of the EPs dated July 2020
(EP41).
In line with EP4, Equator Principles Finance Institutions (EPFIs) support the objectives of the 2015 Paris
Agreement on climate change and recognise that they have a role to play in improving the availability
of climate-related information, such as the Recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), when assessing the potential transition and physical risks of Projects
financed under EP4.
This note provides guidance to support the understanding and implementation of the CCRA
requirements under EP4 and replaces the earlier EP Association (EPA) Guidance Note on Climate
Change Risk Assessment dated September 2020.
The guidance and templates provided in this document are intended to be read in conjunction with
other available guidance and resources available on the EPA website.
1 The Equator Principles_EP4_July2020 (equator-principles.com)
v MAY 2023
1. INTRODUCTION
1.1 Purpose of the Guidance Note on CCRA
The purpose of this Guidance Note on CCRA is to support the implementation of the requirements
contained in EP4 in relation to CCRA as defined under “Principle 2: Environmental and Social
Assessment” and “Annex A: Climate Change: Alternatives Analysis, Quantification and Reporting of
Greenhouse Gas Emissions” of EP4. This guidance note is not intended to establish new principles or
requirements beyond EP4 but rather provides good practice guidance on the development of CCRA
under EP4.
This Guidance Note replaces the earlier EPA Guidance Note on Climate Change Risk Assessment
(September 2020) and has been developed to reflect:
I. Recent developments in the global understanding of, and approach to, managing climate
change risks, with consideration of a ‘double materiality’ approach (i.e. addressing the climate
change-related risks/impacts both from, and to, the Project);
II. New regulatory standards and/or other relevant initiatives that may be relevant, including but
not limited to prudential regulations; and
III. Experience gained from the practical implementation of CCRA in the context of EP4
compliance.
The Guidance Note is intended for use by EPFIs, Borrowers/Clients/Project Sponsors (hereafter
referred to as ‘Clients’), their consultants and individuals seeking further information on what good
practice is regarding CCRA (see Box 1-1).
Box 1-1: Who is this Guidance Note on CCRA intended for?
• EPFIs during their internal assessment of climate change risks as part of the financing of Projects,
including review of Project CCRAs developed by Clients.
• Clients and their consultants undertaking Project CCRAs for Projects seeking financing.
• Lender consultants supporting EPFIs in the review of Project CCRAs.
• Other stakeholders seeking further information on good practice on CCRA in Project financing.
1 MAY 2023
1.2 Definitions of Climate-related Risks and Opportunities
Whilst there are a number of definitions of climate change, for clarity this Guidance Note uses and
assumes the definition adopted by the IPCC.
The definitions of climate-related risks and climate-related opportunities have been adopted from the
Recommendations of Task Force on Climate-Related Financial Disclosures 2 (TCFD) published on 15
June 2017 (see Box 1-2 below). The TCFD was created in 2015 by the Financial Stability Board to
develop consistent climate-related financial risk disclosures for use by companies, banks and investors
in providing information to stakeholders.
Box 1-2: Key definitions
Climate-related risk refers to the potential negative impacts of climate change on a Project.
Physical risks emanating from climate change can be event-driven (acute), such as increased severity of
extreme weather events (e.g., cyclones, droughts, floods, heat waves and fires). They can also relate to
longer-term shifts (chronic) in precipitation and temperature and increased variability in weather patterns
(e.g., sea level rise) (these are discussed in more detail in Section 5.1).
Climate-related risks can also be associated with the transition to a lower-carbon global economy
(transition risks), the most common of which relate to policy and legal actions, technology changes,
market responses and reputational considerations. Examples include, inter alia, shifts in market demand
or customers segments, competition from low-carbon technologies, more stringent regulatory mandates
(refer to Section 6.2 for more details).
Climate-related opportunity refers to the potential positive impacts related to climate change on an
organization. Efforts to mitigate and adapt to climate change can produce opportunities for organizations,
such as through resource efficiency and cost savings, the adoption and utilization of low-emission energy
sources, the development of new products and services, and building resilience along the supply chain.
Climate-related opportunities will vary depending on the region, market, and industry in which an
organization operates. Refer to Section 2.2.2 below.
The nature of risks and the approach to defining materiality are discussed in Section 2.1.3, as part of
the Requirements and Applicability section (Section 2).
1.3 Guidance Note Structure
This Guidance Note is structured in six sections as showed in Figure 1.1. The annexes attached to this
document comprise good practice guidance.
2 https://www.fsb-tcfd.org/recommendations/
2 MAY 2023
INTRODUCTION REQU IREMENTS AND APPLI CABIL ITY
• Purpose of the Guidance Note on CCRA • Climate Change-Related Requirements and Commitments under EP4
• Definitions of Climate-related Risks and • Applicability
Opportunities
• Guidance Note Structure
CCRA GUIDANCE APPROACH RESILIENC E TO PHYSI CAL C LIMATE RISKS
• Objective of CCRA • Definition of Physical Risk

• Overview of CCRA Framework • Physical Risk Screening
• Governance, Management and PRELIMINARY NCC COMPATIBILITY REVIEW • Physical Risk Assessment
Monitoring • Physical Risks Management
• Timing of the CCRA
• Introduction
• Preliminary National Climate Commitments
Compatibility Review of Physical Risks RESILIENC E TO TRANSITION RISKS
• Preliminary National Climate Commitments
Compatibility Review of Transition Risks
• Introduction
• Definition of Transition Risk
• Transition Risk Screening
Annex 1: Data References for Sector Vulnerability
• Transition Risk Assessment
Annex 2: Additional Guidance on Climate Change Data Procurement and Assessment
• Transition Risks Management
Annex 3: Example Scenario Analysis Tables
Annex 4: List of References and Sources
Figure 1.1: Structure of the Guidance Note on CCRA
3 MAY 2023
2. REQUIREMENTS AND APPLICABILITY
2.1 Climate Change-Related Requirements and Commitments under EP4
2.1.1. General Requirements
The primary specific climate change-related requirements and commitments defined in EP4 are as
follows:
EP4 EPFIs:
Preamble
• “believe that negative impacts on … the climate should be avoided if at all possible”
• “support the objectives of the 2015 Paris Agreement”
• “recognise that EPFIs have a role to play in improving the availability of climate-
related information, such as the Recommendations of the Task Force on Climate-
related Financial Disclosures (TCFD) when assessing the potential transition and
physical risks of Projects financed under the Equator Principles”
Principle 1 Categorisation of in-scope Projects should be “based on the magnitude of potential

environmental and social risks and impacts, including those related to … climate
change …”
Principle 2 Requirement for CCRA:
• Clients are expected “to include assessments of potential adverse …. climate

change risks as part of the ESIA or other Assessment”.
• The Climate Change Risk Assessment should be aligned with Climate Physical Risk
and Climate Transition Risk categories of the TCFD.
• Project Categories subject to a CCRA of physical risks (as defined by TCFD) are set;
and thresholds (i.e. combined Scope 1 and Scope 2 emissions) are also defined for
the inclusion in the CCRA of: 1) climate transition risks (as defined by TCFD); and
2) an alternatives analysis evaluating lower Greenhouse Gas (GHG) intensive
alternatives.
Requirements under the International Finance Corporation (IFC) Performance

Standards (PS), which underpin Principle 2 for Non-Designated Countries and may be
used as benchmarks for Designated Countries, include:
• PS1 Guidance Note states that the Clients’ “risks and impacts identification process
will consider the emissions of greenhouse gases, the relevant risks associated with
4 MAY 2023
a changing climate and the adaptation opportunities, and potential transboundary
effects.”
• PS3 states that Clients should “consider alternatives and implement technically
and financially feasible and cost-effective options to reduce Project-related GHG
emissions during the design and operation of the Project” and for Projects that are
expected to produce more than 25,000 tonnes of CO2-equivalent annually, the
Client to quantify “direct emissions from the facilities … as well as indirect
emissions associated with the off-site production of energy used by the project”.
Principle 10 For all Category A and, as appropriate, Category B Projects, the Client will:
• “ensure that, at a minimum, a summary of the ESIA is accessible and available

online and that it includes a summary of …. climate change risks and impacts when
relevant”
• “report publicly, on an annual basis, GHG emission levels (combined Scope 1 and
Scope 2 Emissions, and, if appropriate, the GHG efficiency ratio) during the
operational phase for Projects emitting over 100,000 tonnes of CO2 equivalent
annually”
EP4 Annex A Provides detailed requirements underpinning support Principles 2 and 10 in relation
to:
• GHG alternatives analysis
• GHG Quantification
• CCRA
Further elaboration on key elements of these requirements/commitments is provided in the following

sub-sections.
2.1.2. CCRA-Specific Requirements
Overview
EP4 Principle 2 sets out the expectation that the Client includes an assessment of climate change risks
as part of the ESIA3 or other Assessment, with these included in the Assessment Documentation. The
Client should align the CCRA with Climate Physical Risk and Climate Transition Risk categories of the
TCFD (see Box 1-2).
3 See also EPA Guidance Note: On ESIA Scope of Work, July 2022 [Annex 4 - Ref 22]
5 MAY 2023
Under EP4 Principle 2 a CCRA is required as follows:
• Physical CCRA – For all Category A and, as appropriate, Category B Projects, and will include
consideration of relevant physical risks.
• Transition CCRA and alternatives analysis - For all Projects, in all locations, when combined
Scope 1 and Scope 2 emissions are expected to be more than 100,000 tonnes of CO2
equivalent annually (100ktpa CO2-eq). Consideration must be given to relevant Climate
Transition Risks (as defined by the TCFD) and an alternatives analysis completed which
evaluates lower GHG intensive alternatives.
Applicability of these requirements is further discussed in Section 2.2.
The depth and nature of the CCRA will depend on the type of Project, as well as the nature and severity
of the risks (see Section 2.1.3 for further guidance on materiality of risks). EP4 Annex A requires that
the CCRA should address the following questions at a high level:
• What are the current and anticipated climate risks (transition and/or physical) of the Project’s
operations?
• Does the Client have plans, processes, policies and systems in place to manage (i.e., to
mitigate, transfer, accept or control) these risks?
EP4 Annex A further requires that the CCRA should also consider the Project’s compatibility with the
host country’s National Climate Commitments (NCC) as appropriate, and this is further discussed in
section 2.1.4.
When evaluating a CCRA the EPFI should ensure that the risks identified in the CCRA are aligned with
the physical and transition risk categories identified by the TCFD Recommendations (see also Box 1-2).
Physical CCRA
Determination of whether a Physical CCRA is required under EP4 is based the categorisation of the
Project as defined under Principle 1; these categorisation criteria are as shown in Box 2-1.
6 MAY 2023
Box 2-1: Project Categorisation
EPFI's environmental and social due diligence should be proportionate to the categorised level of
environmental and social risks and impacts, including those related to climate change of the Project in
review. Such categorisation is based on the IFC environmental and social categorisation process, which
divides Projects into the following three categories:
Category A: Projects with potential significant adverse environmental and social risks and/or
impacts that are diverse, irreversible or unprecedented
Category B: Projects with potential limited adverse environmental and social risks and/or impacts
that are few in number, generally site-specific, largely reversible and readily
addressed through mitigation measures
Category C: Projects with minimal or no adverse environmental and social risks and/or impacts.
It is highly recommended that the susceptibility of projects to physical climate change risks is considered as
part of the categorisation process.
Applicability of the requirements for provision of Physical and Transition CCRA in respect to the project
categorisation is further discussed in Section 2.2.1.
Transition CCRA and GHG Assessment
Determination of whether a Transition CCRA and GHG Alternatives Analysis is required under EP4 is
based on whether the project’s combined Scope 1 and 2 GHG emissions exceed 100ktpa CO2-eq.
In order to make this determination, GHG emissions should be calculated in line with the GHG
Protocol4 to allow for aggregation and comparability across Projects, organisations and jurisdictions.
Where appropriate and possible, it is good practice to assess Scope 3 GHG emissions to understand
better the Project settings in regard to the overall value chain (i.e. upstream and downstream), and
therefore select one of the best alternatives from the GHG emissions perspective.
Box 2-2 provides more information on GHG quantification and reporting according to the GHG
Protocol.
4 GHG Protocol. Available from https://ghgprotocol.org/
7 MAY 2023
Box 2-2: Greenhouse Gas Quantification and Reporting
The GHG Protocol provides guidance for accounting and reporting of seven greenhouse gases (carbon
dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs),
sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)). The emissions of each GHG type are calculated
separately and then converted into CO2 equivalents (CO2-eq) based on their global warming potential.
The GHG Protocol categorises GHG emissions into the following three broad scopes:
Scope 1: Direct GHG emissions from owned or controlled sources, i.e. fuel combustion and fugitive
emissions;
Scope 2: Indirect GHG emissions from the use of purchased electricity, heat or steam; and
Scope 3: Other indirect emissions, such as the extraction and production of purchased materials
and fuels, transport-related activities in vehicles not owned or controlled by the
reporting entity, electricity-related activities not covered in Scope 2, outsourced
activities, waste disposal, etc.
It should be noted that GHG emissions estimates may not be sufficiently certain at the feasibility or
even the Front-End Engineering & Design (FEED) stages of a Project to fully confirm whether or not
the GHG emission threshold may be exceeded. In such cases it is prudent that a precautionary
determination is taken at these early Project stages; this may then be revised as the Project detailed
design evolves. The Lenders’ Independent E&S Consultant (IESC) should be requested to review the
scope and methodology used by the Client to confirm the validity of the predicted GHG emissions
during these phases of the Project development.
Once in operation, for Projects with predicted GHG emissions above 100ktpa CO2-eq the Client is
required to report their annual GHG emissions (see also Section 2.1.4). In such cases it is preferable
that the GHG emissions are subject to formal third-party verification and, where this is not
undertaken, it is recommended that as a minimum the IESC’s scope of work includes not only
monitoring of compliance with the disclosure reporting requirements but also detailed review of the
reported annual GHG emissions, especially during the initial years of operation.
In determining the depth and scope of the Transition CCRA, the nature and severity of the potentially
material transition risks should be considered. This should take into account both impact materiality
and financial materiality perspectives (see Section 2.1.3 below).
8 MAY 2023
GHG Alternative Analysis
As defined in EP4 Annex A, the GHG alternatives analysis should cover:
• Evaluation of technically and financially feasible and cost-effective options available to reduce
Project-related GHG emissions during the design, construction and operation of the Project
(e.g., product changes to use of low-carbon fuels, reduce material use, sustainable agricultural
practices, material recycling, use of cement additives5 or changes of business operations) (also
a requirement under IFC PS3).
• For Scope 1 emissions, determination of the best practicable environmental option (this may
be supported by reference to relevant IFC Environmental Health and Safety (EHS) sectoral
guidelines and other Good International Industry practice (GIIP)) and will include
consideration of alternative fuel or energy sources if applicable.
• For Projects in high carbon intensity sectors6, the GHG alternatives analysis will include
comparisons of the selected technology to other viable technologies used in the same industry
sector and in the country or region, including energy efficiency and GHG intensity ratios, as
appropriate.
The selected alternative needs to balance optimising GHG-intensity, with economically viability and
avoiding/minimising impacts to other environmental and social (E&S) aspects.
In some cases, the GHG alternatives analysis may need to be re-visited to ensure that it remains valid
as the design moves through the lifecycle from feasibility through to FEED and then final detailed
design. Where detailed design is to be completed after signing the loan agreement, it is recommended
that a commitment to follow key design options and parameters selected on base of available GHG
alternatives analysis output is included into the loan documentation, and its realisation is monitored
through the project implementation.
The Equator Principles Action Plan (EPAP) should include actions to:
• Verify that the final detailed design, once completed, aligns with the agreed design
requirements and the GHG alternative analysis outcome.
• Ensure that the operational management plan includes commitments to ongoing compliance
with the agreed design parameters (e.g. emissions standards, GHG efficiency ratios etc.).
5 See also IFC Guidance Note 3: Resource Efficiency and Pollution Prevention, 2012. https://www.ifc.org/wps/wcm/connect/9fc3aaef-
14c3-4489-acf1-a1c43d7f86ec/GN_English_2012_Full-Document_updated_June-14-2021.pdf?MOD=AJPERES&CVID=nXqnsJp
6 As per EP4 Annex A, high carbon intensity sectors indicatively include but are not limited to the following: oil and gas, thermal power,
cement and lime manufacturing, integrated steel mills, base metal smelting and refining, and foundries, pulp mills and potentially
agriculture.
9 MAY 2023
• Confirm that relevant agreed design parameters are achieved in the as-built Project as part of
lenders reliability testing where applicable.
2.1.3. Defining Materiality
Materiality of risks and opportunities should form an essential part of the CCRA process, and should
drive decisions on if and how a risk or opportunity should be addressed as part of the Project design,
strategy, business and financial planning, as well as in the corresponding management plans as
relevant. The consideration of materiality for climate-related risks by Clients should be consistent
with the consideration of materiality in financial filings and business planning.
For the purposes of this guidance, a climate-related risk or opportunity is material for the Project, and
required to be considered within the CCRA, if there are associated significant financial risks or if it
poses impacts in terms of either:
• The risk that climate change may have on the financial performance of the Project through
physical and/or transition impacts on financial position and cash flows (i.e. Financial
Materiality).
• The climate-related impacts to society and the environment posed by the Project in terms of
GHG emissions and any incompatibilities with the NCC (i.e. Impact Materiality). In addition,
the Client also needs to consider the potential for the Project to exacerbate direct climate
change impacts to infrastructure, environment, economy and society within the project's
direct Area of Influence; such wider impacts may be addressed either specifically as part of
the CCRA or elsewhere in the ESIA.
Information is considered material for lenders if, as part of the set of information used for decision-
making, it can be reasonably expected to have the ability to influence decisions they make on the basis
of the anticipated climate/ESG performance, reputational risk and credit risk of the Project.
10 MAY 2023
Figure 2.1: Double materiality
This ‘double materiality’ principle is incorporated into this guidance through the preliminary NCC
compatibility review and GHG assessment (refer to Sections 2.1.2, 2.1.4. and 4) and the climate
resilient Project design and strategy (TCFD) review (refer to sections 5 & 6; see also Figure 3.1) as
follows:
• The preliminary NCC compatibility and GHG assessment review enable the consideration of
impact materiality (i.e. Project impacts on climate mitigation and adaptation for the host
country and on global decarbonisation efforts, with direct and indirect effects on
infrastructure, economy, people and the environment), in that:
▫ The Project compatibility and contribution to: 1) decarbonisation goals; and 2)
national, regional or local adaptation plans or resilience of the wider system in
question, are assessed. This enables the reduction of carbon lock-in7 and climate
vulnerability risks for the Client and host country at national and local levels, and
general alignment with the Nationally Determined Contribution (NDC) and Long Term
Strategies (LTS).
7 Carbon lock-in occurs when the systemic transformations required to achieve a rapid reduction of regional and global CO2 emissions in
line with climate targets are prevented or delayed due to committed greenhouse gas emissions. The long-life of physical infrastructure
can lock societies into carbon-intensive pathways, adding difficulty and costs to the transition to low-carbon alternatives. These assets
can also result in substantial sunk costs given their long lead times. See e.g. Seto et al., (2016) and Stoddard et al., (2021).
11 MAY 2023
▫ In turn, this process reduces reputational risks for the EPFIs (potentially beyond the
loan tenure, over the Project lifecycle), thus mitigating potential financial impacts
associated to their brand (see financial materiality below for consideration of
reputational impacts on the financial performance of the Project and their associated
credit risk).
• The climate resilient Project design and strategy (TCFD alignment) process has a focus on
financial materiality (i.e. financial risk for the Project driven by its exposure to, and
management of, climate related risks), in that:
▫ This approach enables Clients to identify and manage known and potential impacts
that pose a financial material risk or opportunity to the Project over the short-,
medium- and long-term (e.g. can impact cash flows, development or performance),
and which arise either from the transition to a low carbon economy or from climate-
related hazards. Key to this process is the identification of financial drivers – will the
risk or opportunity pose an impact on Project revenues, costs, value of
assets/liabilities, cost of/access to finance – and associated transmission channels
(e.g. operational disruption, supplier disruption, price volatility of critical materials,
energy and carbon costs, policy mandates, technological disruption, introduction of
new business models, shift in consumer preferences, or reputational considerations).
▫ In turn, this process enables EPFIs to assess and manage credit risks based on the
anticipated impacts of climate-related risks and opportunities on the financial
performance of the Project over the term of the loan.
The materiality of a Project is context specific and, as such, a materiality assessment should be
conducted and documented as part of the climate risk assessment process in order to identify those
climate related risks and opportunities that are known to (or can potentially) be material (individually
or in aggregate over the CCRA time horizon, or in a cumulative way in conjunction with other Project
risks).
The assessment of the materiality of climate-related risks (and opportunities) for a Project (i.e.
materiality assessment) is used to identify the need for management actions to reduce the severity
and likelihood of risks, as well as to ‘filter in’ the information that is relevant to stakeholders. Crucially,
whilst health and safety considerations – risks on assets, infrastructure and people – are included
within the scope of the physical CCRA, these risks are not necessarily assessed in quantitative or
monetary terms. Therefore, in assessing the Project materiality, consideration should be given to the
financial thresholds above which the Project operation could be significantly impacted and the
potential significance of the impact, along with other broader qualitative or quantitative thresholds,
including but not limited to reputational, social, health and safety, legal/regulatory and operational
considerations.
12 MAY 2023
2.1.4. Compatibility with National Climate Commitments
In line with EP4 Annex A, the CCRA should take “into consideration” the Project’s “compatibility” with
the NCC of the host country8. For countries that are party to the 2015 Paris Agreement, the NCC
therefore link to commitments made under the agreement including NDC and, if submitted, LTS, as
well as any other nationally developed commitments. In addition, the Preamble to EP4 states that
EPFIs “support the objectives” of the 2015 Paris Agreement. Where Projects are located in one of the
(small number of) countries that are not party to the Paris Agreement, and where other NCCs are not
available, EPFIs may nonetheless wish to assess the Project for compatibility with the general sectoral
objectives set in line with the Paris Agreement. Further details on the NCC and the 2015 Paris
Agreement are provided in Box 2-3 and Box 2-4
Box 2-3: Paris Agreement
The Paris Agreement is a binding international treaty on climate change adopted in 2015 at the twenty-
first Conference of the Parties (COP 21) in Paris. 196 Parties adopted the treaty with the goal to limit
global warming to well below 2°C, preferably to 1.5 °C, compared to pre-industrial levels, as well as
building climate resilience to adapt to the increased impacts of climate change.
Implementation of the Paris Agreement requires economic and social transformation. In a five-year cycle,
each Party is required to submit their increasingly ambitious national climate commitments.
Paris Alignment refers, amongst other aspects, to the alignment of public and private financial flows with
the goals of the Paris Agreement to strengthen the global response to the threat of climate change. Article
2.1c of the Paris Agreement establishes that financial flows must be consistent with a pathway to low GHG
emissions and climate resilient development.
8 The requirement to assess the significance of climate change risks in the context of national commitments and policy goals is also consist
with other available good practice, such as IEMA’s Guide: Assessing Greenhouse Gas Emissions and Evaluating their Significance.
13 MAY 2023
Box 2-4: National Climate Commitments
Since 2015, countries that are parties to the Paris Agreement are required to submit a national climate
action plan known as Nationally Determined Contribution (NDC). Countries are also invited to submit
Long-term Strategies (LTS) towards a low-carbon economy, although these are not mandatory.
NDCs submitted under the Paris Agreement, are the main channel for countries to publicly state their self-
defined ambitions in setting long-term decarbonisation targets to keep global temperature rise below 1.5
degrees and to set goals on enhancing climate resilience.
Each country that has ratified the Agreement must submit their NDCs to the United Nations Framework
Convention on Climate Change (UNFCCC) secretariat every five years. These must represent a progression
compared to the previous NDC and reflect its highest possible ambition.
LTS set long-term deadlines, or concrete timeframes and is a central component of national climate
planning.
NDCs and LTSs include targets, measures and policies and are the basis for national climate action plans,
programmes and policies.
Within this guidance, compatibility against the NCC is assessed by categorising Projects as 'Aligned’,
'Not Aligned' or 'Conditional'. Definitions for these terms and the Preliminary NCC Compatibility
Review approach are outlined in Section 49.
2.1.5. Responsibilities for NCC Compatibility Review and CCRA Development
Ultimate responsibility for the development of the Project CCRA (NCC compatibility review, physical
and transition risk screening and full risk assessment) rests with the Client. In the event that the EPFI
is engaged prior to the development of the ESIA documentation for the Project, the EPFI may wish to
recommend the CCRA be included in the scope of work for the Project Sponsor’s consultant
undertaking the ESIA (see also EP4 Exhibit II10 and EPA guidance on ESIA Scope of Work [Annex 4 - Ref
22]), and that engagement takes place at the Project inception stage to inform the NCC compatibility
review and physical and transition risk screening, for an early and cost-effective management of risks
and opportunities.
The Client may seek support from its designers, ESIA consultant, other specialist consultancies support
to develop the Project CCRA, although it is important such consultants engage with all relevant
9 In assessing ’compatibility with NCC’ EPFIs may wish to adopt a broader test of the project ’not being inconstant with NCC’ to recognise
that NCC climate adaptation resilience policies and strategies are not always included, comprehensive or exhaustive and cannot be
expected to cover all potentially valid climate adaptation priorities.
10 Please also refer to Equator Principles 4 Exhibit II (Illustrative list of potential environmental and social issues to be addressed in the ESIA
documentation), which includes consideration of climate risks and adaptation opportunities.
14 MAY 2023
disciplines with the Client team (including, for example, operational management and engineering
design teams).
In selecting consultancy support, the Client needs to consider whether the Project-specific
requirements of the CCRA are wholly within the capabilities of an individual consultancy and the Client
may seek to secure certain specific skills and experience on the consultant team to assist in ensuring
an appropriate quality CCRA, such as:
• Deep understanding of climate change science, associated risks and impacts;

