Preparing Legal Frameworks for Environmental Disasters: Practical Considerations for Host States

Projects in the extractives sector carry risks of lasting, and sometimes irreversible, damage to the environment. Nonetheless, these projects are important for accelerating the economic development of host countries. Governments seeking to mitigate the adverse effects of foreign investment often face pushback from investors that are unwilling to change their practices in order to avert environmental disaster. This report sets forth certain steps that host-governments can take during the pre-investment, operation, and enforcement phases of extractives projects to provide financial and other protection in the context of environmental disasters associated with private sector investments.

Upon comparative review of five Case Study Countries (Canada, Chile, the UAE, Indonesia, and Uganda), the authors of this report found that the most important factor impacting a host government’s ability to hold developers accountable for environmental harm is a gap between applicable environmental legislation and the enforcement of this legislation. The report then provides several recommendations for addressing this discrepancy, with an emphasis on the role of planning and robust legal and regulatory frameworks, as well as an analysis of a variety of safeguards (including, but not limited to, impact assessments, stakeholder engagement, and financial penalties) to be deployed at each of the three phases of a project. It also discusses the role of financial institutions in promoting best practices and mitigating risks and minimizing the fallout from investment-related environmental disasters.