Environmental and Social Due Diligence for Ports: Four Factors to Consider
April 30, 2021
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Estimated Reading Time: 8 minutes

Like all major infrastructure projects, investing in ports -- at any stage of the project life cycle -- requires comprehensive due diligence. The specific complexities of a port’s location and jurisdiction are reflected in the legal, financial, technical, institutional, environmental, and social investment risks identified during this process.

With the scale and scope of port-related activities encompassing both land and water, ports can present wide ranging and potentially significant environmental, social, and economic impacts. Challenging outcomes may stem from marine infrastructure works, presence of terminal footprint, dredging and disposal of dredging material, transportation of construction materials, navigational closure expansions, cargo handling and storage, port illumination, as well as activities associated with marine shipping and land transportation.

These activities can impact air quality, visual quality, and the noise environment, as well as culturally and environmentally important marine and coastal resources, habitats, and ecosystems for endangered species. Impacts to fishery resources and habitat can in turn affect commercial and traditional Indigenous fisheries and sustainable livelihoods. Terminal activities and ship, heavy haul rail and road transportation can also affect public safety, as well as land and resource use for commercial, recreational, and traditional land users. Conflicts can arise between ports and nearby industry, agriculture, fisheries, tourism, and recreation due to competing land and marine area and resource uses.

The increasing political and regulatory focus on climate change is of particular relevance to ports, which are required to report on efforts to reduce CO2 emissions, as well as evaluate and disclose potential impacts of a changing climate on future port operations. A Task Force on Climate Related Financial Disclosures (TCFD) was created by the Financial Stability Board and is recommended as the basis for climate-related financial risk disclosures. The requirements of the TCFD underline the potential influence and importance of climate risk on future proofing the investment.

With a focus on mitigating investment risk uncertainty, below are four factors for investors and port asset owners to consider when conducting environmental and social due diligence for ports.

1. Confirm Robust Management Systems

A key component of due diligence involves confirming that the port owner/operator has a series of environmental and social management systems in place that are appropriate to the nature, scale, and scope of the project, and sophisticated enough to effectively control operational environmental and social risks, impacts, and liabilities. Performance monitoring requires evidence that the planned arrangements for controlling environmental, social, labour, governance, operational safety and occupational health risk are effective.

2. Focus on Material Risks and Opportunities

As part of the due diligence process, investors need to identify the most material environmental and social issues, and the associated environmental, social, and governance (ESG) performance indicators that can be measured and reported. Given that many key ESG risks are not easy to quantify, investors need to make sure they identify those areas of focus and metrics that are most relevant and meaningful to identifying and monitoring overall performance and return on investment. Metrics should reflect port and maritime specific topics.

Many of the more material risks that apply to ports are captured by the World Ports Sustainability Program, the TFCD and the Global Reporting Initiative. In our experience, some of the more important risks and metrics relate to dredging and land reclamation, marine habitats, commercial and Indigenous fisheries, disaster and climate risk, and marine navigation and safety. Metrics need to be relevant to the specific local social, biophysical, and regulatory context. This requires engagement with local stakeholders to identify the most material issues, expectations, and performance measures. It is also important to regularly validate the most important performance measures and outcomes as they relate to definitions of sustainable port development and operations, through ongoing stakeholder dialogue and engagement.

3. Understand Social Impacts

Adverse social impacts, such as those pertaining to labour and working conditions, health, safety and security of communities and workforces, supply chain management, community investment and outreach, human rights, and social equity, can impact long-term financial performance, risks and returns. Infrastructure owners, operators, and investors need to know that port owners/operators have a positive relationship with local communities, and that effective engagement is in place to work toward positive outcomes for communities and other stakeholders, resulting from the port’s presence and activities.

A range of investor and third-party measurement systems and benchmarks are gaining support from the wider impact and sustainability community. However, it is important that relevant social metrics are identified, and meaningful data associated with these metrics is collected. Early engagement with stakeholders and Indigenous peoples can support identification and refinement of material social values and issues, and associated performance metrics. Geographic and cultural variations in the definitions and importance given to different social issues also need to be understood. For example, when working with Indigenous groups, it is important to gather Indigenous knowledge to help frame material social, as well as environmental and governance issues, including those pertaining to Indigenous territories, lands and waters, Indigenous rights, and cultural heritage. Regular updates to project-specific social, economic and health baseline profiles and impact assessments during port operations can also help generate relevant social data for performance reporting purposes.

4. Digitalize Performance Monitoring

Linking digital data with the performance indicators can generate timely information on environmental and social performance on a per port operational basis. Software enabled technologies help collect large amounts of data. For example, spatial GIS data of commercial fishing in the port area, to monitor and report on effectiveness of navigational closures in maintaining navigational safety and safe access to and use of nearby commercial fishing grounds. Virtual reality information can also be used to monitor, report on, and improve worker training and effectiveness. And automated digital systems can gather real time customizable data on for example air quality and local procurement. These tools can help ports facilitate automated reporting processes to better communicate environmental, social and health and safety actions and performance to investors and other stakeholders, make more informed decisions on necessary improvements, and provide essential information to help mitigate risks.

Consideration of these four factors provides a structure and focus to complex environmental and social challenges and risks associated with ports. Engaging experienced and competent port and marine environmental and social specialists who understand the local regulatory environment, culture and communities, stakeholders interests and issues, and relevant environmental and social performance standards, is a prudent means of mitigating investment risk.


ABOUT THE AUTHOR

Roxanne Scott is a social scientist and trained social due diligence and compliance auditor who has worked with Golder since 2005. She has over 20 years of international experience leading socio-economic assessments, social due diligence and compliance audits, and social performance monitoring to support project financing risk management, disclosure and sustainable project development. Her work supports the Voluntary Principles on Security and Human Rights, gender-based analysis, and consideration of Indigenous Peoples and vulnerable groups in projects and auditing processes.

James Hartshorn, Principal, is an Environmental and Safety Due Diligence and Compliance Specialist who has worked with Golder since 1996. As a consultant, much of James' work is in assisting clients in the development and implementation of environmental and health & safety management systems to assist in the identification, assessment and control of EHS risk. James has considerable experience in conducting environmental and health & safety due diligence and performance monitoring projects for private and public sector clients around the World.

Roxanne Scott Member Name

Associate, Senior Socio-economic Specialist


James Hartshorn Member Name

Principal


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