• Knowledge of factors impacting climate change vulnerability and resilience;
• Understanding of the potential risk that the transition to a low-carbon economy can pose to
the project technology and business model, beyond carbon considerations;
• Experience of applying forward looking scenario analysis for physical and transition risk;
• Experience in carrying out localized climate risk assessments for high-risk infrastructure;
• Experience developing climate change-related mitigation and adaptation strategies; and
• Experience in catastrophe modelling tools, as well as exposure and vulnerability assessments.
The CCRA should also be reviewed by the IESC on behalf of the EPFI (see also EPA Guidance Note: On
Section and Scope of Work (SoW) for the Lender’s IESC, July 2022 [Annex 4 - Ref 23]11). In some
situations, review of the CCRA and GHG alternatives analysis by the IESC may be strengthened by
liaison with the Lenders’ Market Advisor (LMA – in relation to transition risks), the Lenders’ Technical
Consultant (LTA – in relation to physical risks and GHG alternatives) and/or insurance adviser (in
relation to physical risks). Review of the CCRA should take due account of this guidance note.
Consideration during the review will also need to be given to alignment with any lender-specific
climate-related policies.
Where a Project meets the criteria to produce a CCRA, but the Client lacks the technical capability to
produce such an assessment, it may be pragmatic for the IESC to undertake a CCRA screening to
determine whether there are any likely significant risks. Where significant risks are identified, then a
requirement should be placed on the Client to engage the necessary expertise to develop a detailed
CCRA; where the Client cannot identify suitable external expertise then as a last resort the IESC, with
support from the other lender advisors, may be requested to undertake the CCRA. However, in such
case it is imperative that the Client fully collaborates with the process and commits to the
implementation of any recommendations that the CCRA may provide.
2.1.6. Client Disclosure Requirements
EP4 Principle 10 requires the Client to ensure that, at a minimum, a summary of the ESIA is accessible
and available online and that it includes a summary of the Project’s climate-related risks and the
11 https://equator-principles.com/app/uploads/PUBLIC-Guidance_Selection-and-SoW-for-IESCs.pdf
15 MAY 2023
potential impacts of the identified risks12. The timing of this disclosure should be such that it supports
meaningful engagement with stakeholders and should also occur prior to loan signing.
Principle 10 also requires the Client to report publicly, on an annual basis, GHG emission levels
(combined Scope 1 and Scope 2 Emissions, and, if appropriate, the GHG efficiency ratio) during the
operational phase for Projects emitting over 100ktpa CO2-eq . It is also good practice to disclose Scope
3 GHG emissions under available upstream and downstream categories as defined by GHG Protocol.
Where applicable, the public reporting requirement should be embedded within the loan
documentation and/or EPAP, with appropriate agreed methods of quantification (see Section 2.1.2.
and Box 2-2 for details) and disclosure.
Furthermore, in order to improve strategy and efficiency of managing climate-related risks, enhance
transparency and reduce reputational risks for the project, development and disclosure of TCFD
reports are also recommended as good practice, if applicable.
2.2 Applicability
2.2.1. Applicability of Requirements on Physical and Transition CCRA
A summary of when physical and transition CCRA (and GHG alternatives analysis) respectively are
required under EP4 for in-scope transactions is provided in Table 2-1.
Table 2-1: Summary of CCRA Implementation Requirements Under EP4

Transition Climate Change Risk Assessment Thresholds Requirements
OVERALL CCRA
Project’s Scope 1 and Scope 2 GHG Project’s Scope 1 and Scope 2 GHG
IMPLEMENTATION
emissions are expected to exceed emissions are expected to be less than
REQUIREMENT
100kpta CO2-eq 100kpta CO2-eq
GHG Emissions Assessment
Project Categorisation
Physical CCRA GHG Emissions Assessment

Category A
Transition CCRA Physical CCRA
GHG Emissions Assessment
Physical CCRA GHG Emissions Assessment
Category B
Transition CCRA Physical CCRA
EP4 recognises that the level of potential E&S and financial risks and impacts within Projects classified
as Category B may vary. Therefore, higher risk Category B Projects will be treated similarly to Category
12 Except in Project-Related Refinance and Project-Related Acquisition Finance.
16 MAY 2023
A Projects, and lower risk Category B Projects could be treated in a lighter manner. In determining
whether a Physical CCRA is “appropriate” for a Category B Project consideration should be given
whether it is of generally higher or lower E&S risk and, more specifically, whether by its nature and/or
location may be susceptible to climate-related physical risks, and therefore poses a financial risk to
the client and EPFI. EPFIs may also wish to consider susceptibility to physical climate change risks as
part of the categorisation process.
While Transition CCRAs are required for all Projects where combined Scope 1 & 2 CO2-eq emissions
exceed 100ktpa regardless of categorisation, EPFIs may wish to use this threshold as an indication that
the Project should be considered as Category A or, as a minimum, Category B higher risk and cannot
be considered under Category C.
Furthermore, it should be noted that some projects may have limited (less than 100tkpa) Scope 1 and
2 Project emissions but be inextricably linked to broader sectoral or associated facilities’ transition
risks (examples may include gas pipelines, support facilities to the O&G sector, etc.). In such cases,
the EPFI may decide it prudent for a transition CCRA to be developed.
High-level screening at an early stage is required to support such determination of the CCRA scope
under discussion (see also Sections 3.3 and 3.4 for appropriate timing). In addition, a preliminary
review of the level of compatibility of a Project with the host country’s NCC (and by extension
alignment with the Paris Agreement as appropriate), may also be used by EPFIs when determining
whether a CCRA would be beneficial from a risk management perspective. Such preliminary review
may also be used to inform the scope and nature of the CCRA – see also Section 4 for discussion.
2.2.2. Applicability for sovereign loans
The recommendations on the CCRA approach and methodology given in this Guidance Note are
primarily developed on project finance and project development cycle (see Figure 3.2). However, the
same approach can and should be employed for sovereign and corporate project-related loans as
appropriate under the requirements of EP4. In the case of sovereign loans, it should be noted that
many national and regional level investments have high sensitivity to climate change with potentially
very significant socio-economic and environmental consequences.
For sovereign loans, the assessment of financial risks for the Project (i.e., financial materiality/credit
risks), including those associated with climate change risks as defined under the TCFD, may be of less
relevance to EPFIs. However, risks to the environment, economy and society (i.e., impact
materiality/reputational) can still be relevant and material (refer to Section 2.1.3). In such cases, EPFIs
may determine that the full CCRA requirements may not be applicable from a financial risk
management perspective. However, even in such cases: (i) physical climate risks should still be
considered as appropriate in line with broader ESIA / IFC PS1 requirements; and (ii) consideration of
transition risks may still be relevant in terms of, for example, reputational risk management
17 MAY 2023
commitments and/or project(s) alignment and compatibility with the host country’s national climate
commitments.
In addition, it is often the case on sovereign loans that an Independent Technical Consultant has not
been appointed. Where this is the case and potential physical risks are identified, EPFIs should ensure
that the IESC has sufficient capability and mandate in their scope of work to adequately review the
project(s) design and, if appropriate, operational manuals and corporate processes to ensure that
climate change risks and their management have appropriately been addressed.
18 MAY 2023
3. CCRA GUIDANCE APPROACH
3.1 Objective of CCRA
The overall aim of the CCRA is to ensure the availability of climate-related information to help
individuals and organisations making climate-resilient decisions and to do so in line with the
requirements set out in EP4 Principle 2 and Annex A.
The objectives of a CCRA are to identify and assess material13 climate-related risks to a Project (and
hence to the EPFIs) from the early stages of its development in order to most effectively minimise and
manage the potential impacts, risks and opportunities over its lifecycle (considering the Project
implementation stages from feasibility to decommissioning). Assessments adapted to the specific
local context as well as the Projects’ own design and operation plans are vital to effective
management. Early identification and continuous management of climate-related impacts, risks and
opportunities for incorporation into Project design and business strategies are central to effective,
timely and cost-efficient management of climate change risks (see also Section 3.3). Further guidance
on the assessment of materially of Project resilience risks within the CCRA is provided in 2.1.3.
3.2 Overview of CCRA Framework
A two-phased approach to the CCRA is proposed comprising the following components (refer to
Section 2.1.5 for an overview of responsibilities):
1. A preliminary review of the Project’s compatibility with host country NCCs, including as
appropriate NDCs, LTS and Paris Agreement objectives, with compatibility framed in the
context of ‘Aligned’, ‘Conditional’ or ‘Unaligned’ (see Section 2.1.4). This preliminary review
may be used by EPFIs in conjunction with applicability criteria described in Section 2.2 to
determine whether they consider a Physical and/or Transition CCRA is/are required, and, if
so, to inform the scope and nature of the required CCRA.
2. Development of Project Resilience to Physical and/or Transition Climate Risks (under
categories in line with TCFD recommendations), as relevant, through a staged CCRA process
of screening/scoping; risk assessment; and risk management. The assessment of the Project’s
compatibility with the NCC will be further elaborated and confirmed through the CCRA
process based on the outcome of the risk assessment.
Each of these phases is undertaken for both Physical and Transition risks, and this framework is
summarised in Figure 3.1. The right-hand side of the figure shows the adaptation to climate change
13 refer to Section 2.1.3 for defining materiality
19 MAY 2023
by assessing physical risks and is further described in Section 5, while the left hand side shows climate
change mitigation by assessing transition risks and is further described in Section 6.
See additional references in Annex 4 for further information and guidance.
20 MAY 2023
Figure 3.1: Climate Change Resilience Process
21
MAY 2023
3.3 Governance, Management and Monitoring
Governance and climate change risk management
The vulnerability of a Client to climate change risks over a period of time (e.g. 10+ year investment
period) can become highly significant (such as infrastructure severally affected by floods, high
operational costs for energy-intensive industries and conventional technologies due to energy costs
and carbon tax/adjustment mechanism, or loss of market share due to shifts in customer preferences,
stakeholder pressure, or competition from new business models and low-carbon technologies). The
successful and cost-effective management of climate-related risks requires strategic goals setting
(short-, medium- and long-term), oversight and leadership at the highest possible level in the
organisation or its parenting entity.
Upscaling the climate change risk management approach at the Project level (i.e. Project level
governance) to the top management or corporate level (i.e. corporate governance) will enhance
implementation of risk management and strategic decisions and overall financial stability for the
Client. This is achieved via assigned responsibilities, resources, support, and proper consideration of
climate change constrains in any development plans or strategic, business and financial planning.
Management and Monitoring
Material risks identified in the framework of CCRA should be managed, mitigated and monitored via
Project-specific management plans. Depending on the sensitivity of the Project, its type, scale and
complexity, it can be stand-alone documents, separate for transition and physical risks or a set of the
management and monitoring measures integrated into the ESMP and/or other Project documentation
such as design or construction documentation, emergency response plans, subject-specific
management plans, GHG Emission Management Plan. The Climate Change Risk Management Plan
should include the following components: project context, defined roles and responsibilities, GHG
strategy and policies, management approach and procedures, Project-specific set of mitigation
measures, monitoring metrics and approach to support implementation, and public reporting
commitments. For reference, general guidelines, including but not limited to IFC Guidelines on
Environmental and Social Management Systems14 can be used. More information on climate change
risk management plans and further reference can be found in Sections 5.4 and 6.6.
14IFC (2015) Environmental and Social Management System Implementation Handbook, https://www.ifc.org/wps/wcm/connect/4c41260d-
1ba8-4d10-a77d-f762d60a1380/ESMS+Handbook+General+v2.1.pdf?MOD=AJPERES&CVID=lllFYII
22
MAY 2023
Opportunities
Climate change and the transition to a low-carbon economy can pose both opportunities and risks.
The subsequent sections of this Guidance document focus on risks. However, the climate change
resilience process can also reveal various opportunities such as potential savings in resource costs, the
adoption and utilization of low-carbon technology, development of new products and services, and
enhancing resilience for the Project and along the supply chain. Climate-related opportunities are also
specific to the region, market and Project. The opportunities should be realised and enhanced, where
possible, and supporting management actions should be included into the CCRA management plans.
3.4 Timing of the CCRA
For climate-related Project risks to be identified and managed in an effective, timely and cost-efficient
manner they should be considered from the initial stages of the Project and developed through its
lifecycle. The Figure 3.2 below illustrates the temporal correlation of financing and Project lifecycle
and the climate change resilience process.
To optimise the interaction between Project design and strategy decisions and the outcome of the
CCRAs, the CCRA process should be aligned with the Project development and financing lifecycle. The
preliminary NCC compatibility review and the physical and transition risk screenings (see Figure 3.1)
should be undertaken as early as possible, ideally at the Project feasibility stage when Project concepts
will be defined. The hazards and sector vulnerability baseline should be undertaken during Project
planning once sufficient Project information is available to confirm its location and physical / spatial
extent. The risk assessment should be conducted in full during the design phase but preferably started
earlier. Exchanges between the CCRA developer and design team should take place to consider design
alternatives to reduce Project related GHG emissions and to improve climate change adaptation and
resilience of the Project.
It is further recommended that:
i. Prior to loan signing: the CCRA be completed by the Client following review/agreement by
EPFIs and their IESC as part of the pre-signing due diligence, as this process will inform the
credit risk evaluation.
ii. Prior to Financial Close: the corresponding climate change management plan should be in
place that addresses all relevant identified mitigation measures related to both the
construction and detailed design of the Project.
iii. Prior to Operation: The EPAP should include an action for the climate change management
plans to be reviewed and adapted for the operational phase ahead of the commencement of
the operational phase.
iv. During Operations: Requirements should be put in place (e.g., directly in the Loan
Documentation or as part of covenanted management plans) for the Client to periodically
23 MAY 2023
review and adapt the operational climate change management plan throughout the
operational phase (and decommissioning if relevant) until the end of the loan in order to
respond to evolving physical and transition risks.
In addition to the timing discussed above, some EPFIs might have additional requirements on the
CCRA-related documentation required prior to a signing stage or a financial close.
24 MAY 2023
Financing Lifecycle
Initial Consideration Due Diligence Signing Financial Close Monitoring End of Loan
CC Resilience Process
NCC CC Risk
CC Risk CC Risk CCMP Review
Compatibility Management
Screening Assessment & Update
Review Plan(s)
Refurbishment/
Inception Feasibility Planning Design Construction Operation Decommissioning
Project Lifecycle
Figure 3.2: Financing Lifecycle, Project Lifecycle and Climate Change Resilience Process Requirements
25 MAY 2023
4. PRELIMINARY NCC COMPATIBILITY REVIEW
4.1 Introduction
The assessment of climate-related risks follows a phased approach whereby the overall Project
compatibility with the host country’s NCC is preliminarily assessed, in line with EP4 Annex A, preferably
during the inception phase.15 The assessment of impacts can be qualitative if no quantitative data is
available, and it will be informed by quantitative data such as GHG emissions associated to the project
as well as qualitative information (e.g. alignment of the project technology and GHG emission with
the NCC for the host country). The aim is to integrate climate change alongside other Project
considerations from the earliest stages in a Project’s life cycle, and to inform the scope and nature of
the remaining CCRA stages (refer to Figure 3.1 and Sections 5 and 6 below).
In order to be considered compatible with the host country NCC, Projects need to be compatible with
both the adaptation/resilience (i.e. physical risks) and mitigation (i.e. transition risks) NCC approaches
described below.
Preliminary compatibility does not exclude the Project from going through the remaining CCRA
stages (see Sections 5 and 6 below). The following should be noted in relation to transition risks:
1. Projects deemed to be compatible with the host country’s NCC and/or aligned with the Paris
Agreement (where applicable, see Section 4.3.2) can still present material transition risks and
will need to go through the ‘Resilient Project Design and Strategy’ steps in order to determine
their resilience to transition risks (refer to Section 6).
2. Projects that are determined to be incompatible with the host country’s NCC and/or not
aligned with the Paris Agreement (where applicable), will present higher transition risks due
to the nature of their operations. The purpose of this preliminary compatibility review is to
ensure that those risks are clearly identified so that they can be used to inform the scope and
nature of the Transition CCRA (refer to Section 6) and also be considered by EPFIs’ in their
commercial decisions.
15Additional requirements for alignment of the financed project with the Paris Agreement and NCC are elaborated by IFIs. Good example
of such best practice can be found in Environmental and Social Standards of European Investment Bank (2022). -
https://www.eib.org/en/publications/eib-environmental-and-social-standards
26 MAY 2023
4.2 Preliminary NCC Compatibility Review of Physical Risks
4.2.1. Objectives
The purpose of the preliminary NCC compatibility review of physical risks is to assess the level of
alignment with the host country’s NCCs and relevant associated global adaptation objectives under
the Paris Agreement, including (under Article 8):
• Enhancing adaptive capacity.

