Annex11: AfDB Project Categorization

2.11 Annex11: AfDB Project Categorization

Category 1 projects are likely to induce significant, irreversible adverse environmental and / or social impacts, or significantly affect environmental or social components that the Bank or the borrowing country considers sensitive. In a limited number of cases, Program-Based Operations (PBOs) or other regional and sector program loans may have significant adverse environmental or social risks and shall be deemed to be Category 1. Category 1 projects require a full Strategic Environmental and Social Assessment (SESA) in the case of PBOs or regional and sector loans or an Environmental and Social Impact Assessment (ESIA) in the case of investment projects, leading to the preparation of an Environmental and Social Management Plan (ESMP). In some cases, projects shall be included in Category 1 owing to potential cumulative impacts, which will need to be addressed in the ESIA. Any project requiring a Full Resettlement Action Plan (FRAP) under the provisions of the Bank’s Policy on Involuntary Resettlement shall also be deemed to be Category 1 in which case the ESIA shall include, and may be limited to, the social assessment needed to prepare the FRAP.

A Category 2 project can be reclassified as category 1 if OSs 1, 2 and 3 are triggered. See box A of the initial environmental and social screening checklist for all the conditions under which a Category 2 project can be classified as Category 1.

In addition for a category 1 project, if an OS is triggered, the requirements of this specific OS should be met by the project.

Category 2 projects require an appropriate level of Environmental and Social Assessment (SESA for program operations or ESIA for investment projects) tailored to the expected environmental and social risk so that an adequate ESMP can be prepared in the case of an investment project or an Environmental and Social Management Framework (ESMF) can be designed and implemented by the borrower in the case of program operations to manage the environmental and social risks of sub-projects in compliance with the Bank’s safeguards.

A Category 3 project can be reclassified as category 2 if OSs 1 and 2 are triggered. See box B of the initial environmental and social screening checklist for all the conditions under which a Category 3 project can be classified as Category 2. In addition for a category 2 project, if an OS is triggered, the requirements of this specific OS should be met by the project.

Category 3: Bank operations with negligible adverse environmental and social risks. Category 3 projects do not directly impact the environment adversely and are unlikely to induce adverse social impacts. They do not require an environmental and social assessment. Beyond Categorization, no action is required. Nonetheless, to design a Category 3 project properly, it may be necessary to carry out gender analyses, institutional analyses, or other studies on specific, critical social issues in order to anticipate and manage unintended impacts on the affected communities. In addition for a category 3 project, if an OS is triggered, the requirements of this specific OS should be met by the project.

Category 4: Bank operations involving lending to Financial Intermediaries.

Category 4 projects involve Bank lending to Financial Intermediaries (FIs) who on lend or invest in sub-projects that may produce adverse environmental and social impacts. FIs include banks, insurance, re-insurance and leasing companies, microfinance providers and investment funds that use the Bank’s funds to on-lend or provide equity finance to their clients. FIs shall also be understood to include private or public sector companies that receive corporate loans or loans for investment plans from the Bank used to finance a set of sub-projects. However in cases where a Bank corporate loan will be used by the client to finance high-risk investment projects known at the time of loan approval, the loan can be deemed to be Category 1 or 4(1) requiring an ESMS as well as a detail ESA studies. In cases where a Bank corporate loan will be used by the client to finance low-risk investment projects known at the time of loan approval, the loan can be deemed to be Category 2 or 4(2) requiring an ESMS as well as a detail abbreviated ESA studies.

In cases where a Bank corporate loan will be used by the client to finance no-risk investment projects known at the time of loan approval, the loan can be deemed to be Category 3 or 4(3) for which no ESA studies are required. FIs are required to apply the Bank’s OSs and equivalent procedures to their sub-projects and to comply with local environmental and social requirements. The FI must demonstrate to the Bank that it has developed and will maintain an Environmental and Social Management System (ESMS) in line with the Bank’s OSs and appropriate for the scale and nature of its operations – recognizing that FIs’ operations vary considerably and in some cases may pose minimal environmental and social risk.

The FI must also demonstrate that it has the management commitment, organizational capacity, resources and expertise to implement its ESMS for its subprojects.