• Strengthening resilience and reducing vulnerability to climate change with a view to
contributing to sustainable development.
4.2.2. Approach
Reflecting the area-related nature of physical climate change impacts and, unlike for transition risks
(see Section 4.3), there is no positive list of sectors or activities that are automatically aligned.
Therefore, compatibility with NCC is assessed through the CCRA process by addressing the two (2)
questions in Box 4-1.
Box 4-1: Project’s NCC Alignment (Physical Risks)
Question 1: Is the Project consistent13 with national policies and commitments for the climate
adaptation or resilience of the wider system in question and the context it operates?
Question 2: Have Project-related physical climate risks been identified and addressed?
By addressing Question 1, this preliminary review provides an initial consideration of the Project’s
compatibility16 with adaptation and resilience requirements defined in the NCC of the host country,
including NDCs, LTS (where set by the host country), National Communications, National Adaptation
Plans and any other relevant national climate resilience policy plans (and regional/local plans, as
appropriate) within the CCRA process as required under EP4 Annex A.
An assessment of a Project’s resilience against physical climate risks is provided by addressing

Question 2.
16both consistent and compatibility are recommended to allow for the varying degrees to which adaptation is addressed within
NCCs/NDCs
27 MAY 2023
If a Project includes investment contradictory to the declared adaptation strategy, it is determined to
be “Not Aligned”. In all other cases it requires further evaluation to determine alignment. This
evaluation should include consideration of:
• The host country’s NCC/NDC, as well as adaptation plans, commitments, strategies, actions
and/or targets.
• Related climate government permits / decision outcomes granted to the Project, including
relevant regional and local plans.
• Forward-looking assessments of the host country’s compliance with objectives of the Paris
Agreement17 and high-level analysis of potential / likely future policy commitments (e.g.,
legislation under review or consideration, political commitments, etc.).
4.3 Preliminary NCC Compatibility Review of Transition Risks
4.3.1. Objectives
The aim of the preliminary NCC compatibility review of transition risks is to ascertain whether the
Project is compatible with achieving national and international climate goals set out in the NCC (and
as applicable NDCs, LST and global Paris Agreement objectives). In particular, the following aspects
are assessed:
• Technologies and inputs used in the operation are consistent with a plausible low GHG
pathway.
• Outputs (goods or services) and revenue generated by the Project operation are consistent
with a plausible GHG pathway.
• The viability of the operation depends on or promotes policies or regulations consistent with
the low GHG pathway.
4.3.2. Approach
The steps involved in undertaking a preliminary NCC compatibility review are summarised in Table 4-1
and further detailed below.
17Note that the first phase of NDCs is not anticipated to be sufficient for limiting global climate change to “well below 2°C”, as articulated
in the Paris Agreement. There is an expectation that, over time, government climate actions will evolve to more closely align with Paris
Agreement aims.
28 MAY 2023
Table 4-1: Overview of Preliminary NCC Compatibility Review of transition risks
Assessment Lifecycle Objective Approach Information
type stage requirements
Preliminary NCC Inception Determine the Check inclusion of Project Project activity
compatibility compatibility of the activity type in negative
review – Project with national lists (first screening;
general and international Section 4.3.2 "Universally
screening climate goals and not-aligned list") or positive
ambitions. lists (second screening,
Section 4.3.2 "Universally
aligned list").
Preliminary NCC Inception Determine whether Assess carbon lock-in (i.e. Project performance
compatibility conditional Projects sector and geography (if known at this stage
review – may be locked into a screening) through a e.g. energy intensity,
conditional GHG emission review of alignment with: energy sources, Scope
Projects intensive pathway. 1) a low-GHG 1 and 2 GHG
development pathway for emissions,
that country (i.e. NDC). technological choices)
2) transition trajectory for Host country climate
the sector goals, strategies and
decarbonisation
Screening criteria SC1 to
pathways.
SC4 (Table 4-2).
Through the preliminary NCC compatibility review, Projects are categorised as ‘Aligned’, ‘Not Aligned’
or ‘Conditional’ (refer to Figure 4.1 below, adapted from Cochran et al., 202118) based on their
inclusion in the ‘universally aligned’ or ‘universally not aligned’ lists19. These lists are developed and
periodically reviewed by multilateral development banks (MDBs) as part of the Joint MDB Assessment
Framework for Paris Alignment for Direct Investment Operations.
Figure 4.1: Levels of alignment with national and international climate goals.
18Cochran, I., Pauthier, A., Kachi, A. and Lutkehermoller, K., 2021. Operationalization Framework on Aligning with the Paris Agreement.
Available at: https://www.idfc.org/wp-content/uploads/2021/06/report_idfc_frameworkforaligninwiththeparisagreement_final-1.pdf
19Available through individual MDB websites. e.g. https://www.eib.org/attachments/documents/cop26-mdb-paris-alignment-note-en.pdf.
See also African Development Bank Group, the Asian Development Bank, the Asian Infrastructure Investment Bank, the European Bank
for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank Group, the Islamic
Development Bank, the New Development Bank, and the World Bank Group (International Finance Corporation, Multilateral Investment
Guarantee Agency, World Bank.
29 MAY 2023
If the preliminary compatibility review is inconclusive (i.e. conditional Projects), a more detailed
analysis is required (see Figure 4.2 below, adapted from EBRD, 202120, and the sub-sections below).
Figure 4.2: Preliminary NCC compatibility review.
The NCC alignment screening steps outlined above are further described in the following sections.
Universally not-aligned list
As of November 2021, four activity types were considered to be universally not aligned with the Paris
goals as follows:
• Mining of thermal coal

• Electricity generation from coal
• Extraction of peat
• Electricity generation from peat
20EBRD Guidance Note, Methodology to determine the Paris Agreement alignment of directly financed ERD investments, June 2021.
Available at: https://www.ebrd.com/paris-agreement-methodology.pdf
30 MAY 2023
However, this list will be periodically reviewed and updated (see 4.3.2 above).
Universally aligned list
The universally aligned list comprises Projects that either contribute to decarbonisation through the
reduction of GHG emissions, or they have negligible impact on GHG emissions but do not undermine
rapid decarbonisation - refer to the latest version of Annex 1 of BB1 and BB2 Technical Note, Joint
MDB Assessment Framework for Paris Alignment for Direct Investment Operations (note that the list
will be updated over time, see 4.3.2 above).
Operation types included in this draft list will have to go through the specific criteria assessment (see
sub-section on conditional Projects below) to determine their alignment if they fall under any of the
following:
• Operations whose economic feasibility depends on external fossil fuel exploitation,

processing, and transport activities (e.g., a railway line that will have a significant income from
the transport of coal from a coal mine).
• Operations whose economic feasibility depends on existing fossil fuel subsidies (e.g., a fishing
fleet that would be unfeasible in the absence of subsidies to diesel fuel).
• Operations that rely significantly on the direct utilization of fossil fuels (e.g., a pharmaceutical
production plant that makes use of diesel pumps).
Conditional Projects
Operations that cannot be characterized through preliminary review will require more detailed
analysis in order to determine their level of compatibility with NCC. The review may be conducted
against criteria SC1 to SC4 below, however the number of assessment criteria and the granularity of
the assessment will be dependent on the available information (e.g. some countries have not defined
NDC or may not be party to the Paris Agreement), and there is no hierarchy among the criteria.
31 MAY 2023
Table 4-2: Specific Assessment Criteria for Conditional Projects
Specific Description Guidance
Criteria
SC1 Is the Project inconsistent with the Is the sector or activity covered by the host country NDC,
NDCs21 of the country in which it takes and if so, is the operation in line with the pathways laid
place? out for that particular sector or activity?
The more aligned an NDC is with the long-term goals of
the Paris Agreement, and the more sector it covers, the
more robust the SC1 assessment will be.
SC2 Is the Project, over its lifetime, As above, but in relation to LTSs and other relevant low-
inconsistent with the country’s LTSs 22 GHG strategies. The more ambitious and realistic an LTS
or other similar long-term national is, the more robust the assessment under SC2 will be.
economy-wide, sectoral, or regional
low-GHG strategies compatible with
the mitigation goals of the Paris
Agreement?
SC3 Is the Project inconsistent with global Sector-specific decarbonization pathways may include
sector-specific decarbonization sector roadmaps developed by international
pathways in line with the Paris organizations (e.g., the International Energy Agency),
Agreement mitigation goals, academia, or industry associations23. Sector scenarios
considering countries’ common but provide estimates in terms of emission thresholds that
differentiated responsibilities and could also inform the assessment, as applicable.
respective capabilities?
21
Nationally Determined Contributions Registry. Available at: https://unfccc.int/NDCREG
22 Long-term strategies portal. Available at: https://unfccc.int/process/the-paris-agreement/long-term-strategies
23 Examples include, but are not limited to:
• Transition pathway initiative. Available at:https://www.transitionpathwayinitiative.org/publications/100.pdf?type=Publication

• IEA decarbonisation pathways e.g. IEA Net Zero pathways. Available at: https://www.iea.org/reports/net-zero-by-2050
• Deep decarbonisation pathways. Available at: https://ddpinitiative.org/about/
• Sectoral Decarbonisation Approach (SDA), Science Based Targets Initiative (SBTi). Available at:
https://sciencebasedtargets.org/resources/files/Sectoral-Decarbonization-Approach-Report.pdf
• Meinshausen, M., Dooley, K. (2019). Mitigation Scenarios for Non-energy GHG. In: Teske, S. (eds) Achieving the Paris Climate
Agreement Goals. Springer, Cham. https://doi.org/10.1007/978-3-030-05843-2_4
• Teske, S., Niklas, S., Talwar, S. et al. 1.5 °C pathways for the Global Industry Classification (GICS) sectors chemicals, aluminium,
and steel. SN Appl. Sci. 4, 125 (2022). https://doi.org/10.1007/s42452-022-05004-0
• Teske, S. and Guerrero, J., 2022. One earth climate model—integrated energy assessment model to develop industry-specific
1.5 C pathways with high technical resolution for the finance sector. Energies, 15(9), p.3289.
• Teske, S., Nagrath, K. Global sector-specific Scope 1, 2, and 3 analyses for setting net-zero targets: agriculture, forestry, and
processing harvested products. SN Appl. Sci. 4, 221 (2022). https://doi.org/10.1007/s42452-022-05111-y
• Teske, S., Niklas, S., Nagrath, K., Talwar S., Atherton, A., Guerrero Orbe, J., (2020), Sectoral pathways and Key Performance
Indicators: aluminium, chemical, cement, steel, textile & leather industry, power utilities, gas utilities, agriculture, forestry, the
aviation and shipping industry, road transport, and the real estate & building industry. Report prepared by the University of
Technology Sydney for the UN-convened Net Zero Asset Owners Alliance. Available at:
https://www.uts.edu.au/sites/default/files/2022-
05/2622%20UTS%20Limit%20Global%20Warming%20report%20mr%2005b_UPLOAD.pdf
32 MAY 2023
Specific Description Guidance
Criteria
Global studies should be applied to the country context.
Countries are at different stages of development and
have different resources and capacities that may affect
their ability to decarbonize their economies in line with
global pathways. As a result, an operation that would be
deemed inconsistent in one country context might be
deemed consistent in another context.
SC4 Does the Project prevent opportunities Through comparison with low-carbon alternatives, asses
to transition to Paris-aligned activities, the risk of creating lock-in or preventing future
OR primarily support or directly depend deployment of Paris-aligned activities and impacting the
on non-aligned activities in a specific likelihood of achieving the low-GHG transition.
country/sectoral context? Can be informed by relevant low-GHG development
pathways or other studies.
Timing
The preliminary NCC compatibility review should be undertaken as early as possible, ideally at the
Project inception stage, and the process and outcomes should be documented. Alternatively,
justification should be provided of how and at what point in the project lifecycle has the NCC
compatibility review taken place, and what management actions have been introduced in the Project
design, strategy and business and financial planning.
33 MAY 2023
5. RESILIENCE TO PHYSICAL CLIMATE RISKS
5.1 Definition of Physical Risk
The term “physical risk” is used in this guidance note to refer to risks to the Project arising from the
hazard-exposure-vulnerability concept, as set out by IPCC24. Physical risk to the Project is defined as:
Physical Risk = hazard25 * exposure * vulnerability.
For additional details on the definition of physical risks resulting from climate change refer to Annex 2.
Physical risks change over time through the dynamic relationship of the three core components of risk
(i.e., hazard, exposure and vulnerability). The use of the term “physical risk” in risk studies requires
consideration of not just hazard changes but also exposure and vulnerability to the hazard. However,
according to an IPCC report released in late 202026, there is currently limited understanding of how
physical risks change, and therefore the focus in risk studies is often exclusively on hazard changes
without consideration of exposure or vulnerability.
Physical risks can impact Project facilities and infrastructure, affect Project operations, availability of
water and raw materials for the Project, and cause disruptions to the Project supply chain, among
others, (see Box A2-1 in Annex 2 for further examples). These may result in direct financial
consequences for Clients and associated EPFIs, as well as additional costs related to upfront insurance
and investments.
Climate change may affect the magnitude and or significance of Project E&S impacts and potentially
exacerbate adverse effects. For example, the loss of prime agricultural land to a Project may increase
the significance of E&S impacts if climate change is projected to reduce the availability of such land.
For a consistent approach to the assessment of physical risk, it essential that the definition of risk
within the CCRA methodology is clear. The definitions of risk components (i.e., hazard, exposure,
vulnerability), as defined by IPCC, are provided in Table 5-1.
24IPCC, The concept of risk in the IPCC Sixth Assessment Report: a summary of cross-Working Group discussions. Guidance for IPCC
authors. September 2020.
25 Hazard = Weather and Climate events
26IPCC, The concept of risk in the IPCC Sixth Assessment Report: a summary of cross-Working Group discussions. Guidance for IPCC
authors, September 2020.
34 MAY 2023
Table 5-1: Definition of risk components as per IPCC AR627
IPCC AR6 definition
The potential occurrence of a natural or human-induced physical event or trend,
that may cause loss of life, injury, or other health impacts, as well as damage and
Hazard
loss to property, infrastructure, livelihoods, service provision and environmental
resources.
The presence of people, livelihoods, species or ecosystems, environmental
Exposure functions, services and resources, infrastructure, or economic, social, or cultural
TERM
assets in places and settings that could be adversely affected.

The propensity or predisposition to be adversely affected. Vulnerability
encompasses a variety of concepts and elements including sensitivity or
susceptibility to harm and lack of capacity to cope and adapt. For example , a
Vulnerability
community exposed to a drought hazard would have increased vulnerability if it
lacked the capacity to bring in water resources from elsewhere or to adapt to
reduced water availability.
The recommended approach to the Physical CCRA in this guidance note is built around the systematic
application of the risk model to in-scope EP Projects with the aim of identifying risks (as per the IPCC
definition) as early as possible so that decisions of Project development can be informed.
5.2 Physical Risk Screening
At the initial stage of the CCRA process, the focus is on climate hazards and vulnerability components
of the risk.
The key physical climate hazards at the country or regional level and their relationship to the typical
vulnerabilities that the sector exhibits should be considered. Commensurate with the need for this
assessment to come as early as possible at this stage the detailed characteristics of the Project or the
specific of its location are not required.
5.2.1. Climate Hazard
Climate data shall be reviewed for a set of climate hazards relevant to the Project’s general geography.
The set of climate hazards typically includes chronic and acute changes which may be temperature-
related, water-related, wind-related and solid mass-related hazards on the national or regional level.
For information on sources of climate hazard data see Annex 2.
27IPCC, 2022: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment
Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A.
Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press. Cambridge University Press,
Cambridge, UK and New York, NY, USA, 3056 pp., doi:10.1017/9781009325844.
35 MAY 2023
5.2.2. Sector Vulnerability
Vulnerabilities to climate hazards vary by sector although there is a degree of commonality. Around
the world, environmental regulators, industry and trade bodies have begun to publish information on
sector vulnerabilities against a range of potential climate hazards. For information on sector
vulnerability screening sources, see Annex 1.
As an example, the table below from the EU Taxonomy28 illustrates the typical sensitivities of the
transmission and distribution of electricity to climate related hazards.
Table 5-2: Example of typical sector sensitivities for Electricity Transmission and Distribution
Source: EU Technical Expert Group on sustainable Finance (2020) Taxonomy Report: Technical Annex. Updated
methodology & Updated Technical Screening Criteria.
Timing
Sector vulnerability screening should be undertaken as early as possible, ideally at the Project concept
stage.
28EU Technical Expert Group on sustainable Finance (2020) Taxonomy Report: Technical Annex. Updated methodology & Updated
Technical Screening Criteria.
36 MAY 2023
5.3 Physical Risk Assessment
As far as data allow, the risk assessment should

consider the key physical climate hazards at the
local level of the Project. Knowledge of the
Project’s detailed location is used to determine
the exposure of the Project to those hazards.
Vulnerability can then be assessed in more
detail, drawing on Project design information
and standards together with any other factors
which may provide resilience, e.g. pre-existing
flood prevention measures.
To direct the downscaling climate modelling,

Project coordinates will be required. Where the
Project has a large extent, e.g. a linear Project such as a highway or railway, then care should be taken
to ensure that the downscaled data have sufficient coverage.
Annex 2 provides further information on climate hazards and additional guidance on climate change
data procurement and evaluation.
The risk assessment shall be provided based on understanding of the potential resulted impact
considering vulnerability, hazard and exposure. Climate hazard trends in combination with Project-
specific exposure and vulnerability are assessed to identify climate risks and their materiality to the
Project. Risks to be considered include risk to personnel, facilities and infrastructure, impacts on
operation, water and raw material availability and supply chain disruption.
The method to combine these three components of risk shall be determined as part of the CCRA. It is
not the purpose of this guidance to prescribe specific methods, but the selected risk assessment
method needs to:
• Consider all three components of risk in its assessment.

• Uncertainty or lack of information in each of the components should be considered in the
assessment.
• Be transparent and clearly documented.
• Be based on quantitative data as far as possible - where qualitative scales are applied their
rationale should be stated.
The methodology cannot be precise, so it is recommended that the outputs are subject to professional
review and/or benchmarking to ensure reliable and transparent outcomes.
37 MAY 2023
Scenario analysis consideration
The climate risk assessment should be based on a robust analysis of climate data and projections
across a range of future GHG emission scenarios. The TCFD recommends selecting a range of scenarios
(not just one) that covers a reasonable variety of future outcomes, both favourable and unfavourable;
more specifically the use of a 2°C or lower scenario in addition to two or three other scenarios most
relevant to their circumstances, such as scenarios related to NDCs, physical climate-related scenarios,
or other challenging scenarios. The selection of the scenarios should be fully justified within the CCRA.
Further details on the selection of suitable scenario are provided in Annex 2.
Consideration of financial risks
Consideration of potential financial risks associated with the Project’s exposure to physical climate
risks is required in order to inform management actions (refer to Section 5.4). Potential financial risks
should therefore be identified, and their anticipated evolution over time under the physical scenarios
considered should be assessed. Examples of potential financial risks (non-exhaustive list) are
presented Table 5-3 below.
Table 5-3: Physical climate change risk factors and financial risks
Potential physical risk factor Potential financial risks
Exposure to physical climate change impacts that Potential material impacts on revenue from
exceed design or performance criteria impacting on decreased production capacity and lower sales as
the integrity of Project assets or the ability of the result of physical damage to the asset or negative
Project to provide the intended service (e.g. impacts on the workforce.
drainage capacity for peak rainfall, material Potential material impacts on operational cost due
expansion/performance due to temperature, to negative impacts on the workforce (e.g. heath,
impaired performance of Project component due to safety, absenteeism).
ambient environment).
Increased capital costs (e.g. damage to Project
assets).
Potential write-offs/write-downs and early
retirement of assets.
Exposure to supply chain disruption because of Potential material impacts on revenue from
physical climate change impacts and a failure of decreased production capacity.
supply chains to prepare and adapt, led to non- Potential material impact on cost of critical
availability of critical materials during construction supplies.
or critical supply services during operation.
Competition from other projects in the sector that Potential asset impairment.
are better adapted/able to adapt to climate change. Competitive disadvantage due to higher
operational costs and/or lower productivity and
reduced demand, with potential material impacts
on revenues.
38 MAY 2023
Litigation risks if the Project is perceived to lack Increased insurance premiums and potential
transparency in preparedness for climate change reduced availability of insurance on assets in ‘high-
impacts, or damage to 3rd party is caused due to the risk’ locations.
Project operation failure or if the Project is seen to
increase climate vulnerability to third parties.
Timing
The risk assessment should be undertaken as soon as sufficient Project information is available to
confirm the Project’s location, extent and key design decisions including the technology, assets and
structures type and layout. This should be essentially between the FEED and detailed design stage,
providing the physical risk screening as early at the design stage as possible. Physical risks may have
financial implications for the Project via operational risks realisation, such as direct damage to assets
(due to e.g. floods, mudslides, tornados), disruptions on supply or transportation (caused by droughts
and water shortage or bad quality, heavy precipitation events or other reasons), health & safety issues
(due to heat waves or extreme temperature) and indirect impacts from supply chain disruption.
Therefore, early understanding of the physical risks can prevent financial losses at the design,
construction and operation stages.
The risk assessment should be completed prior to loan signing. Where detailed design is to be
completed after loan signing or financial close, the risk assessment should be based on a suitably
developed FEED design and then be re-confirmed once detailed design is complete – see Section 3.3
for further details.
5.4 Physical Risks Management
All material risks identified in the construction or operational phases of the Project must be addressed
in the management plan to build up climate resilience.
The plan should set out clearly how each identified risk will be addressed through a mechanism of
either mitigate, transfer, accept or control, all as defined below.
Mitigation. This represents management measures to be implemented in order to reduce or eliminate

the risk to the Project.
Transfer. This is a risk reduction method that shifts risk from the Project to another party; i.e. paying
someone else to accept the risk (e.g. to purchase of an insurance coverage for climate-related
damage).
Acceptance. This involves accepting the risk and collaborating with others sharing responsibility for
absorbing negative impacts of risks (Government, other Projects and local community).
39 MAY 2023
Control. This involves developing an alternative strategy to reduce the probability of occurrence or
the severity of the consequences of climate-related risk (e.g. crop failure), but is usually linked to a
higher cost. An example is the use of drought-resistant crop varieties to reduce irrigation water needs.
Typical management measures include design/specification changes to avoid/mitigate risk and the
specification of operational management processes in operation and maintenance manuals. Residual
risks should be evaluated for their materiality and may need to be addressed themselves through
further management measures. Some examples of climate change risk factors and consideration for
management options are given in Table 5-4.
Table 5-4: Physical climate change risk factors and management considerations
Potential physical risk factor Potential management considerations
Exposure to physical climate change impacts that Elevated design criteria or specifications for critical
exceed design or performance criteria impacting on components of the Project.
the integrity of Project assets or the ability of the Operational management plans to provide for
Project to provide the intended service (e.g. drainage quick recovery of disrupted services and
capacity for peak rainfall, material appropriate performance review and maintenance
expansion/performance due to temperature, impaired regime/schedule. Specific project defences, e.g the
performance of Project component due to ambient provision of additional flood walls beyond
environment). specifications required for the projects function
Exposure to supply chain disruption because of Risks include non-availability of critical materials in
physical climate change impacts and a failure of supply a timely fashion impacting on Project construction
chains to prepare and adapt, led to non-availability of programme, and non-availability of critical services
critical materials during construction or critical supply from supply chain to support the operation of the
services during operation. Project e.g. power /water. Mitigation via diversity
of, or special requirements for supply within supply
chain management. This may include
consideration of suppliers’ own climate change
strategies and management plans and ensuring
diversity of supply.
Competition from other projects in the sector that are Adaption to physical climate risks considered over
better adapted/able to adapt to climate change. the lifetime of the Project, covering planning,
design, construction, operation, and maintenance.
Litigation risks if the Project is perceived to lack Project adaptation in design and management,
transparency in preparedness for climate change eliminating and minimising the potential impact to
impacts or damage to 3rd party is caused due to the third parties.
Project operation failure or if the Project is seen to
increase climate vulnerability to third parties.
40 MAY 2023
Timing
A Project Adaptation Management Plan or specific adaptation measures embedded to the ESMP
should be developed before start of construction and start of operation, and before financial close.
During the operations phase management plans should be reviewed and adapted if deemed necessary
until the end of the loan period. See Section 3.3 for details on the time of Climate Change risk
management through the Project and financing lifecycle.
41 MAY 2023
6. RESILIENCE TO TRANSITION RISKS
6.1 Introduction
Regardless of the outcome of the preliminary NCC compatibility review (refer to Section 4), all Projects
meeting the applicability criteria set out in Section 2.2 should undergo the transition risk screening
and the transition risk assessment components of the Transition CCRA as part of the feasibility and
design stages.
The purpose of the Transition CCRA is to:
• Evaluate the resilience of the Project design and strategy to the transition to a low carbon
economy.
• Assess the associated financial exposure to both the Client and the EPFIs.
• Enhance Project resilience and overall performance at the design and operational stages.
Residual material transition risks (i.e. those not addressed through project design and business plan)
will require management throughout the Project lifetime through a Transition Management Plan
(refer to Section 6.6).
6.2 Definition of Transition Risk
The TCFD Recommendations state that “transitioning to a lower-carbon economy may entail extensive
policy, legal, technology, reputation and market changes to address mitigation and adaptation
requirements related to climate change”.
The TCFD Recommendations identify the following categories of transition risks:
• Policy and legal risks – impact of policy and regulatory actions that seek to constrain the
adverse effects of climate change or promote adaptation or transition (e.g. carbon pricing,
emissions caps, differential capital treatment by regulators, land use changes, water
restrictions).
• Technology risks – technological improvements that support the transition to a lower
emissions economy and lead to demand shifts and market advantage for operators who adapt
faster (e.g. battery storage, electric vehicles, carbon capture and storage and technologies
that enable improved operating efficiency, reduce GHG emissions and optimise water and
land use).
• Market risks - shifts in supply and demand for certain commodities, products and services as
climate-related risks and opportunities are acted on (e.g. rise in electric vehicle demand,
increased production costs due to changing input prices of energy, water, etc.).
42 MAY 2023
• Reputation risks - changing stakeholder’s perceptions of an organisation’s positive or negative
impact on the transition to a lower emissions economy (e.g. public perception of coal-fired
power).
6.3 Approach
The transition risk screening, transition risk assessment and Transition Risk Management Plan
approaches, along with their steps and associated objectives, are outlined in Table 6-1 below.
Table 6-1: Overview of CCRA transition approach

Assessment Lifecycle Objective Approach Information
type stage requirements
Resilient Project Feasibility Identify potentially Identify typologies of Project operations,
Design and material transition potentially material risks for energy sources,
Strategy - risks for the Project the Project based publicly technological
available transition
Transition risk to inform business choices, products,
trajectories and sectoral
screening case and strategy, risks analyses: customer, markets
prevent lock-in and
1) transition risk heatmaps
reduce risk and third-party transition
management costs. risk analyses
2) a low-GHG development
pathway for that country
(i.e. NDC).
3) transition trajectory for
the sector
Resilient Project Design Assess residual Full CCRA using scenario Business base case,
Design and exposure to analysis to stress-test the transition risk
Strategy - transition risks resilience of the strategy, mitigation and
Transition risk (revenue and the adequacy of the opportunity
assessment generation, Client; transition action plan enhancement
credit risk, lender) (governance, strategy, risk measures,
based on design and management, metrics and transition
business case. targets). scenarios.
Resilient Project Design Anticipate and Develop a plan for the Residual risk and
Operation and manage transition management of residual associated
Strategy – risks over the material risks to the Project management,
Transition plan Project operation. associated to the transition metrics, monitoring
to a low-carbon economy and reporting,
(i.e. Climate Change governance
Transition Management structure,
Plan). frequency of
revisions.
43 MAY 2023
6.4 Transition Risk Screening
A transition risk screening should be conducted at the feasibility stage to identify the typology and
nature of potentially material transition risks, with a view to inform the Project’s business case, design
and strategy.
Screening criteria can largely be grouped around sectoral and geographic considerations. Guidance
on relevant criteria and their associated information sources are outlined below:
6.4.1. Sectoral considerations
Certain Projects may have increased exposure to transition risks, such as Projects that are in:
• Industry sectors that have high GHG intensity, high water usage in locations prone to drought
or high usage of land that requires native vegetation clearance.
• Industries that are adapting faster to alternative lower GHG technologies or climate efficient
technologies, leading to a more rapid shift in the competitive landscape.
Transition risks identified for the first time as part of the full Transition Risk Assessment will be more
costly to address, as typically the full assessment takes place when design, business and commercial
decisions have already been locked in.
Screening involves the identification and consideration of risk factor pathways for the sector at a high
level, in order to identify suitable and cost-effective mitigations measures to be incorporated into the
Project at the feasibility stage. The purpose of the screening phase is to raise awareness about the
Project’s potential transition risks and opportunities. In doing so, the transition screening seeks to
ensure that those risks and opportunities inform the Project design and business case, thus embedding
transition resilience into the Project strategy from the early planning stages of the process and
reducing the cost of the transition.
Transition screening may be conducted and documented through a short questionnaire or table, in
which a structured process is followed to ensure that consideration is given to all the potentially
material risks and opportunities for the Project, with indication of the potential impact mechanisms
and the selected management approach. A credible transition management approach will embed
transition resilience decision gates or transition tests as part of the decision-making process during
design and business/financial planning, and will document how transition risk have been assessed and
managed.
A robust transition screening sets the basis for the full transition risk assessment, and will provide evidence of
the awareness of transition risks to which the Project is exposed and the management actions implemented and
embedded into its design and business plan.
44 MAY 2023
The transition risk assessment that will follow during the design stage (Section 6.5) will analyse in more detail
the Project exposure to the various categories of potentially material risks identified. The full assessment will
test the resilience of the transition management actions (i.e. transition strategy, business case, financial planning
and design/technological considerations) under a range of scenarios to assess their adequacy, and to identify
residual risks and develop proportionate management actions during the operational phase.
Potential transition risk factors include, but are not limited to, those outlined in Table 6-2 below. The
purpose of this table is to present a broad range of potentially material risks for consideration by the
Project and EPFIs’ in their commercial decisions.
Table 6-2: Transition risk factors and screening considerations.

Potential risk factor Potential financial Potential considerations
impacts
Exposure to energy efficiency Potential material impacts Sector benchmarks, best available
mandates, emission limits and carbon on e.g. unplanned capital technology, technical
prices associated with direct Project expenditures, operational developments.
operations (scopes 1 and 2) based on costs and ultimately,
the energy and carbon intensity. revenue impacts associated
Influence over scope 3 emissions to reputational
based on location and availability of considerations.
low-carbon transport modes.
Exposure to supply chain disruption or Potential material impacts Critical raw materials, supplier risk
cost increases from increasing carbon on e.g. operational costs, as management processes/
prices. well as revenues (if diversification, alternative low
production is disrupted or carbon inputs.
impaired).
Potential changes in demand (e.g. due Potential material impacts Market diversification, demand
to shifts in consumer preference, on revenues. drivers, alternative low-carbon
competition from low-carbon technologies, flexibility in design
products, market disruptors) across its to enable cost-effective
customer segments and markets. adaptation to low carbon
materials and technologies.
Competition from low-carbon Potential material impacts Alternative low-carbon

technologies that could lead to e.g. on costs and revenues, sunk technologies that compete at
asset impairment, competitive costs of premature present or which pose a
disadvantage due to higher closure/stranded asset risk competition or disrupt production
operational costs and/or lower (with associated processes in the future.
productivity, and reduced demand. reputational risks).
Litigation risks if the Project is Potential material impacts Stakeholder pressure and
perceived to lack transparency, make on costs and revenues (if expectations; Project
unsubstantiated claims and/or climate related litigation performance relative to sectoral
considerations and
45 MAY 2023
Potential risk factor Potential financial Potential considerations
impacts
negatively contribute to climate leads to reputational decarbonisation pathways (e.g.
mitigation. impacts). GHG emission intensity, emission
reduction targets); marketing and
disclosure approaches; availability
and cost of litigation insurance
Attraction and retention of human Potential material impacts As above.

resources and technical specialists if on costs and revenues.
the Project is perceived to negatively
contribute to climate mitigation.
Shift on investor’s perception of risk, Access to/cost of finance As above

impacts on security valuation, access
to debt and equity capital and risk
premiums.
Other potential information sources and tools include:
• Transition risk heatmaps for oil and gas, agriculture, real estate, power generation, metals &
mining, industrials, transportation and services and technology sectors have been published
by UNEP Finance Initiative: Beyond the Horizon, 2020. Available at:
https://www.unepfi.org/industries/banking/beyond-the-horizon/
• Gambhir, A., George, M., McJeon, H., Arnell, N.W., Bernie, D., Mittal, S., Köberle, A.C., Lowe,
J., Rogelj, J. And Monteith, S., 2022. Near-term transition and longer-term physical climate
risks of greenhouse gas emissions pathways. Nature Climate Change, 12(1), pp.88-96.
6.4.2. Jurisdictional considerations
The significance of the risks outlined in Table 6-2 above may be increased by the Project location, and
location specific considerations should be taken into account when assessing and identifying
management actions in the early project stages. Certain jurisdictions may pose increased exposure to
transition risks, such as:
• Jurisdictions with comprehensive climate action policies and associated regulatory controls at
the Project level.
• Markets or jurisdictions that are adapting faster to alternative lower GHG technologies or
climate efficient technologies, leading to a more rapid shift in the competitive landscape.
• Jurisdictions with higher stakeholder expectations, in sectors with higher global activist focus
or locations where communities are well aligned in objectives and have greater capacity to
engage on climate risks.
Potential information sources and tools include:

46 MAY 2023
• Climate action tracker. Available at: https://climateactiontracker.org/countries/rating-
system/
• Country environmental analysis. Available at:
https://openknowledge.worldbank.org/handle/10986/2163
• HSBC Global Research, 2019. Fragile Planet. The politics and economics of the low-carbon
transition. Available at: h92rQqt (hsbc.com)
Timing
Transition risk screening should be undertaken as early as possible and prior to loan signing, ideally at
the Project feasibility stage (refer to Section 3.3 above), and the process and outcomes should be
documented. Alternatively, justification should be provided of how, and at what point in the project
lifecycle, transition risks have been preliminarily assessed and what management actions have been
introduced in the Project design, strategy and business and financial planning.
6.5 Transition Risk Assessment
As previously noted, the aim of the Transition Risk Assessment is to stress-test, under a range of
scenarios, the resilience of the transition management actions (i.e. transition strategy, business case,
financial planning and design/technological considerations) implemented in the early project stages,
with a view to:
• Assess their adequacy and overall project resilience.

• Identify residual risks.
• Develop proportionate management actions during the operational phase.
In assessing the Project resilience to transition risks, the following questions should be answered:
Table 6-3: Transition Risk Assessment checklist.

Category Questions
Strategy • What material transition risks and opportunities is the Project exposed to over
the short, medium and long term?
• How does the nature and magnitude of those risks vary under a range of
scenarios, including under a 2° Celsius or lower scenario?
• Have material transition risks and opportunities been considered in the design,
business case and financial planning in the early project stages?
• What management actions have been defined and implemented?
• What is the overall Project resilience (business case, strategy and financial
planning) under a range of uncertain futures?
This section presents recommendations in relation to the following:
47 MAY 2023
• Transition risk assessment scope and approach (Section 6.5.1).
• Scenario analysis considerations (Section 6.5.2).
• Transition risk assessment report (Section 6.5.3).
6.5.1. Transition risk assessment approach
The transition risk assessment should follow the steps outlined below:
1. Identification of the assessment scope and timeframe, taking into account the Project life
cycle.
2. Selection of transition scenarios representative of a range of uncertain futures (see Scenario
analysis considerations below). At a minimum, 2 transition scenarios including a 2° Celsius or
lower scenario should be selected.
3. Definition of materiality thresholds for the project (refer to Section 2.1.3).
4. Scenario analysis (see also Section 6.5.2 below):
a. Identification of transition indicators (e.g. carbon prices, energy mandates,
technological development, cost/availability of fossil fuels, commodity demand or
price shifts either at global level or across key geographies, consumer
preferences/ESG performance, and other drivers that that could pose a risk or present
and opportunity for the Project).
b. Definition of transition pathways for the transition indicators selected under each
transition scenario (i.e. scenario narratives and supporting quantitative metrics). The
scenario narratives should outline transition trends across all the transition categories
(broader legal and regulatory, market, technology and reputational risks) over the
assessment timeframe for the selected transition indicators (see scenario analysis
considerations below).
c. For each transition indicator, comparison between the anticipated pathways based
on the project strategy, design and base case, and the pathways defined under each
scenario.
d. Identification of the risk drivers under each scenario (e.g. demand reduction,
unplanned capital expenditures to meet more stringent regulatory requirements, cost
volatility for critical raw materials, competitions from new technologies) and their
associated material financial impact drivers (e.g. revenues, capital costs, operational
costs, cost of/access to capital, premature closure/stranded asset).
e. Assessment of the material financial impacts (i.e. qualitatively, quantitatively or in
monetary terms) based on their potential magnitude, taking into account
management actions embedded into the project strategy, design and business case
(i.e. residual risks). A quantitative assessment of the most significant transition risks
categories should be considered. This can be developed over time, as more
information becomes available, and can be incorporated in subsequent iterations (see
Transition Management Plan, Section 6.6). When qualitative assessments are
48 MAY 2023
conducted, the selected significance categories (e.g. low, medium, high) should be
defined.
5. Identification of additional management actions required to reduce each risk, for
incorporation into the transition management plan.
6.5.2. Scenario analysis considerations
Scenario analysis should be used to identify and assess material risks to the Project (refer to 2.1.3),
through the identification of the transition drivers likely to have the most significant impacts.
Projects will be affected by the transition to a low carbon economy across multiple dimensions
(strategic, operational, reputational, and financial), along the entire value chain (direct operations,
suppliers, distribution, customer) and over a long-time horizon. Given the high level of uncertainty
about e.g. policy and regulatory development, socioeconomic context, technological evolution and
consumer preferences, the assessments of the potential Project exposure to transition risks and
opportunities can be challenging.
Scenario analysis is a tool to overcome those challenges, allowing users to explore how those risks and
opportunities may evolve under different hypothetical futures, and how those conditions may affect
the Project performance. By identifying options and preparing for alternative futures, Projects can
develop greater resilience and flexibility.
Scenario analysis informs strategic management in a structured, systematic, and analytical way,
informing risk management. By stress-testing Project performance, the Project’s strategic position is
assessed, and key drivers of risk are identified. Through the monitoring of those impact drivers over
time, Projects can understand which futures are emerging and revise their strategy and risk
management.
The TCFD recommends organisations to assess their resilience taking into consideration different
climate-related scenarios that cover a reasonable variety of future outcomes, both favourable and
unfavourable, including a 2° Celsius or lower scenario. A 2°C scenario provides a common reference
point that is generally aligned with the objectives of the Paris Agreement and will support Clients and
EPFIs’ evaluation of the potential magnitude and timing of transition-related implications for the
Project; across different Projects within a sector; and across different sectors.
The Client can use existing external scenarios and models (e.g., those provided by third-party vendors)
or develop their own, in-house modelling capabilities, depending on their needs, resources, and
capabilities. Publicly available transition scenarios (e.g., International Energy Agency (IEA), Network
for Greening the Financial System (NGFS)) are useful starting points and can serve to provide context,
and as anchors for in-house-developed scenarios in subsequent iterations (see Transition
49 MAY 2023
Management Plan in Section 6.6 below). They also enable comparability across Projects and
transparency over the models and input assumptions.
In setting climate-related scenario time horizons, the Client should challenge their thinking about
traditional planning horizons, which are often too short. Short-, medium- and long-term periods of
time need to be selected considering trends, foreseen changes in legal requirements and development
plans on transition to low carbon economy. In addition, compatibility with the Project’s capital
planning and investment horizons as well as with the lifecycle of major Project assets should be
considered.
Box 6-1: Scenario Analysis Requirements
Scenarios are descriptions of alternative plausible futures. Scenario analysis is a tool which allows users to
explore how Project-related risks and opportunities may evolve under different hypothetical futures, and
how those conditions may affect the Project’s performance.
Transition scenario analysis should meet the following requirements:
• The scenario analysis should consider a minimum of 2 transition scenarios, including a 2°C or
lower scenario.
• The number and choice of scenarios should be sufficiently diverse to create challenging “what-if”
analyses of favourable as well as unfavourable outcomes, and capture a wide range of insights
about uncertain future.
• Scenarios should be of high quality, periodically updated, and transparent to be an effective
decision tool and to have credibility.
• The choice of scenario should be justified.
• Time frames – short, medium and long term to be defined taking into account the Project’s
capital planning and investment horizons as well as the useful life of major Project assets.
6.5.3. Documentation of the Transition Risk Assessment
The CCRA transition report shall contain the following information:
• The scope of the assessment.

• Justification of the scenario selection and assessment period, taking into account the Project
life cycle.
• Overview of Project operations and business case (anticipated revenue streams, cost streams,
customer and market segments, and with their respective Projections over the assessment
timeframe). The assumptions underpinning the business case and any forecasts should also
be indicated.
• Scenario overview, with justification on the selection of transition drivers specific to the
project and identification of transition trajectories for the selected transition drivers.
50 MAY 2023
• Definition of materiality for the project.
• Scenario analysis with identification of potentially material risks and opportunities.
• Overview of management actions that have been incorporated into the project design,
business plan and strategy.
• Assessment of potentially material, residual risks and opportunities (at least qualitative,
moving onto quantitative or financial analysis in subsequent iterations).
Box 6-2: Documenting the transition risk assessment and outputs - suggested report structure
Introduction
• Project overview
• Policy context
• Background and objectives of the CCRA
Transition CCRA
• Methodology
• Project base case
• Project overview and timeline
• Justification of assessment timeframe
• Transition strategy
• Projected revenue and costs streams over the assessment timeframe (along with key
assumptions and dependencies underlying the Project’s business, operational and
financial plans)
• Scenarios and timeline
• Justification of scenario selection
• Scenario narratives and transition indicators over the assessment timeframe
• Transition risk and opportunity assessment
• Identification of material risks
• Risk management actions (high level summary of risk management actions embedded into
project design, financial and business planning, and overall strategy)
• Residual risk categorisation
Conclusions and recommendations
• Summary of findings and overall risk
• Proposed transition risk management actions (for incorporation into the Transition Management
Plan)
Appendices
Timing
Provided that a Transition Risk Screening has been conducted, the full Transition Risk Assessment can
be conducted during the design stage as soon as sufficient Project information is available, and prior
to loan signing (refer to Section 3.3 above).
51 MAY 2023
Should a Transition Risk Screening not have been conducted, the full Transition Risk Assessment
should be done as early as possible in order to meaningfully influence design, strategy and business
planning.
Where detailed design is to be completed after loan signing or financial close, the risk assessment
should be based on a suitably developed FEED design and then be re-confirmed once detailed design
is complete – see Section 3.3 for further details.
6.6 Transition Risks Management
A climate change transition management plan is required for the management of material risks to the
Project associated to the transition to a low-carbon economy. The transition plan should be integral
to the overall Project strategy, and should be credible and proportionate to the nature and magnitude
of the potential transition risks faced by the Project.
The aim of the Transition Management Plan is to set up the Project planning to prepare for a rapid
global transition towards a low carbon economy, reducing costs and enhancing resilience. The Plan
should be grounded in the following principles (Transition Plan Taskforce, 202329):
• Ambition: the Plan should outline ambitious objectives and priorities for the Project to
contribute to and prepare for a rapid and orderly economy-wide net zero transition. The Plan
should cover any transition relevant actions material to the Project and its financial planning.
• Action: the Plan should translate ambitious Project objectives into concrete steps over the
short and medium term, and should be connected to the Project business, operations and
financial planning and underpinned by clearly articulated resourcing plans. The sensitivity of
the plan to changes in assumptions should be assessed to mitigate delivery risks when
possible.
• Accountability: delivery of the Plan should be enabled through clear governance mechanisms
with relevant and appropriate incentivisation, reporting and accountability structures from
the Client’s side. Plan steps should be underpinned by quantifiable and timebound metrics
and targets that are reported annually.
As with the ESMP, the effectiveness and implementation of the Transition Management Plan should
be subject to thorough review and monitoring on behalf of EPFIs by the IESC.
In managing the Project transition risks, the following questions should be answered in the Transition
Management Plan:
29 https://transitiontaskforce.net/wp-content/uploads/2022/11/TPT-Disclosure-Framework.pdf
52 MAY 2023
Table 6-4: Transition Management Plan checklist.
Category Questions
Governance Is there a robust governance structure in place to ensure the implementation of the
(see also transition risk management actions?
Section 3.3) What is management’s role in assessing and managing climate related risks and
opportunities?
What is the role of the management in monitoring progress against climate related goals
and targets?
How are climate-related risks and opportunities taken into account when reviewing and
guiding strategy, major plans of action, risk management policies, annual budgets and
business plans, and when overseeing major capital expenditures?
Risk Are climate-related risk identification, assessment and management processes
management integrated into the Project risk management processes?
What management actions have been defined to monitor the evolution of transition
risks over time and ensure their timely management?
Are there mechanisms in place to periodically reassesses the Project exposure to
transition risks and adapt its overall strategy?
Metrics and Have targets have been defined in order to mitigate material transition risks?
targets What metrics and monitoring arrangements have been defined to monitor progress
against those targets?
Examples of risk management actions
Some examples of potential management options for potential risk factors outlined in Table 6-2 are
given in Table 6-5 below for consideration, however the list is non-exhaustive and the table is
presented for information only. See also Appendix 3.
Table 6-5: Transition risk factors and management considerations.

Potential risk factor Potential management considerations
Exposure to energy efficiency mandates, emission Periodic monitoring of transition indicators,

limits and carbon prices associated with direct Project including policy/legal and technical development,
operations (scopes 1 and 2) based on the energy and with a potential impact on energy and GHG
carbon intensity. Influence over scope 3 emissions intensity.
based on location and availability of low-carbon Identify opportunities to maximise renewable
transport modes. energy generation and flexibility.
Develop procedures to minimise carbon emissions
though improved operating practices.
Setting a well design internal carbon price.
Exposure to supply chain disruption or cost increases Supply chain diversification and risk management,
from increasing carbon prices. use of alternative and low-carbon materials.
53 MAY 2023
Potential risk factor Potential management considerations
Potential changes in demand (e.g. due to shifts in Procedure to ensure a diversified and balanced
consumer preference, competition from low-carbon portfolio of goods an services.
products, market disruptors) across its customer Procedure to review and assess sales of goods and
segments and markets. services against forecasts and mechanisms to
address gaps/respond to changes in demand and
adjust capacity and operational costs in the short
and medium term.
Diversification of customer base (segment and
geography).
Enhanced ESG/low carbon credentials (e.g.
certification) of products and services to
differentiate and capture a greater market share.
Build flexibility into the design and strategy to adapt
to the delivery of new products and services.
Competition from low-carbon technologies, which Monitor technical developments with the potential
could lead to e.g. asset impairment, competitive to impact Project competitiveness.
disadvantage due to higher operational costs and/or Monitoring the evolution of market and technology
lower productivity, and reduced demand. drivers (such as commodity demand and prices, fuel
prices, electrification) with the potential to pose
direct or indirect financial impacts, for an early
identification of direct and indirect impact on
demand, markets, costs, and revenues to inform the
strategy.
Consider partnerships for the development of
technological solutions and R&D.
Low-carbon investment plans to replace carbon
intensive equipment.
Litigation risks, if the Project is perceived to lack Periodic disclosure of climate-related ambition and
transparency, make unsubstantiated claims and/or broader strategy, targets and monitoring results to
negatively contribute to climate mitigation. track compliance.
Attraction and retention of human resources and Robust transition management plan including a
technical specialists, if the Project is perceived to credible and ambitious decarbonisation strategy,
negatively contribute to climate mitigation. externally verified and disclosed.
Disclosure of climate-performance metrics
Shift on investor’s perception of risk, impacts on
incorporated into remuneration policies.
security valuation, access to debt and equity capital and
risk premiums.
54 MAY 2023
Documentation of the Transition Management Plan
The climate change transition management plan should include, but not be limited, to the following:
1. Project’s high-level ambitions to mitigate, manage and respond to the risks and to leverage
opportunities posed by the transition to a low-carbon and climate resilient economy.
2. Short, medium and long-term actions that the Project will take to achieve its strategic
ambition.
3. Governance and accountability mechanisms that support delivery of the plan, with allocation
of climate-related responsibilities across management levels and an overview of incentives
and remuneration linked to climate-related performance. Communication (information flow)
and frequency in relation to climate-related risks and opportunities should be clearly defined.
4. Periodic review mechanism, to reassess the evolution of transition risks (i.e. updated scenario
analysis), high level ambitions and response actions over time. Reviews should be conducted
at least annually, and earlier if change in the governance structure, management measures or
metrics/targets occur.
5. Risk identification and management procedures to monitor and address transition risks as
they evolve over time, and to identify and assess new risks.
6. Transition targets tailored to the nature and magnitude of the risks, with supporting metrics
and monitoring plan to track progress.
7. Transition metrics and monitoring mechanisms in place.
Note: Metrics and targets should not be limited to GHG emissions. Financial, governance, business and operational
metrics and targets should be considered as relevant.
The climate change transition management plan can be a stand-alone document or integrated into
the ESMP and other Project documentation for the Project, and should follow general guidelines,
including but not limited to IFC Guidelines on Environmental and Social Management Systems30.
Timing
Transition Management Plans should be developed during the design stage (before start of
construction and start of operation, and before financial close). During operations phase management
plans should be reviewed and adapted if deemed necessary until the end of the loan period. See
Section 3.3 for details on the time of the management through the Project and financing lifecycle.
Additional information sources for transition risk assessment and management
30IFC (2015) Environmental and Social Management System Implementation Handbook, https://www.ifc.org/wps/wcm/connect/4c41260d-
1ba8-4d10-a77d-f762d60a1380/ESMS+Handbook+General+v2.1.pdf?MOD=AJPERES&CVID=lllFYII
55 MAY 2023
• Assessing Low Carbon Transition (ACT) - Publications – actiniative.org (actinitiative.org)
• Bank of England CBES – Climate Biennial Exploratory Scenarios
• CDP - Climate Transition Plans - CDP
• Climate Action Bonds – Transition finance for transforming companies
• EFRAG Draft European Sustainability Reporting Standards – ESRS E1 Climate Change
• GFANZ - Glasgow Financial Alliance for Net Zero (gfanzero.com)
• IEA – World Energy Outlook
• IGCC - IGCC-corporate-transition-plan-investor-expectations.pdf
• IFRS - IFRS - Climate-related Disclosures and IFRS - General Sustainability-related Disclosures
• NGFS – Network for Greening the Financial System
• OECD – Guidance on Transtion Risk Finance
• Say on Climate - https://sayonclimate.org/climate-action-plans/
• SBTi - Net-Zero-Standard.pdf (sciencebasedtargets.org)
• TCFD – Guidance and - TCFD Knowledge Hub
• TPT - Transition Plan Taskforce
• TPI - Transition Pathway Initiative
• ULI – Transition Risk Assessment
56 MAY 2023
LIST OF ABBREVIATIONS
CCRA Climate Change Risk assessment

EHS Environmental, Health and Safety
EP Equator Principles
EPA Equator Principles Association
EPAP Equator Principles Action Plan
EPFI Equator Principles Finance Institution
E&S Environmental and Social
ESIA Environmental and Social Impact Assessment
ESMP Environmental and Social Management Plan
EU European Union
FEED Front End Engineering and Design
GHG Greenhouse Gas
GIIP Good International Industry Practice
HRA Human Rights Assessment
IESC Independent Environmental and Social Consultant
IFC PS International Finance Corporation Performance Standards
LMA Lenders’ Market Adviser
LTA Lenders’ Technical Adviser
LTS Long-term Strategies
NCC National Climate Commitments
NDC Nationally Determined Contribution
RfP Request for Proposal
SoW Scope of Work
TCFD Taskforce on Climate-related Financial Disclosure
UNFCCC United Nations Framework Convention on Climate Change
57 MAY 2023
ANNEX 1 DATA REFERENCES FOR SECTOR VULNERABILITY
For sector vulnerability data some references are given below:
• Adapting to climate change: industry sector examples for your risk assessment: UK
Environment Agency - Adapting to climate change: industry sector examples for your risk
assessment - GOV.UK (www.gov.uk)
• EU Taxonomy Sectoral guidance - EU Taxonomy Compass (europa.eu)
• Safeguarding chemical businesses in a changing climate : Chemical Industries Association -
Safeguarding chemical businesses in a changing climate - How to prepare a Climate Change
Adaptation Plan.pdf (cia.org.uk)
• Guide on Climate Change Adaptation for the Mining Sector: The Mining Association of
Canada - Guide on Climate Change Adaptation for the Mining Sector - The Mining
Association of Canada
• Hydropower Sector Climate Resilience Guide: IHA International Hydropower Association -
Hydropower Sector Climate Resilience Guide
• Climate Change Adaptation Planning for Ports and Inland Waterways (2020): PIANC The
World Association of Waterborne Transport Infrastructure - Pianc
ANNEX 1
58 MAY 2023
ANNEX 2 ADDITIONAL GUIDANCE ON CLIMATE CHANGE DATA
PROCUREMENT AND ASSESSMENT
General good practices
The TCFD Recommendations state that ‘Physical risks resulting from climate change can be event
driven (acute) or longer-term shifts (chronic) in climate patterns.’
• Acute physical climate risks can include increased severity and frequency of droughts, storms,
floods, heat waves and wildfires.
• Chronic physical climate risks can include sea level rise, longer-term
temperature/precipitation/wind increase/decrease.
According to the TCFD, the physical climate related scenarios are relevant for organizations exposed
to acute or chronic climate change, such as those with:
• long-lived, fixed assets;

• locations or operations in climate-sensitive regions (e.g., coastal and flood zones);
• reliance on availability of water; and
• value chains exposed to the above.
ANNEX 2
59 MAY 2023
Box A2-1: Examples of Physical Risk
Potential impacts for Projects from Physical Risks could include:
• Direct damage to assets, as a result of extreme weather events (e.g. droughts, storms) or rising sea
levels.
• Changes in water availability, supply and quality, often with consequent social impacts.
• Disruption to operations, ability to transport goods and products
• Impacts on employee or community safety.
• Supply chain disruption.
Certain Projects may have increased exposure to Physical Risks, which are:
• Reliant on climate vulnerable resources, such as water.

• More susceptible to climate/weather variation, including extreme weather events.
• Located in geographically at high-risk areas, such as coastal zones or flood plains.
Some examples of Projects that could have increased exposure to Physical Risks include:
• Industrial operations, infrastructure or real estate situated in low lying areas close to coastlines,
rivers or floodplains, may experience disruption to operations, physical damage and community
impacts in flooding incidents.
• Infrastructure with high structures such as wind turbines and electricity transmission infrastructure
are vulnerable to storm damage. This can reduce power capacity and/or cause power disruptions.
• Electricity transmission infrastructure in hot, dry climates can exacerbate or cause wildfires.
• Workforces on Projects located in hot climates and who are working in sectors which typically
require outside working (e.g. in agribusiness, construction or mining sectors) are more susceptible to
occupational heat stress from extreme hot weather.
• Both renewable and fossil energy industries can be impacted by changes to long term climatic
conditions (wind, temperature, solar radiation).
• Hydroelectricity and other water dependent industries, such as farming, food processing, textiles and
garments impacted by a decrease in precipitation levels compounded by competing water needs
(social and ecological).
• Capacity to ship/transport resources and manufactured goods can be limited by changes in
precipitation levels and extreme variability in weather patterns.
• Agriculture/forestry product sectors are vulnerable to limitations imposed across their supply chains
from changes to habitats resulting from climate change as well as drought, flooding, wildfires and
storms.
ANNEX 2
60 MAY 2023
The climate Projections and assessment of physical risks should take into account the state-of-the-art
science for risk analysis and related methodologies in line with the most recent Intergovernmental
Panel on Climate Change reports, scientific peer-reviewed publications, free open source or paying
tool/models.31
Climate data procurement
The Intergovernmental Panel on Climate Change (IPCC) identified a number of extreme climate events
that are expected to worsen significantly over the 21st century, such as increasing mean temperatures,
changing precipitation pattern, extreme heat, extreme precipitation, drought, changing winds, sea
level rise, wildfires (6th assessment IPCC report, 202132). These climate-related hazards should be
taken as a minimum list of hazards to consider in the Climate Change Risk Assessment (CCRA) when
considered relevant for Project/sector.
The datasets should be sourced from the latest state of the art climate models in the Coupled Model
Intercomparison Projects (CMIP6, CMIP5). The Global Circulation Models (GCMs) do not provide the
resolution required to assess climatic impacts at the asset level, the recommendation when
conducting physical climate risk assessments is to use wherever possible the highest available
resolution, downscaled data at regional and local scales from high-resolution regional models or
statistical methods (which require long-term observational datasets).
Climate hazards, indicators and data sources
Climate change will manifest differently at geographical locations, a standard set of variables can
provide a broad indication of the climate conditions (screening stage) from which a physical risk
assessment can be undertaken.
The following table summarizes the key categories of climate information (climate modelling and
hazards, variables, data sources, spatial coverage, resolutions). The acute and chronic climate-related
hazards are classified following major hazard groups as defined in EU Taxonomy33. The list of climate-
related hazards is non-exhaustive and constitutes an indicative list of most widespread hazards that
31 One of the good practice example of such documents under development is the publication of German Environmental Agency “How to
perform a robust climate risk and vulnerability assessment for EU taxonomy reporting? Recommendations for companies - final draft”
(https://www.umweltbundesamt.de/sites/default/files/medien/479/publikationen/climate-risk-assessments-for-taxonomy-reporting.pdf)
32
IPCC, 2021: Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the
Intergovernmental Panel on Climate Change [Masson-Delmotte, V., P. Zhai, A. Pirani, S.L. Connors, C. Péan, S. Berger, N. Caud, Y. Chen, L.
Goldfarb, M.I. Gomis, M. Huang, K. Leitzell, E. Lonnoy, J.B.R. Matthews, T.K. Maycock, T. Waterfield, O. Yelekçi, R. Yu, and B. Zhou (eds.)].
Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2391 pp. doi:10.1017/9781009157896.
33 https://finance.ec.europa.eu/system/files/2020-03/200309-sustainable-finance-teg-final-report-taxonomy-annexes_en.pdf
ANNEX 2
61 MAY 2023
are to be taken into account as a minimum in the climate risk and vulnerability assessment. Example
of indicators are listed to characterize the changes in frequency and intensity of these hazards.
ANNEX 2
62 MAY 2023
Category of climate
Hazards Indicators Data sources
hazard
Copernicus34,35
Heatwave index, heat stress, tropical days/nights,
Temperature related Extreme heat event IPCC Atlas36,37
days above thresholds (25°, 30°C,…)
Climate Change Knowledge portal38,39
Copernicus34, 40
Acute Heavy precipitation days (threshold above 10 mm, 20
Extreme
mm, 50 mm), changes in precipitation intensity and IPCC Atlas36,37
precipitation events
frequency (return period)
Water related Climate Change Knowledge portal38,39
Copernicus34,40
Drought Drought index, consecutive dry days
Climate Change Knowledge portal38,39
34 Copernicus Climate Data Store (CDS) and services, managed by European Commission, https://cds.climate.copernicus.eu/#!/home
35 Spatial coverage and resolution : Global (CMIP5:0.5°x0.5°; CMIP6: from 0.5°x 0.5° to 2.8125°x2.8125°), CORDEX regional climate (Europe, 0.11°*0.11°), European cities
36 IPCC Interactive Atlas, https://interactive-atlas.ipcc.ch/
37 Spatial coverage and resolution : Global (CMIP5, CMIP6, CORDEX: 0.1° to 1°)
38 Climate Change Knowledge Portal (CCKP), https://climateknowledgeportal.worldbank.org/
39
Spatial coverage and resolution : Global (CMIP5, CMIP6: 1°x1°)
40
Spatial coverage and resolution : Global (CMIP5:0.5°x0.5°; CMIP6: from 0.5°x 0.5° to 2.8125°x2.8125°), CORDEX regional climate (Europe, 0.11°*0.11°)
ANNEX 2
63 MAY 2023
Copernicus34, 41
River discharge, mean runoff, flood recurrence 2 to 50
Flood Aqueduct WRI42
years period
Climate Change knowledge portal38,39
Copernicus34
Wind related Extreme wind events Storms, hurricanes, cyclones
World Meteorological Organisation43
Extreme mass
Solid mass related Landslide, avalanche, subsidence NASA EarthData44
movement
Change in fire Fire Weather index (FWI), number of
Wildfires Copernicus34,41
condition high/medium/low fire danger days
Mean temperature
Temperature related Annual, monthly mean temperature Copernicus34, 45
change
Mean precipitation
Chronic Annual/seasonal/monthly mean precipitation flux Copernicus34,45
change
Water related
Sea level rise Sea level rise, coastal flooding IPCC Atlas36,37
41
Spatial coverage and resolution : CORDEX regional climate (Europe, 5km*5 km)
42
Aqueduct Water Risk Atlas (WRI), https://www.wri.org/aqueduct, global coverage (catchment)
43
World Meteorological Organization, https://public.wmo.int/en/our-mandate/focus-areas/natural-hazards-and-disaster-risk-reduction/tropical-cyclones/Notable-tcs, records of past cyclones
44 Landslides toolkit, Earth data (NASA), https://www.earthdata.nasa.gov/learn/toolkits/disasters-toolkit/landslides-toolkit
45
Spatial coverage and resolution : Global (CMIP5, CMIP6), CORDEX regional climate (Europe, Africa, Asia, America,…), Europe, Northern Brazil and Central Africa (1km*1km)
ANNEX 2
64 MAY 2023
Coastal risk screening tool46
Wind related Mean wind change Wind speed, wind direction Copernicus34,45
Solid mass related Erosion Coastal/soil erosion indicators, soil degradation/loss Copernicus34, 47
46
Coastal Risk Screening Tool, https://toolkit.climate.gov/tool/coastal-risk-screening-tool, global coverage (30m*30m spatial resolution)
47
Spatial coverage and resolution : CORDEX regional climate (Europe/Italy, 500mx500m)
ANNEX 2
65 MAY 2023
PUBLIC
The following sources can be used as complementary data and tools in order to identify and evaluate
climate related risks and develop mitigation and adaptation requirements.
Content type Source/link Description
Tool Climate and Disaster Risk Screening Disaster and climate risk screening tools for
Tools (worldbank.org) emerging market businesses
Think Hazard Identify natural hazards to reduce their
impacts
GFDRR Understand and reduce vulnerabilities to
natural hazards and climate change of low
and middle income countries
NatCatSERVICE | Munich Re Comprehensive databases for analysing and
evaluating natural catastrophes
Natural Hazards Edition | Munich Re Assess the risks of natural hazards around
the world, from the location-based individual
risk through to entire risk portfolios
CatNet® (swissre.com) Natural hazard for risk assessment.
Data Global Assessment Report on Flagship report of the United Nations on
Disaster Risk Reduction (GAR) | GAR worldwide efforts to reduce disaster risk
(undrr.org)
Country Index // Notre Dame Global Risk index that summarizes a country's
Adaptation Initiative // University of vulnerability to climate change and other
Notre Dame global challenges in combination with its
readiness to improve resilience.
Global Climate Risk Index | Risk Index that analyses to what extent
Germanwatch e.V. countries have been affected by the impacts
of weather-related loss events
EM-DAT | The international Database on the occurrence and effects of
disasters database (emdat.be) over 22,000 mass disasters in the world from
1900 to the present day.
World Health Organization (WHO) Information and examples of how diverse
environmental changes affect the
occurrence of various infectious diseases in
humans
Data/Tool TCFD Knowledge Hub - TCFD Platform designed to help organizations
Knowledge Hub (tcfdhub.org) implement the TCFD recommendations by
providing over 400 relevant insights, tools
and resources
Transition Plan Taskforce The Transition Plan Taskforce (TPT) was
launched by UK HM Treasury in April 2022 to
ANNEX 2
66 MAY 2023
develop the gold standard for private sector
climate transition plans applicable to the UK,
but globally transferable..
About Climate-ADAPT — English Platform designed to support organisations
(europa.eu) in the development, implementation and
evaluation of climate change adaptation
strategies, plans and actions at EU,
transnational, national and sub-national
levels
Adaptation Resilience - OECD Knowledge Hub on Organisation for
Economic Co-operation and Development
(OECD)’s climate adaptation work latest
research and analysis
Ministry of the Environment, Practical guide for Scenario Analysis in line
Government of Japan with the TCFD Recommendations
The climate assessment should represent and interpret uncertainty, inherent in the climate modeling
Projections (internal variability, model bias, emissions scenarios), the spatial scale limitations. An
important consideration should be to use the largest number of climate simulations available: large
multi-models ensemble provides better confidence and robust estimations. The agreement between
models can be evaluated using for example the 10th, 50th and 90th centile values.
Emission scenarios
The climate risk assessment should be based on a robust analysis of climate data and Projections
across a range of future GHG emission scenarios, published in the most recent AR5/AR6
Intergovernmental Panel on Climate Change (IPCC) reports48,32: the Representative Concentration
Pathways (RCP2.6, RCP4.5, RCP6.0 and RCP8.5) and the Socioeconomic Pathways (SSP1-1.9, SSP1-
2.6, SSP2-4.5, SSP3-7.0, SSP5-8.5). These scenarios describe 21st century pathways of GHG emissions
related to possible societal development and policy paths, from sweeping cuts to unchecked pollution
emissions. The TCFD recommends selecting a range of scenarios (not just one) that covers a
reasonable variety of future outcomes, both favourable and unfavourable; more specifically the use
of a 2°C or lower scenario in addition to two or three other scenarios most relevant to their
circumstances, such as scenarios related to Nationally Determined Contributions (NDCs), physical
climate-related scenarios, or other challenging scenarios.
48IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the
Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 151
pp., https://www.ipcc.ch/site/assets/uploads/2018/02/SYR_AR5_FINAL_full.pdf
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67 MAY 2023
Figure A2.1: Global surface temperature change relative to 1850-1900. Source: AR6 IPCC report49.
Temporal horizon and climate periods
The horizons to consider climate-related impacts on Projects will vary across sectors and geographies.
The suitable time frame for assessing climate-related risks is Project-specific. The selection of time
horizons (short-term for near future; medium-term; long-term oriented between mid-century and end
century) should be relevant to the lifetimes of the assets or liabilities.
The classical climate period for averaging the variables is 30 years, as defined by the World
Meteorological Organization (WMO)32. A 30-year period is used, as it is long enough to filter out any
inter-annual variation or anomalies, but show climatic trends.
Climate data assessment
The climate data assessment aims at understanding the extent and magnitude of climatic changes for
the asset and hence the potential sensitivity to these changes.
49 IPCC, 2021: Summary for Policymakers. In: Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the
Sixth Assessment Report of the Intergovernmental Panel on Climate Change [Masson-Delmotte, V., P. Zhai, A. Pirani, S.L. Connors, C.
Péan, S. Berger, N. Caud, Y. Chen, L. Goldfarb, M.I. Gomis, M. Huang, K. Leitzell, E. Lonnoy, J.B.R. Matthews, T.K. Maycock, T. Waterfield,
O. Yelekçi, R. Yu, and B. Zhou (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 3−32,
doi:10.1017/9781009157896.001.
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68 MAY 2023
A baseline/reference period (historical) should be identified, and the use of climate change projections
from the baseline estimated for each climate-related hazards at the asset locations is highly
recommended.
Charts (data tables, graphics) can be used to reflect climatic trends and the increase/decrease of main
climate-related hazards.
Glossary of terms32
Baseline/reference period: A time period against which climate changes are calculated (e.g., expressed
as anomalies relative to a baseline). Current baseline refers to present-day conditions while future
baseline refers to future Projections.
Climate change: a change in the state of the climate that can be identified (e.g., by using statistical
tests) by changes in the mean and/or the variability of its properties, and that persists for an extended
period, typically decades or longer. Climate change may be due to natural internal processes or
external forcings such as modulations of the solar cycles, volcanic eruptions, and persistent
anthropogenic changes in the composition of the atmosphere or in land use.
Climate indicator: Measures of the climate system, including large-scale variables and climate proxies.
Hazard: The potential occurrence of a natural or human-induced physical event or trend that may
cause loss of life, injury, or other health impacts, as well as damage and loss to property,
infrastructure, livelihoods, service provision, ecosystems and environmental resources.
ANNEX 2
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PUBLIC
ANNEX 3 EXAMPLE SCENARIO ANALYSIS TABLES
ANNEX 3
70 MAY 2023
Table A3-1: Example transition screening checklist
Potential impact mechanism
Potential transition risk Overview of management approach References
for the Project
Describe the links between the transition Describe how the risks have been List references/links to key documents
Overview of potential transition risks to
risks and potential financial risks to the addressed. (e.g. procedures, decision gates,
which the Project may be exposed over
Project design specifications, etc) which
time. E.g. Summarise low carbon design and
evidence management actions and
E.g. Potential material impacts on energy efficiency considerations and
E.g. Exposure to energy efficiency decisions taken.
unplanned capital expenditures, justify choice of technology, with
mandates, emission limits and carbon
operational costs and ultimately, indication of the potential to build
prices associated with direct Project
revenue impacts associated to flexibility into design to adapt to new
operations (scopes 1 and 2) based on
reputational considerations. technologies or low carbon
the energy and carbon intensity.
materials/energy sources in the future.
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PUBLIC
Table A3-2: Example of qualitative transition scenario analysis50.

Residual Financial Impact51
Management actions integrated into
Potential risk factors (selected Potential financial impacts for the Examples of management actions for Residual
Transition trend examples Project design and business planning
examples) Project (selected examples) Favourable case scenario Reasonable worst-case scenario
(selected examples) Financial Impact52 (selected examples)
Short-term Medium-term Long-term Short-term Medium-term Long-term
Policy and legal
Increasingly stringent Exposure to increasingly stringent Potential material impacts on e.g. Low carbon design and operations, with Periodic monitoring of transition indicators, including
efficiency mandates, regulations impacting direct capital expenditures, operational incorporation of energy efficiency and policy/legal and technical development, with the
emission limits and Project operations based on the costs and ultimately, revenue impacts best available technologies and building potential to impact energy sources and prices, GHG
circularity requirements energy and carbon intensity built (driven by reputational risks flexibility into design (e.g. ability to intensity targets, carbon price instruments (e.g.
along with higher carbon into the Project design and associated to the Project). switch to new fuels, or to adjust carbon taxes. development of carbon markets),
prices operations. capacity, with limited cost and without downstream uses and demand for projects and
the need for a total refurbishment). services, amongst other.
Use of up to 100% renewable energy Setting a well-designed internal carbon price.
(on-site generation and/or power Identify further opportunities to maximise renewable
purchase agreements). energy generation and flexibility.
Additional energy, water and material efficiency/
decarbonisation measures (e.g. develop procedures
to minimise carbon emissions through improved
operating practices).
Exposure to supply chain Potential material impacts on e.g. Short and diversified supply chains, Identify opportunities for further supply chain
disruption or cost increases driven operational costs, as well as revenues resource efficiency and use of low- diversification and risk management (including
by higher carbon, fuel and (if production is disrupted or carbon materials integrated into design logistics risk management), price hedging.
resource prices and lower impaired). and operations.
availability.
Market
Shifts in consumer Competitive disadvantage, leading Potential material impacts on Build flexibility in design to enable cost- Procedure to ensure a diversified and balanced
preference, competition to potential changes in demand revenues effective adaptation to alternative or portfolio of goods and services.
from low-carbon products, across customer segments and recycled materials and new technologies, Procedure to review and assess sales of goods and
market disruptors (e.g. markets. selection of low carbon products and services against forecasts, and mechanisms to
innovation in design, services, diversification of portfolio of address gaps/respond to changes in demand and
materials, services) and new goods and services, customers and adjust capacity and operational costs in the short and
business models (e.g. markets. medium term.
marketplace or subscription,
Diversification of customer base (segment and
renting or leasing models)
geography).
Enhanced ESG/low carbon credentials (e.g.
certification) of products and services to differentiate
and capture a greater market share.
Technology
50
Selected examples are presented, and the list of transition trends, risk factors, financial risk drivers and management actions should not be considered exhaustive. The structure and content of this table shall be adapted to the Project and context.
51
Transition risks (and opportunities) for each Project in the short, medium and long term can be qualitatively assessed under the two scenarios, taking into account their anticipated evolution over time under each scenario and the current management actions. This can be done using a qualitative scale
(e.g. non-material low, medium, high) and colour coded. Key to this analysis is the definition of materiality, and a clear definition of thresholds between categories in the qualitative scale. Short-, medium- and long-term time horizons to be defined taking into account the Project’s capital planning and
investment horizons as well as the useful life of major Project assets.
52 Management actions for residual financial impacts should be integrated into the Transition Management Plan.
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72 MAY 2023
Residual Financial Impact51
Management actions integrated into
Potential risk factors (selected Potential financial impacts for the Examples of management actions for Residual
Transition trend examples Project design and business planning
examples) Project (selected examples) Favourable case scenario Reasonable worst-case scenario
(selected examples) Financial Impact52 (selected examples)
Short-term Medium-term Long-term Short-term Medium-term Long-term
Competition from low- Asset impairment, competitive Potential material impacts on costs Build low carbon, fuel efficiency and Monitor technical developments with the potential to
carbon technologies disadvantage due to higher and revenues, sunk costs of flexibility built into design to reduce the impact Project competitiveness (i.e. that compete at
operational costs and/or lower premature closure/stranded asset risk cost of adaptation to new technologies. present or pose a risk of competition or disruption of
productivity, and reduced demand. (with associated reputational risks). production processes in the future).
OR Monitoring the evolution of market and technology
Need to adapt to new drivers (such as commodity demand and prices, fuel
fuels/technologies to remain prices, electrification) with the potential to pose
competitive, leading to unplanned direct or indirect financial impacts, for an early
CAPEX and operational disruption. identification of potential direct and indirect changes
on demand, costs, and revenues to inform the
strategy.
Consider partnerships for the development of
technological solutions and R&D, supporting
technological change to capitalise on efficiencies and
improvements achieved.
Low-carbon investment plans to replace carbon

intensive equipment.
Reputation
Increased litigation risk Litigation risks, if the Project is Potential material impacts on costs, Stakeholder engagement and Robust transition management plan including a
perceived to lack transparency, as well as revenues (if climate-related management; alignment of Project credible and ambitious decarbonisation strategy.
make unsubstantiated claims litigation leads to reputational performance with sectoral benchmarks Periodic disclosure of climate-related ambition and
and/or negatively contribute to impacts). and decarbonisation pathways (e.g. GHG broader strategy, targets and monitoring results to
climate mitigation. emission intensity, emission reduction track compliance.
targets); enhanced disclosures; ensure
Disclosure of climate-performance metrics
adequate litigation insurance
incorporated into remuneration policies.
Promote decarbonization of industry through
collaborative work with customers and suppliers and
through partnerships.
Growing expectations for Attraction and retention of human Potential material impacts on costs As above. As above.
responsible conduct from resources and technical specialists, and revenues.
stakeholders, including if the Project is perceived to Potential impacts on revenues (from
investors, lenders, negatively contribute to climate lower demand) and access to/cost of
consumers and workers mitigation. capital.
Pressure on market share and Opportunity to enhance reputation
ability to raise capital. and brand value through enhanced
transparency.
ANNEX 3
73 MAY 2023
PUBLIC
ANNEX 4 LIST OF REFERENCES AND SOURCES
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ANNEX 4
79 MAY 2023
GUIDANCE NOTE
ON IMPLEMENTATION OF HUMAN
RIGHTS ASSESSMENTS UNDER THE
EQUATOR PRINCIPLES
EQUATOR
PRINCIPLES
_____________________________________________________________________________________
GUIDANCE NOTE
ON IMPLEMENTATION OF HUMAN RIGHTS ASSESSMENTS
UNDER THE EQUATOR PRINCIPLES
Disclaimer: This document contains selected information and examples to support the understanding of
the requirements in, and implementation of, the Equator Principles and does not establish new principles
or requirements, nor does it create any rights in, or liability to, any person, public or private. The
information and examples are provided without guarantee of any kind, either express or implied,
including, without limitation, guarantees as to fitness for a specific purpose, non-infringement, accuracy
or completeness. The Equator Principles Association shall not be liable under any circumstances for how
or for what purpose users apply the information, and users maintain sole responsibility and risk for its use.
Equator Principles Financial Institutions should make implementation decisions based on their institution’s
policy, practice and procedures. In a situation where there would be a clear conflict between applicable
laws and regulations and any information presented in this document, the laws and regulations of the
relevant host country shall prevail.
September 2020
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NOTE TO READER: THIS GUIDANCE IS PURELY VOLUNTARY AND IN NO

WAY ALTERS OR AMENDS THE REQUIREMENTS SET OUT IN THE EP4
DOCUMENT AND CREATES NO NEW OBLIGATIONS ON EPFIs.
Background
The Equator Principles Association recognizes that financial institutions and their clients have a
responsibility to respect Human Rights.1 Equator Principles Financial Institutions (“EPFIs”) will fulfill this
responsibility in line with the United Nations Guiding Principles on Business and Human Rights (“UNGPs”)
by carrying out Human Rights due diligence on the projects EPFIs finance (EP4 Preamble).
The UNGPs serve as the global authoritative framework for defining the corporate responsibility to respect
Human Rights and for carrying out due diligence to prevent and address abuses. The UNGPs state that
governments have the duty to protect Human Rights, including from harms committed by private-sector
actors, and companies have the responsibility to respect Human Rights, no matter where or how they
operate and regardless of their size (UNGPs, Principles 11-15). The responsibility to respect is
operationalized by companies carrying out Human Rights due diligence to assess their actual and potential
adverse Human Rights impacts (UNGPs, Principles 17-18) to understand what their Human Rights risks are
based on their severity and likelihood.
In the context of the fourth version of the Equator Principles (“EP4”), each client is expected to conduct
Human Rights due diligence in line with the UNGPs and to document that process in its Assessment
Documentation (EP4, Principle 2). As indicated in Principle 2, clients are expected “to refer to the UNGPs
when assessing Human Rights risks and impacts” (EP4, Principle 2) (particularly paragraphs 17-21 of the
UNGPs). Accordingly, the depth of the Assessment should be dictated by the scope of project risks, which
will also dictate the level of detail to be included in project documentation provided to the EPFI (EP 4,
Principle 2).
1
See EP4, Exhibit 1: Glossary of Terms, at p. 28 (defining “Human Rights” as used throughout the EP4 text as
including, at a minimum, those expressed in the International Bill of Human Rights – meaning “the Universal
Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant
on Economic, Social and Cultural Rights and the principles concerning fundamental rights set out in the International
Labour Organisation’s Declaration on Fundamental Principles and Rights at Work”); see also UNGPs, Principle 12 and
Commentary.
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When adverse Human Rights impacts do arise and go unmitigated, the UNGPs indicate that government
and corporate actors have a joint responsibility to ensure that victims have access to effective judicial and
non-judicial remedies. In line with the UNGPs call for remedying of adverse Human Rights impacts, EPFIs
believe that negative impacts should be avoided where possible, and if unavoidable, should be minimized
and mitigated, and where residual impacts remain, clients should provide a remedy (“EP4 Preamble”).
Please refer to Equator Principles (July 2020) for official references to external standards and Human
Rights instruments (such as the IFC Performance Standards and the UNGPs, for example). Links and
references in this guidance to other third-party documents that are not referred to in the Equator
Principles themselves are included only for further background/guidance and should not be viewed
as an official endorsement by the Equator Principles Association.
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CONTENTS
Background .......................................................................................................................................1
I. PURPOSES OF THIS GUIDANCE......................................................................................................4
II. OVERVIEW OF METHODOLOGY & CONTENT OF HUMAN RIGHTS ASSESSMENT ..............................5
Initial scan for Human Rights impacts ................................................................................................. 7
EPFI review and analysis of documentation ....................................................................................... 8
Benchmarking against international Human Rights ........................................................................... 9
Engaging with Affected Communities, Workers and Other Stakeholders – particularly vulnerable
groups ............................................................................................................................................... 10
Documenting Stakeholder Engagement............................................................................................ 11
Assessing exacerbating and mitigating factors of local context....................................................... 11
III. ASSESSING RISK MANAGEMENT ................................................................................................. 13
Assessing impact prioritization by severity and likelihood .............................................................. 13
Client management and action plans/appropriate actions to address impacts ............................. 13
Focus on risks, not opportunities ...................................................................................................... 14
IV. ASSESSING PROJECT LEVEL GRIEVANCE MECHANISMS AND PROVIDING REMEDIATION ...................... 15
Grievance mechanisms ...................................................................................................................... 15
Effectiveness criteria for operational grievance mechanisms.......................................................... 15
V. REMEDY .................................................................................................................................... 17
Remedy in the context of project development ............................................................................... 18
APPENDIX A: TABLE OF HUMAN RIGHTS RISKS COMMON TO INFRASTRUCTURE PROJECTS ................ 19
APPENDIX B: LIST OF RESOURCE GUIDES ON ADDRESSING HUMAN RIGHTS IMPACTS .................................. 27
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I. PURPOSES OF THIS GUIDANCE
This Guidance Note provides both clients and EPFIs guidance on assessing Human Rights impacts under
the Equator Principles, including Principle 1 (Review and Categorisation) (p. 8), Principle 2 (Environmental
and Social Assessment) (pp. 8-9), Principle 5 (Stakeholder Engagement) (p. 11-12), Principle 6 (Grievance
Mechanism) (p. 13), Principle 8 (Covenants) (pp. 14-15), Principle 9 (Independent Monitoring and
Reporting (p. 16) and Principle 10 (Reporting and Transparency) (pp. 16-17).
▪ For clients, guidance is provided on how to meet the Human Rights requirements under Principle
2. EPFIs expect clients to properly assess the risks of actual or potential adverse Human Rights
impacts related to project development in line with the UNGPs (particularly paragraphs 17-21) and
incorporate that risk assessment into the project’s Assessment Documentation (EP4, Principle 2).
The UNGPs indicate that a company needs to assess Human Rights risks based on the scale and
complexity of the projects and the severity and likelihood of potential Human Rights risks. Each
project’s risk assessment will therefore be unique and proportional to the project’s risks and the
level of detail provided by the client in the Assessment Documentation will be proportional to the
level of risks identified.
▪ For EPFIs, guidance is provided to help evaluate the completeness and quality of such assessments
when conducting project due diligence “in line with” the UNGPs. The Human Rights assessment
should be used by the EPFI to help inform project categorisation by the EPFI under Principle 1.
Summary of Actions for Clients and EPFIs

Clients EPFIs
▪ Carry out initial scan of potential/actual ▪ Review documentation or for lower risk projects, the high-
project-level adverse Human Rights impacts level statement of risks provided by client in order to
using UNGPs methodology [see sections 1-3 categorise project based on risk level [see section 1 below],
below, and Table of Human Rights Risks taking into consideration outcome of initial scan of
Common to Infrastructure Projects], noting potential/actual project-level adverse Human Rights
which stakeholders could potentially be impacts.
affected by which risks, if any.
▪ Verify whether risks presented in documentation or
▪ If results of initial screening point to lower statement of risk clearly and sufficiently detail the potential
risks, provide high-level statement of risks or risks, including potentially affected stakeholders, and how
comments in a form acceptable to the EPFI the client plans to mitigate such risks.
for review.
▪ If information presented is complete, the documentation or
▪ If results of scan point to higher risks, carry statement of risk should be utilized to inform EPFI’s
out additional research to understand risks assessment of the project risks.
and how they should be avoided, mitigated,
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and/or remediated. Include results in

▪ If information presented appears incomplete, ask the client
documentation for review by EPFI.
for additional information, which may include the client
▪ Ensure assessment includes information on conducting additional Human Rights due diligence.
project level grievance mechanism [see
▪ In assessing the information provided by client, pay
section 4 below].
attention to information regarding the project level
grievance mechanism [see section 4 below]
II. OVERVIEW OF METHODOLOGY & CONTENT OF HUMAN RIGHTS

ASSESSMENT
Properly done, the client’s assessment:
▪ puts forth an analysis of the Human Rights risks presented by a project, including any exacerbating
contextual factors, and how a client would be potentially connected to such risks;
▪ categorises the various actual or potential impacts for each potentially affected group, i.e., Affected
Communities, Workers or Other Stakeholders within the project’s area of influence, with particular
attention to vulnerable individuals and groups;
▪ describes the client’s proposed actions (or those recommended by external consultants) for
avoiding or mitigating such impacts or otherwise addressing them through appropriate remedy.
More advanced assessments will identify outside partners (governments, NGOs, etc.) to help a client
understand and mitigate potential Human Rights risks. Assessments that are too high- level can result in
a client not fully understanding the actions it needs to take to address potential risk. This can also result
in an EPFI under-estimating the extent of risk in the project, leading to mischaracterizations of the
project’s risk level, and consequently, lower levels of due diligence being applied to the project.
The below table summarizes the key elements, based on the UNGPs, which should be addressed to some
extent in any Human Rights assessment, whether high-level or in-depth, and should be covered by client’s
Assessment Documentation. The remainder of this Guidance Note provides a more detailed explanation
of these elements and outlines best practices for conducting assessments of Human Rights impacts, noting
that the scale and detail of the assessment will be proportional to the projects scale and potential risks.
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Human Rights Assessment Content Summarized (Sections III-V below)

Details how the Human Rights assessment was undertaken; timeline; resources consulted;
parties engaged; approach taken to identify Human Rights risks. At a minimum, the
assessment’s methodology should describe:
1. which Human Rights issues were evaluated;
2. with respect to which affected groups; and
Methodology
3. the outcome of those evaluations, including
a. the level of risk to the respective affected group;
b. the extent to which the risk can be mitigated; and
c. whether any impacts may not be mitigated and may instead require other remedial
action.
Gives overview of location and its unique characteristics which may give rise to Human Rights
Local context
risks (i.e. poverty levels, government stability, civic freedoms, corruption presence, etc.).
Indicates how local laws, and enforcement thereof, are consistent (or not) with international
standards for the identified Human Rights risks. In projects where they are the applicable or
chosen standard consistent with Principle 3, alignment with the IFC Performance Standards
Benchmark
will enable clients to address many relevant Human Rights risks (see Performance Standard 1,
paragraph 3). However, the UNGPs incorporate broader Human Rights norms which should
serve as the basis for benchmarking project risks.
Specifies the Human Rights risks to which the project is connected based on severity and
Identification of
likelihood, noting where risks intersect or are interrelated, and emphasizing which vulnerable
actual/potential
people/groups may be at risk (e.g., Indigenous Peoples; women; national or ethnic, religious
Human Rights
and linguistic minorities; children; persons with disabilities; and migrant workers and their
risks
families).
Evaluates the potential risks vis-à-vis mitigation measures that companies may have in place.
This would include looking over client corporate-level policies, procedures, management
systems (including for tracking and monitoring risks over time), staff capacity, track record,
Company and any project-level information on these practices, if available. Only referring to a company
practices policy with nothing further is not usually sufficient to mitigate potential adverse Human Rights
risks. If gaps are uncovered with the company’s practice, recommendations should be made
to address such gaps (this gap analysis aligns with the approach put forward in IFC
Performance Standard 1).
Identifies how a company already is or could in the future mitigate the identified Human Rights
Risk mitigation risks, focusing chiefly on prevention, and only as a last resort on remediation. Risks, such as
measures local, contextual risks that might only be imperfectly or incompletely mitigated should also be
discussed.
Provides insight into the strength of a company’s grievance mechanism, alongside the local
Access to
legal context related to providing remedy (per Principle 6, this is required for Category A and,
remedy
where appropriate, Category B projects, but can be helpful in all projects).
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The Business and Human Rights Resource Center provides helpful examples of Human Rights risk
assessments that illustrate the content that is typically featured in in-depth assessments for higher risk
projects. Assessments carried out for less risky projects may not necessarily be as extensive or require the
same level of detail in Assessment Documentation.
Initial scan for Human Rights impacts
Clients should go through an initial high-level scan for Human Rights issues (likely through desktop
research and interviewing of relevant parties) to determine initial risk levels and mitigation measures.
That scan should consider the full range of potential Human Rights impacts through the lens of which are
most severe (based on scale, scope, and remediability), and which have the greatest likelihood of
occurring:
▪ Scale: how serious are the impacts for the victim?

▪ Scope: how many people could be affected by the harm?
▪ Remediability: will a remedy restore the victim to the same or equivalent position before the
harm?
▪ Likelihood: what is the likelihood of the impact occurring? At the screening phase, this likelihood
can be understood as a combination of different elements, including: (1) inherent risks related to
the business model in general or a particular high-risk operating context that are difficult to
mitigate, even for experienced companies; and (2) evidence that the specific client has faced
similar risks that it has failed to properly mitigate, leading to impacts.
Recognizing that projects differ in scale and complexity – and range from having minimal potential impacts
to significant potential impacts – the initial scan should lead to the following range of outcomes:
▪ Lower-risk → High-level summary of risks: Where the result of such initial scanning deems the risks
to be lower, this initial scan may suffice for an assessment and should be provided to the EPFI for
review to make that determination. It may be sufficient for clients to provide information
showcasing both the approach and the results of the initial scan which determined that potential
adverse Human Rights impacts to stakeholders is low or such impacts would be adequately
mitigated by project plans. For areas of key potential Human Rights risk, clients should pay
particular attention to any potential gaps between domestic legal and regulatory regimes and
international Human Rights standards and should identify any exacerbating or mitigating factors, to
be included in the high-level summary of risks for review by the EPFI.
▪ Higher-risk → Further assessment and more in-depth documentation: Where risk levels appear to
be higher after this initial scan, clients should conduct/commission additional (on-the-ground)
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research driven by Stakeholder Engagement to get a fuller understanding of potential Human Rights
risks and how they can be mitigated. Clients should document this analysis thoroughly in the
Assessment Documentation provided to EPFIs, such as embedding as part of a comprehensive ESIA
or, for the highest risk projects, in a specialized stand-alone study.
EPFI review and analysis of documentation
EPFIs should confirm that for each issue identified, the client has provided adequate detail to enable the
EPFI to both assign a project categorisation (Principle 1) and determine whether risks identified will be
adequately addressed. If risks appear to be potentially severe (see below guidance on severity
considerations – Section III), the project would not be categorised as a Category C or a lower risk Category
B, and would require more than a high-level summary of the risks and their mitigation. After initial review
by the EPFI, if issues are not described in adequate detail and/or if the proposed mitigation or remediation
efforts are also not very detailed, the EPFI may wish to ask the client for additional information, including
carrying out further on the ground due diligence or conducting a supplementary specialized study of
particular issues.
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IDENTIFYING POTENTIAL ADVERSE HUMAN RIGHTS IMPACTS BY CLIENT
The steps outlined below are for the client to implement. EPFIs should assess the adequacy of those steps
as documented by the client’s Assessment Documentation based on the below guidance.
Benchmarking against international Human Rights
Under the UNGPs, companies are expected to respect all internationally-recognized Human Rights
(Principle 12 and Commentary)2 because businesses can potentially impact any of them (this expectation
is also stated in IFC Performance Standard 1, paragraph 3). EP4 incorporates this scope of Human Rights
as well (see EP4, Exhibit 1: Glossary of Terms, at p. 28), and thus, the assessment methodology should
address the universe of rights identified by the UNGPs, namely, at a minimum, those contained in the
International Bill of Human Rights and the eight ILO Core Labour Standards, and how they might be
impacted by the client in the project’s area of influence (IFC Performance Standard 1, paragraphs 8-12
may be used as a resource to understand this concept) and among Affected Communities and Other
Stakeholders:
▪ Core Human Rights standards: The Universal Declaration of Human Rights and the main
instruments through which it has been codified: the International Covenant on Civil and Political
Rights and the International Covenant on Economic, Social and Cultural Rights.
▪ Core labour rights standards: The principles concerning fundamental labour rights established in
the eight core conventions of the International Labour Organization (“ILO”) as set out in the ILO’s
Declaration on Fundamental Principles and Rights at Work, covering forced labour and worst forms
of child labour, freedom of association and collective bargaining and non-discrimination.3
▪ Rights of vulnerable people and populations: The UNGPs indicate that other Human Rights
instruments may also be considered depending on the circumstances, particularly those relating to
the rights of vulnerable groups, such as Indigenous Peoples; women; national or ethnic, religious
and linguistic minorities; children; persons with disabilities; and migrant workers and their families.
In addition, when deploying their own security personnel or partnering with local security forces,
including both police and military personnel, companies should respect the standards of
2
See EP4, Exhibit 1: Glossary of Terms, at p. 28 (defining “Human Rights” as used throughout the EP4 text); see
UNGPs, Principle 12 and Commentary.
3
See UNGPs, note 1, above, at Principle 12.
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international humanitarian law, particularly when projects are proposed to be built near areas with
a recent history, or current occurrence of civil unrest or armed conflict.4
See table Human Rights Risks Common to Infrastructure Projects at end of document for examples of
the most common risks seen in Equator Principles projects.
Engaging with Affected Communities, Workers and Other Stakeholders – particularly

vulnerable groups
As part of the assessment process, companies are expected to engage Affected Communities and Other
Stakeholders (see Principle 5 and Glossary), to get insight into the perspectives of the people at risk of
harm. Engaging with those people who could be affected (Affected Communities and Workers i.e., rights-
holders), with their representatives or – if neither is possible – with credible proxies who have insight into
their perspectives (e.g., Other Stakeholders such as local or international NGOs), is essential to assess and
address Human Rights risks.
For effective Stakeholder Engagement, clients should:
▪ Ensure they deal with groups who actually represent the constituents they claim to (i.e., critically
scrutinize information from client sponsored unions or government sponsored civil society
organizations);
▪ Pay particular attention to issues of gender bias, as well as sensitivities around engaging with at risk
Human Rights or environmental defenders who face threats for their advocacy on behalf of
themselves or their communities;
▪ Pay particular attention to Human Rights impacts on individuals from groups or populations that
may be at heightened risk of vulnerability or marginalization. Vulnerability is context specific, but
often includes the following types of people:
▪ Indigenous Peoples
▪ women
▪ national or ethnic, religious and linguistic minorities
▪ children
▪ persons with disabilities
▪ migrant workers and their families
4
Although not a codified international Human Rights instrument, companies often rely on the Voluntary Principles
on Security and Human Rights for guidance in this area. See www.voluntaryprinciples.org.
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Documenting Stakeholder Engagement
Assessments should indicate:
▪ the methodological approach that was utilized, including the parties with whom the assessors
engaged (unless such information is confidential to protect the identity of those engaged for fear of
them being harmed). This allows the reader to understand if rights-holders were engaged, along
with the list of other parties that are providing sources of information. For higher-level assessments,
the list would necessarily be more cursory.
▪ how vulnerable groups were identified, engaged, and why in this context they are considered to be
vulnerable.
▪ whether the engagement that was carried out was effective in surfacing actual or potential risks, or
if there remain areas not yet assessed or for which the engagement with different rights-holders or
stakeholders is incomplete .
Assessing exacerbating and mitigating factors of local context
To adequately understand the potential for Human Rights impacts to different groups, it is critical for
assessments to take into consideration local context, including at the country, region or sub-region in
question, as each place is unique. In evaluating potential impacts, it helps to evaluate information on the
following exacerbating or mitigating factors and to document their role in evaluating the overall risks of
the project:
▪ Socio-economic context: the project location’s history and factors that may exacerbate the
likelihood of ongoing or potential Human Rights risks, e.g. high levels of poverty, lack of public
infrastructure, inequitable access to natural resources and public services, poor administration of
land ownership and property rights, conflict among ethnic groups or political parties, political
instability, low level of enjoyment of the rights of freedom of speech and association, pervasive
gender inequality, civil society presence, etc.
▪ Local legal context: indicating whether local laws are/are not consistent with international Human
Rights protections and how effectively they are implemented, particularly for the identified Human
Rights risks presented by the project. The assessment should also consider potential challenges to
access to remedy through judicial and non-judicial remedies. In particular, a good assessment will
note the extent to which a client or government partner’s mere compliance with local or national
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laws and regulations might leave certain issues unaddressed or inadequately addressed (UNGPs,
Principle 11 and Commentary).5 This does not mean a client has to utilize a law firm to conduct an
assessment as other practitioners do have expertise in assessing such gaps. But, it is important for
a client to understand the context in which they will be operating, including the potential for Human
Rights claims against the client or its partners (e.g., the government or contractors) to arise within
domestic or international legal proceedings.
▪ Bribery and corruption risks: noting that while there is no Human Right to be free from corruption,
it is widely understood that linkages exist between corruption and Human Rights, as the presence
of bribery and corruption can undermine the basic functioning of laws meant to protect peoples’
rights and systems of justice intended to remedy violations of rights.
▪ Ecosystem loss and climate change: Human Rights are inextricably linked to ecosystem loss and
climate change, as these impacts can undermine the realization of a range of internationally-
recognized Human Rights. These include those dealing with life, health, food, land, adequate
standard of living, housing, property, and water. In addition, where adequate protection for Human
Rights are absent—particularly those that provide access to information, right to public
participation in decision-making, and access to remedy—climate impacts exacerbate vulnerability,
and magnify the risk faced by marginalized communities, who are often disproportionately
impacted by climate change. Projects located in areas under heightened pressure caused by climate
change and/or loss of functioning ecosystems may exacerbate the likelihood of adverse Human
Rights impacts, and the assessments should therefore look to incorporate these issues into the
analysis of potential Human Rights impacts and their likelihood (this analysis, however, is distinct
from the Climate Change Risk Assessment called for by Principle 2, which should also be covered in
the Assessment Documentation – see Equator Principles Association Climate Risk Guidance Note
for further background).6
5
UNGPs, Principle 11 and Commentary (“[The responsibility to respect Human Rights] exists independently of States’
abilities and/or willingness to fulfil their own Human Rights obligations, and does not diminish those obligations.
And it exists over and above compliance with national laws and regulations protecting Human Rights.”)
6
For more background, see Business for Social Responsibility, “Climate and Human Rights: The Business Case for
Action” (2018), at https://www.bsr.org/en/our-insights/report-view/climate-human-rights-the-business-case-for-
action.
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III. ASSESSING RISK MANAGEMENT
Assessing impact prioritization by severity and likelihood
Although clients should assess all actual or potential adverse impacts within the project area of influence
against all internationally-recognized Human Rights, clients should prioritize their approach to managing
such impacts based on those which are most severe (based on scale, scope, and remediability), and which
have the greatest likelihood of occurring:
▪ Scale: how serious are the impacts for the victim?

▪ Scope: how many people could be affected by the harm?
▪ Remediability: will a remedy restore the victim to the same or equivalent position before the
harm; how easy or difficult would it be for the victim to get a remedy?
▪ Likelihood: what is the likelihood of the impact occurring?
The interplay of these factors leads to a rank ordering based on the severity of actual and potential
adverse impacts – the greater the scale and/or scope, the less likely or adequate the remedy and the
greater the likelihood of occurrence make actual or potential impacts more severe.
Client management and action plans/appropriate actions to address impacts
In addition, not all rights potentially impacted by a project are necessarily within the client’s immediate
control,7 so assessments of Human Right should also determine the relationship between the client and
the impacts based on the following hierarchy established in the UNGPs in order to identify appropriate
mitigation measures:
1. A client can cause an impact solely through its own actions or decisions, including failure to act.
In such situations, the assessment should identify the client’s plans to cease the action that caused
or contributed to the impact and to provide remedy to those individuals or groups who may have
been harmed (to the extent of its contribution);
7
For example, IFC Performance Standard 1 defines the scope of the Environmental and Social Impact Assessment,
including for Human Rights, as encompassing the project’s area of influence (paragraph 8) and should address “those
risks and impacts in a manner commensurate with the client’s control and influence over the third parties”
(paragraph 9), noting that, “[w]here the client can reasonably exercise control, the risks and impacts identification
process will also consider those risks and impacts associated with primary supply chains, as defined in Performance
Standard 2 (paragraphs 27–29) and Performance Standard 6 (paragraph 30).” EP4 has defined risks to supply chain
workers as those “engaged directly or indirectly by the client to work at the Project site, including full-time and part-
time workers, contractors, sub-contractors and temporary workers.”
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2. A client can contribute to an impact, either in combination with others or through another entity
by incentivizing or facilitating that entity’s harmful actions or decisions. In contribution situations,
a business should cease its own contribution to harms or prevent other contributing parties from
contributing to further harms by using or building its “leverage” – i.e., its influence over other
entities – to prevent or mitigate remaining harms to the greatest extent possible;
3. An impact can be directly linked to a client’s operations, products or services through its business
relationships, including its direct contractual partners or clients as well as other entities in
extended value chains. In linkage situations, a business is expected to use its leverage to seek to
prevent or mitigate the harm.8
Appropriate actions based on client relationship to adverse Human Rights impacts
Source: Lichtenstein/FAST Initiative Implementation Toolkit
Focus on risks, not opportunities
As noted in the UNGPs, business enterprises “may undertake other commitments or activities to support
and promote Human Rights, which may contribute to the enjoyment of rights. But this does not offset a
failure to respect Human Rights throughout their operations” (Principle 11). With uptake of the U.N.
Sustainable Development Goals, many clients are eager to demonstrate positive impacts on people. While
this work is undoubtedly important, the UNGPs are in place to help clients understand how to avoid and
address their adverse Human Rights impacts. More thorough and focused assessments focus on risks to
people and how to address them, rather than how to promote Human Rights. In addition, if a Human
Rights assessment indicates there are no actual or potential Human Rights risks, the assessment likely
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lacks rigour or credibility. For example, even a high-level assessment should detail the issues evaluated,
the affected groups implicated and how such risks, if any, could be addressed by the project plans. Expert
assessors are always able to point to potential risks and how to mitigate such risks.
IV. ASSESSING PROJECT LEVEL GRIEVANCE MECHANISMS AND PROVIDING

REMEDIATION
Grievance mechanisms
For any identified issues, the client’s assessment should assess what the client is doing currently/or could
do in the future to address the issue and what gaps might remain. Recommendations should be provided
to address the gaps through the project’s plans, policies, procedures and management system. In
addition, in order for EPFIs to be able to evaluate the project’s grievance mechanism under Principle 6
(required for Category A and, as appropriate, for Category B projects), the assessment should assess the
presence of adequate operational grievance mechanisms and the extent to which they satisfy the UNGPs’
effectiveness criteria, which are noted below.9
In addition, consistent with EP4 Principles 8-10, for all Category A and, as appropriate, Category B Projects,
project plan documentation should provide for regular reporting, including independent monitoring and
reporting for Category A and where appropriate, Category B Projects, of the functioning of operational
level grievance mechanisms to the client’s management.10 Preferably, some version of this, whether in
summary form or as a status update included with other project updates, should be provided to EPFIs
once a project is financed.
Effectiveness criteria for operational grievance mechanisms
▪ Legitimate – enabling trust from the stakeholder groups for whose use they are intended, and
being accountable for the fair conduct of grievance processes
9
See UNGPs, Principle 31 for further detail. For a list of diagnostic questions on the effectiveness of operational level
grievance mechanisms, see Shift/Triple R Alliance guidance in Dutch Banking Covenant,
https://www.imvoconvenanten.nl/-/media/imvo/files/banking/paper-enabling-
remediation.pdf?la=nl&hash=251F0037F458DE25B965136FA49F0E6E (pp. 56-58).
1010
Consistent with EP4 Principle 10, in addition to the reporting requirement in Principles 8-9, the client should
ensure that “at a minimum, a summary of the ESIA is accessible and available online and that it includes a summary
of Human Rights…risks and impacts when relevant.” Where appropriate, this summary should contain information
about operational grievance mechanisms.
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▪ Accessible – being known to all stakeholder groups for whose use they are intended, and
providing adequate assistance for those who may face particular barriers to access
▪ Predictable – providing a clear and known procedure with an indicative time frame for each stage,
and clarity on the types of process and outcome available and means of monitoring
implementation
▪ Equitable – seeking to ensure that aggrieved parties have reasonable access to sources of
information, advice and expertise necessary to engage in a grievance process on fair, informed
and respectful terms
▪ Transparent – keeping parties to a grievance informed about its progress, and providing sufficient
information about the mechanism's performance to build confidence in its effectiveness and meet
any public interest at stake
▪ Rights-compatible – ensuring that outcomes and remedies accord with internationally recognized
Human Rights
▪ A source of continuous learning – drawing on relevant measures to identify lessons for improving
the mechanism and preventing future grievances and harm)
▪ Based on engagement and dialogue – consulting the stakeholder groups for whose use they are
intended on their design and performance, and focusing on dialogue as the means to address and
resolve grievances
A client can assess its mechanisms against the kinds of key performance indicators (“KPIs”) set out in the
table below.
KPI Interpretation
▪ A significant number of complaints or grievances are ▪ Indicating both awareness of the mechanism’s
brought to the mechanism in the period after its existence and confidence that it provides a credible
establishment. first avenue of recourse.
▪ A reduction, over time, in the number of grievances ▪ Indicating both awareness of the mechanism’s
pursued through other non-judicial mechanisms, existence and confidence that it can provide a
NGOs or the media. credible and effective first avenue of recourse.
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▪ Over time, the number of grievances of the same or ▪ Indicating that staff are learning from past mistakes
similar nature decreases. and adapting practices and/or operating procedures
where appropriate.
▪ Audits show a reduction in incidents of non- ▪ Indicating that grievance processes are contributing
compliance with applicable standards. to the identification and remediation of non-
compliance incidents.
▪ A reduction in absenteeism and staff turnover ▪ A partial indicator of reduced worker grievances and
and/or an increase in productivity among improved worker satisfaction, most relevant in
suppliers’/contractors’ workers. relation to supply chains and contractors.
▪ Standard operating procedures (“SOPs”) have been ▪ Indicating that lessons for management systems are
reviewed and amended where investigations reveal being learnt and integrated to reduce the likelihood
significant and repeat grievances despite staff of the same kind of grievances recurring.
following existing SOPs.
Source: Shift, Global Compact Network Netherlands and Oxfam “Doing Business with Respect for Human Rights,” at
https://www.businessrespecthumanrights.org/en/page/349/remediation-and-grievance-mechanisms.
V. REMEDY
As noted above, the UNGPs indicate that victims must have access to effective remedy, and “where
business enterprises identify that they have caused or contributed to adverse impacts, they should
provide for or cooperate in their remediation through legitimate processes” (UNGPs, Principle 22).
Not all client plans for mitigating potential Human Rights impacts will be effective at neutralizing
anticipated project risks or being sufficiently responsive to unanticipated project risks that could arise
through continued Stakeholder Engagement, grievance mechanisms, or otherwise. Because of this, EP4
recognizes that clients should provide a remedy for residual Human Rights impacts that go unmitigated
by project action plans and other efforts (EP4 Preamble).
The purpose of effective remedy is to restore the victim, as much as possible, to the state preceding the
harm that was done—to re-establish the situation that would have existed if the harm had not occurred.
Remedy can also help ensure that the victims and others similarly situated will not suffer similar harms in
the future. What will be perceived as necessary to make a victim whole will depend on the facts on the
ground and can vary with different stakeholders’ perspectives on what appropriate steps look like given
the severity of the impacts, local legal frameworks, and other practical or societal constraints. Stakeholder
views on the effectiveness of steps taken to enable access to remedy may also be negatively impacted by
delays in delivery of such remedy.
In line with international Human Rights standards, remedy:
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• should be victim-centered, context specific, and be assessed on a case-by-case basis;

• can take a variety of forms including restitution, compensation, rehabilitation, satisfaction, and
guarantees of non-repetition;11 and
• can be delivered via a variety of processes and pathways, including state-based judicial and non-
judicial mechanisms, client-based mechanisms or third-party and multi-stakeholder mechanisms.
These various processes can either be adjudicative and adversarial (which seek to determine guilt, fault
and liability), or can be focused on mediating disputes (which are aimed at consensus-based outcomes,
including but not limited to restorative dialogue, symbolic reparations and compensation). Regardless of
whether they are state-based, client-based or driven by third-parties, stakeholders will expect remedy
mechanisms to be legitimate and effective. The criteria for evaluating the effectiveness of grievance
mechanisms can therefore be a useful guide in designing effective remedy processes.
Remedy in the context of project development
The role of EPFIs is foremost to ensure that clients have the right policies in place and channels available,
such as project-level grievance mechanisms, to enable victims to lodge grievances, and other mechanisms
to provide access to remedy for impacts that have already occurred or if impacts should occur. Project-
level grievance mechanisms can be an early-warning system for potential impacts, and can also serve to
identify adverse Human Rights impacts after they have occurred and, depending on the nature of the
impact, can be a means for delivering remedy as well. To that end, through monitoring construction and
post-construction activities, EPFIs can also ensure that clients follow-up on allegations and have
established processes to offer remedies when warranted or cooperate with others to make sure effective
remedy is provided.
In some cases where stakeholders experience certain impacts and conclude that clients (or other
mechanisms) have not adequately remedied those impacts, stakeholders might expect EPFIs to
participate directly in providing a remedy. This expectation may arise even in situations where the EPFI
might view its role as limited to only being “directly linked” to the impact and not contributing to it, and
thus not strictly requiring the EPFI’s direct involvement in remediation according to the UNGPs (UNGPs
Principle 22 and Commentary). This reinforces the importance of EPFIs engaging with clients at the outset
of project development on the design of appropriate grievance mechanisms and protocols for addressing
situations requiring remedy and the need for close monitoring of on the ground developments as projects
progress. The earlier that issues are identified, the more easily they can be addressed by clients, including
through remedial mechanisms, if necessary.
11
See UN Basic Principles and Guidelines on the Right to Remedy and Reparation (2005), at
https://www.ohchr.org/en/professionalinterest/pages/remedyandreparation.aspx
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APPENDIX A: TABLE OF HUMAN RIGHTS RISKS COMMON TO INFRASTRUCTURE PROJECTS
Note: This is a non-exhaustive list of potential project-related Human Rights risks that could impact various rights-holders groups (i.e. Workers and
Affected Communities). These are the most commonly seen risks and are organised by the category of Human Rights to which they belong. It is
drawn from the UNGP Reporting Framework: How Can Businesses Impact Human Rights? and Human Rights Translated 2.0: A Business Reference
Guide (noted in the resource guides below), as well as the experience of practitioners with expertise carrying out Human Rights assessments. A
notation has been made where they overlap or intersect with other rights, some of which may also relate to environmental risks. While the most
likely impacted group has been noted (i.e. Workers and/or Affected Community members) there could be instances in which the rights-holder
group is impacted, even if not noted below. The Human Rights assessments for Equator Principles projects will not necessarily speak to each of
the below rights/impacts for every project; rather, the below is provided to help the client and EPFI understand the potential impacts, narrowed-
down from the large universe of Human Rights, that are frequently considered for such assessments by those carrying out the assessments.
Risk to
Rights Risk to Affected
Human Rights issue Example of related potential negative impact/risk:
category workers Community
members
Child Labour: ➢ Business activities that involve hazardous work (such
Labour ➢ ILO standards prohibit hazardous work for all persons under 18 as mining) performed by persons under the age of
years. They also prohibit labour for those under 15, with limited 18.
exceptions for developing countries. (Intersects with the rights ➢ Where child labour is discovered, a company can
of children and education). negatively impact other rights (such as the rights to
an adequate standard of living, or security of the
person) if they fail to take account of the best
√
interests of the child in determining the appropriate
response. For example, simply dismissing the child
(or cutting the contract with the relevant supplier)
may result in the child being exploited in other ways
(such as prostitution).
September 2020
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Risk to
members
Collective bargaining and Freedom of association: ➢ Creating barriers to the formation of trade unions
➢ Collective bargaining: Individuals have the right to form or join among employees or contract workers.
trade unions of their choice. Trade unions must be permitted ➢ Refusing or failing to recognize legitimate workers’
to function freely, subject only to limitations that are in line associations with which the company can enter into
with international Human Rights standards. Workers have the dialogue in countries that prohibit trade unions.
right to strike, in conformity with reasonable legal ➢ Operating in an area where the State seeks to
requirements. These exist in order to promote negotiation undermine a local political party that opposes the
between organized workers and their employer or employers company’s activities by bringing false accusations √
to determine wages, hours, rules, and working conditions. against its leaders.
➢ Freedom of Association: Protects the right to form or join all
types of associations, including political, religious,
sporting/recreational, non-governmental, and trade union
associations. This freedom of individuals to associate can be an
end in and of itself, or as a means of pursuing common
objectives.
Modern Slavery (Forced Labour/Human Trafficking): ➢ Businesses may unknowingly benefit through their
➢ Slavery exists when one human effectively owns another. supply chains from the labour of workers who have
Freedom from servitude covers other forms of severe been trafficked and are forced to work, for example,
economic exploitation or degradation, such as in the trafficking in factories. Women and children may be subject to
of workers or debt bondage. Rights to freedom from slavery particularly severe impacts in such situations.
and servitude are absolute rights. Forced or compulsory labour ➢ A company may be involved in the transportation of √
is defined by the ILO as all work or service that is extracted people or goods that facilitates the trafficking of
under menace of any penalty and for which the person has not individuals.
voluntarily offered themselves. Providing payment does not ➢ Forced labour can arise in any sector where an
mean that work is not forced labour if the other aspects of the employer puts workers in a position of debt.
definition are met.
Grievance Mechanism and Remedy: ➢ Not providing processes to identify (e.g. grievance
➢ All people have the right to remedy when their rights have been mechanism) and then remediate adverse Human
violated. Rights impacts which the company causes or
contributes to. √ √
➢ Where business enterprises identify that they have caused or
contributed to adverse Human Rights impacts, they should ➢ Risk that employees do not understand/ trust the
provide for or cooperate in their remediation through grievance mechanism (and therefore will not use it)
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Risk to
members
legitimate processes, whether through the company’s own
operational-level grievance mechanism or through cooperation
with independent (non)judicial mechanisms.
Job Security/Right to Work: ➢ Arbitrarily or unfairly dismissing a worker, even if
➢ The termination of an employment relationship is likely to be a permissible under local law.
traumatic experience for a worker and the loss of income has a ➢ Hindering or failing to provide for the reasonable
direct impact on her or his family's well-being. As more career advancement aspirations of workers.
countries seek employment flexibility and globalization ➢ Risk that workers will be on a series of short-term
destabilizes traditional employment patterns, more workers contracts preventing them from enjoying the
are likely to face involuntary termination of employment at benefits associated with long term employment.
some point in their professional lifetime. The employment of a √
worker should not be terminated unless there is a valid reason
for such termination connected with the worker's capacity or
conduct or based on the operational requirements of the
undertaking, establishment, or service. Even where such
practice may be legally permissible under local law, many
stakeholders now expect companies to exhibit a higher
standard of behavior in line with international standards and
good practice.
Non-discrimination: ➢ This can come up in a variety of circumstances. It is
➢ The practice of ensuring equal treatment and respect for all the risk that workers may be treated unfairly (either
individuals regardless of class, race, color, sex, religion, gender, though recruitment, hiring, management,
age, political or other opinion, national or social origin, compensation, career progression/ opportunities, or
property, sexual orientation, disability, employee status, termination practices) due to certain attributes such
as on the basis of their disability, religion, health, √
marital status, familial connection, etc.
➢ Includes ensuring employees are free from harassment. ethnicity, gender, sexual orientation, gender, age,
indigenous origin, migrant worker status, etc. (as
such, it intersects with other rights e.g. right to
health).
Occupational health and safety: ➢ Failing to address a pattern of accidents highlighting
➢ A company should provide safe and healthy working conditions inadequate workplace health and safety. √
to workers. ILO standards require governments to adopt, in
21
September 2020
_____________________________________________________________________________________
Risk to
members
consultation with appropriate employer and employee ➢ Risk that workers will face physical harm during the
organizations, a national occupational health and safety work commute.
(“OHS”) policy aimed at reducing accidents and injuries to
health arising in the course of employment, and to minimize
the causes of inherent workplace hazards. That policy should
address, for example, the provision of adequate OHS training
regarding the use and maintenance of the ‘material elements
of work’, including workplace environment, tools, machinery
and equipment. Workers must be able to remove themselves
from work situations where imminent and serious health
dangers are reasonably perceived, without undue
consequences (intersects with the right to enjoy just and
favorable conditions of work).
Wages (pay equity, standard of living): ➢ Using cleaning staff that are employed by a third-
party company and are paid extremely low wages
➢ A company must protect the right to remuneration that
with no or very limited entitlements to sick pay or
provides workers with fair wages and equal remuneration for
leave.
work of equal value. Remuneration must also be enough to
➢ Risk that low compensation may undermine √
provide workers with a decent living for themselves and their
worker’s ability to have an adequate standard of
families. A minimum wage should be ‘fair’ and enable families
living.
to enjoy the right to a standard of living that includes adequate
food, clothing and housing (connects with the right to adequate
standard of living for health and well-being).
Working Hours: ➢ Mandating unreasonable working hours for
➢ The degree of flexibility for employees to start and end the employees that are inconsistent with ILO standards,
work day in order to manage familial and personal obligations, which generally indicate that employees should not
while adequately fulfilling their employment duties. be required to work more than 48 hours per week,
or ten hours a day, and should have one day off per
seven days. √
➢ Company practices hinder the ability of workers to
adopt a healthy work–life balance that enables them
to adequately support their families, such as
requiring workers to live on site in dormitories for
extended periods of time without providing
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September 2020
_____________________________________________________________________________________
Risk to
members
adequate periods of leave to enable them to spend
time with their families (intersects with the rights to
family, rest and leisure).
Freedom of expression: ➢ Not allowing workers to express their opinions
Civil and ➢ The right to hold opinions free from outside interference is an freely, or unfairly punishing them for doing so.
Political absolute right, with narrow restrictions by States only ➢ Operating in a country where workers are routinely
permissible when in line with international Human Rights prevented by law from expressing their opinions in
standards. Individuals have a right to seek, receive and impart the public domain.
ideas in whatever media or form they choose. ➢ Censoring online or other content at the demand of
the State where those requests are illegal under
national law and/or not in line with international √ √
Human Rights standards.
➢ Engaging in litigation against individual workers,
community members or Other Stakeholders who
have spoken critically about the company where
there is an extreme imbalance in the parties’ means
to fund a legal case.
Right to life and security of person: ➢ The lethal use of force by security forces (State or
➢ Individuals have the right not to be deprived of life arbitrarily private) to protect company resources, facilities, or
or unlawfully. This includes the right to have one’s life personnel.
➢ Operations that pose life-threatening safety risks to √ √
protected, for example, from physical attacks or health and
safety risks. workers or neighboring communities through, for
example, exposure to toxic chemicals.
Privacy: ➢ Failing to protect the confidentiality of personal data
➢ Individuals have a right to be protected from arbitrary, held about employees or contract workers,
unreasonable or unlawful interference with their privacy, customers or other individuals.
family, home or correspondence and from attacks on their ➢ Requiring pregnancy testing as part of job
√ √
reputation. The State is allowed to authorize restrictions on applications.
privacy in line with international Human Rights standards, but ➢ Providing information about individuals to State
‘arbitrary’ restrictions are always prohibited. authorities, without that individual’s permission, in
response to requests that are illegal under national
23
September 2020
_____________________________________________________________________________________
Risk to
members
law and/or not in line with international Human
Rights standards.
Right to education: ➢ The presence of child labour in a business or in its
➢ All children have the right to free and compulsory primary supply chain, where those children are unable to
education. The right also includes equal access to education attend school (intersects with rights to be free from
and equal enjoyment of educational facilities, among other all forms of slavery). √ √
aspects. ➢ Limiting access to, or damaging, educational facilities
through construction, infrastructure, or other
projects.
Right to health: ➢ Failure to implement appropriate health and safety
➢ Individuals have a right to the highest attainable standard of standards leads to long-term negative impacts on
physical and mental health. This includes the right to have workers’ health.
Economic, ➢ Pollution from business operations can create √ √
control over one’s health and body, and freedom from
Social, and interference. negative impacts on the health of workers and/or
Cultural surrounding communities.
Right to participate in the cultural life of the community: ➢ Activities involving resource extraction or new
➢ Individuals have a right to take part in the cultural life of society construction (such as laying a pipeline or installing
and enjoy the benefits of scientific progress, especially infrastructure networks) could impact this right by
disadvantaged groups. separating groups from areas of cultural importance √
and knowledge, or by damaging their cultural
heritage (intersects with the rights of Indigenous
Peoples).
Right to Water: ➢ Companies cutting off access to existing water
➢ Individuals have the right to water and sanitation supplies, or making existing supplies non-potable,
undermine the right to water (intersects with the √ √
right to health).
Social Insurance: ➢ Denying workers their contractually agreed
➢ This right obliges the State to create and maintain a system of employment injury benefits.
social security that provides adequate benefits for a range of ➢ Offering a private social security scheme that has √
issues (such as injury or unemployment). discriminatory eligibility criteria.
24
September 2020
_____________________________________________________________________________________
Risk to
members
Children’s Rights: ➢ Permitting children to work in a manner that is
Group ➢ The Convention on the Rights of the Child establishes global inconsistent with international labour standards
Rights/ standards to ensure the protection, survival, and development (intersects with prohibition on child labour and right
of all children, without discrimination. to education).
‘Heightened
➢ Forcing parents to work excessive hours infringing on
Risk of
their ability properly parent (intersects with the right
Vulnerability’ to family).
➢ Where child labour is discovered, a company can
negatively impact other rights (such as the rights to √ √
an adequate standard of living, or security of the
person) if they fail to take account of the best
interests of the child in determining the appropriate
response. For example, simply dismissing the child
(or cutting the contract with the relevant supplier)
may result in the child having to find alternative,
more dangerous forms of work (such as
prostitution).
Disability Rights: ➢ Refusing to hire workers due to disabilities
➢ The Convention on the Rights of Persons with (intersects with the right to be free from
Disabilities promotes global standards intended to protect the discrimination). √
rights and dignity of people with disabilities in and outside of
the workplace.
Indigenous Peoples: ➢ Engaging in business activities on land or cultural
➢ Indigenous Peoples are afforded unique group rights under heritage sites that has traditional significance to the
international law that permits them to give or withhold their Indigenous Peoples that inhabit an area when that √
consent to projects that may impact them under certain land was acquired by Government without due
scenarios. consultation and consent with the local population.
Migrants Rights: ➢ Permitting migrant workers to pay a recruitment fee
➢ The International Convention on the Protection of the Rights of that places them in debt bondage (intersects with
All Migrant Workers and Members of their Families establishes the right to be free from all forms of slavery). √
how migrant workers and their families should be protected. ➢ Providing dormitories for migrant workers that lack
proper hygienic safety standards (intersects with
25
September 2020
_____________________________________________________________________________________
Risk to
members
rights to health, safety, and adequate standard of
living).
Women’s Rights ➢ Company policy discriminates against women on the
➢ The Convention on the Elimination of all Forms of basis of their marital or reproductive status
Discrimination Against Women exists to promote women’s (intersects with rights to health and family).
rights and their protection. ➢ A company offers compensation to men and women
in a situation where its operations or products have
had negative impacts on their health in a way that
discriminates against women (such as by failing to
recognize the particular harm to their reproductive
health) (intersects with right to free from
discrimination). √ √
➢ Business activities pollute or threaten existing water
resources in a way that significantly interferes with
local communities’ ability to access clean drinking
water. In such situations, there may be particular
negative impacts on women and girls, who are
responsible for water collection in many
communities (intersects with rights to health and
adequate standard of living).
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_____________________________________________________________________________________
APPENDIX B: LIST OF RESOURCE GUIDES ON ADDRESSING HUMAN RIGHTS
IMPACTS
Note: The inclusion of the below documents should not be viewed as an endorsement by the Equator
Principles Association. They are included only for further background and may be used by EPFIs voluntarily
and independently, without reliance on or recourse to the Equator Principles Association.
Danish Institute for Human Rights, Human rights impact assessment guidance and toolbox
https://www.humanrights.dk/tools/human-rights-impact-assessment-guidance-toolbox-0
Danish Institute for Human Rights, The Human Rights and Business Country Guide
https://www.humanrights.dk/tools/human-rights-business-country-guide
Danish Institute for Human Rights and IPIECA, Integrating human rights into environmental, social and
health impact assessments
https://www.humanrights.dk/files/media/dokumenter/tools/Integrating_HR_into_ESHIA.pdf
Human Rights Translated 2.0: A Business Reference Guide,

https://www.ohchr.org/Documents/Publications/HRT_2_0_EN.pdf
Oxfam, Community-Based Human Rights Impact Assessments – Getting it Right Tool

https://corporatejustice.org/documents/publications/members/cobhra_training_manual.pdf
Shift, Oxfam and Global Compact Network Netherlands, Doing Business with Respect for Human Rights:
A Guidance Tool for Companies https://www.businessrespecthumanrights.org/ (overview of UNGPs)
UNGP Reporting Framework | How Can Businesses Impact Human Rights?,

https://www.ungpreporting.org/resources/how-businesses-impact-human-rights/
Examples of Published Human Rights Assessments by Companies

Business and Human Rights Resource Center: Project Level Assessments, https://www.business-
humanrights.org/en/examples-of-implementation-uses
OHCHR
Working Group on Business and Human Rights, Corporate human rights due diligence – Getting started,
emerging practices, tools and resources
https://www.ohchr.org/Documents/Issues/Business/Session18/CompanionNote2DiligenceReport.pdf
(p. 24)
Operational Grievance Mechanisms and Remedy

Access Facility – list of company-based non-judicial grievance mechanisms http://accessfacility.com/
September 2020
_____________________________________________________________________________________
International Council on Mining and Metals, Handling and Resolving Local-Level Concerns and
Grievances https://www.shiftproject.org/resources/collaborations/icmm-grievances-2019
IPIECA, Manual for implementing operational-level grievance mechanisms and designing corporate
frameworks
https://www.ipieca.org/resources/good-practice/community-grievance-mechanisms-in-the-oil-and-gas-
industry/
Shift, Triple R Alliance/Dutch Banking Covenant – Diagnostic Questions for Operational Level Grievance
Mechanisms https://www.imvoconvenanten.nl/-/media/imvo/files/banking/paper-enabling-
remediation.pdf?la=nl&hash=251F0037F458DE25B965136FA49F0E6E
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September 2020

Guidance CCRA - May 2023

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GUIDANCE NOTE

iii MAY 2023

1 The Equator Principles_EP4_July2020 (equator-principles.com)

Box 1-1: Who is this Guidance Note on CCRA intended for?

• Lender consultants supporting EPFIs in the review of Project CCRAs.

Box 1-2: Key definitions

1.3 Guidance Note Structure

CCRA GUIDANCE APPROACH RESILIENC E TO PHYSI CAL C LIMATE RISKS

• Objective of CCRA • Definition of Physical Risk

Figure 1.1: Structure of the Guidance Note on CCRA

2.1 Climate Change-Related Requirements and Commitments under EP4

2.1.1. General Requirements

• “support the objectives of the 2015 Paris Agreement”

Principle 1 Categorisation of in-scope Projects should be “based on the magnitude of potential

Principle 2 Requirement for CCRA:

• Clients are expected “to include assessments of potential adverse …. climate

Requirements under the International Finance Corporation (IFC) Performance

• “ensure that, at a minimum, a summary of the ESIA is accessible and available

• GHG alternatives analysis

Further elaboration on key elements of these requirements/commitments is provided in the following

2.1.2. CCRA-Specific Requirements

Applicability of these requirements is further discussed in Section 2.2.

Transition CCRA and GHG Assessment

4 GHG Protocol. Available from https://ghgprotocol.org/

As defined in EP4 Annex A, the GHG alternatives analysis should cover:

2.1.3. Defining Materiality

Box 2-3: Paris Agreement

2.1.5. Responsibilities for NCC Compatibility Review and CCRA Development

• Deep understanding of climate change science, associated risks and impacts;

2.1.6. Client Disclosure Requirements

2.2.1. Applicability of Requirements on Physical and Transition CCRA

Table 2-1: Summary of CCRA Implementation Requirements Under EP4

Physical CCRA GHG Emissions Assessment

12 Except in Project-Related Refinance and Project-Related Acquisition Finance.

2.2.2. Applicability for sovereign loans

3.1 Objective of CCRA

3.2 Overview of CCRA Framework

13 refer to Section 2.1.3 for defining materiality

See additional references in Annex 4 for further information and guidance.

Governance and climate change risk management

Management and Monitoring

3.4 Timing of the CCRA

It is further recommended that:

• Enhancing adaptive capacity.

Box 4-1: Project’s NCC Alignment (Physical Risks)

An assessment of a Project’s resilience against physical climate risks is provided by addressing

4.3 Preliminary NCC Compatibility Review of Transition Risks

Figure 4.2: Preliminary NCC compatibility review.

Universally not-aligned list

• Mining of thermal coal

Universally aligned list

• Operations whose economic feasibility depends on external fossil fuel exploitation,

• Transition pathway initiative. Available at:https://www.transitionpathwayinitiative.org/publications/100.pdf?type=Publication

5.1 Definition of Physical Risk

Physical Risk = hazard25 * exposure * vulnerability.

assets in places and settings that could be adversely affected.

5.2 Physical Risk Screening

5.2.1. Climate Hazard

As far as data allow, the risk assessment should

To direct the downscaling climate modelling,

• Consider all three components of risk in its assessment.

Consideration of financial risks

5.4 Physical Risks Management