On the ground in Southeast Asia, an auditor describes the work of getting project developers to fulfill promises to local residents.
The view from the trenches of applying ESG to investment initiatives is quite different from the conceptual debate about its effectiveness. Tony Zola knows this difference well after decades of work in the field. Zola began work in Southeast Asia as a Peace Corps volunteer in Thailand in 1970. He went on to advise the Doi Tung Project to help villagers grow crops other than opium and add secondary schools, running water and a sanitation system to their community. This development project has become a model for alternative sustainable development.
Zola then founded the Doi Tung Center for Social Entrepreneurship to spread the model throughout the region. He had his own consulting firm for many years, the MIDAS Agronomics Company, which advised economic development projects and others in the region. In a recent conversation with Robert Rubenstein — as part of the TBLI Talk weekly series — Zola described how ESG figures into his practice on the ground. — John Howell
I’ve been working in Asia for 50 years. Most recently, I’ve become more involved in ESG investing, policing, auditing, and following up on environmental and social safeguards that are very important for the people who are being impacted by the projects that investors are investing in throughout Asia.
Most of my life has been spent working in agriculture and rural development. For six years I worked with one of the royal foundations in Thailand: what is called the Mae Fah Luang Foundation under Royal Patronage, the foundation of the “Royal Mother from the Sky” (Her Royal Highness Princess Srinagarindra) who was the grandmother of the current king, King Rama X. We did alternative development, alternatives to the planting of opium, working in northern Thailand, also in Shan state in Myanmar as well as Afghanistan and Aceh province, Indonesia where opium and cannabis, respectively, are being produced in large quantities.
I helped establish the Center for Social Entrepreneurship which continues to operate in different communities all over Thailand. I worked with them for six years and gained a lot of knowledge about alternative development. In 2007 a new opportunity showed up, one that had to do with social auditing. Since then, I’ve been working as a consultant, as part of a team of people who are hired to go out and make sure that the companies that are building hydropower projects in Laos are, in fact, providing the people with entitlements that they promised to those people who have had to be relocated.
My job is to make sure that what is happening on the ground with the people is what is prescribed by environmental and social guidelines.
The team that I work with consists of two to four engineers who are involved in the technical aspects of construction and operation of hydropower plants, and two environmental people. Then there’s the social team, of which I am one. I usually work in livelihood restoration for the people who are being re-settled. There’s also an anthropologist because in a place like Laos, you’re dealing with dozens of ethnic groups.
I’m on the frontline. I’m a practitioner. We work as a team to enforce the environmental and social safeguards that are designated by organizations such as the Asian Development Bank, The World Bank, the International Finance Corporation, as well as many other organizations. The OECD has a set of guidelines, ASEAN — the Association of Southeast Asian Nations — has guidelines, the international hydropower associations have their own requirements. Our job is to enforce the implementation of these safeguards at the village level.
I am working on four hydropower projects in Laos now. I’m also working on the largest wind power project in Southeast Asia, the Monsoon Wind Farm in southern Laos. In Laos, there will be a total of 101 hydropower dams, 63 of which are already operational. So, a lot of people are being moved around and their livelihoods are being upset. My job is to make sure that some of them are getting what they’re entitled to.
We are hired by the lenders: the big international banks that are financing the billion dollar-plus renewable energy investments. We report to the lenders who select the consultants to do this verification work for them. We are called an LTA — the lenders’ technical advisor. So, when I go out to a village, I have my “recipe book”: the IFC performance standards, the Asian Development Bank’s safeguards policy, The World Bank’s environmental and social framework. My job is to make sure that what is happening on the ground with the people is what is prescribed by these guidelines. If the developer, the company that is receiving the money from the lenders, is not doing it right, then it’s my job to correct that and make recommendations.
The developers want to limit their risk capital. To them, social development is like a black hole in outer space.
We have a Corrective Action Plan that I come up with after each site visit. What I do is write down, “here is the violation, here are the documents that it’s violating, this is the current status of this particular issue, and here are my recommendations for mitigation.” Each issue is categorized as urgent, medium-level, or low priority. The highest priority issues have to be addressed immediately. The middle- level ones have to be addressed before my next visit. On the low- level issues, you have to show some progress. My visits are every three months. Once the project is operational, I visit once or twice a year.
The developer’s objective is to save money. They have a budget. The more money they can save, the less money they have to mobilize from the shareholders and the banks. The banks, the lenders, will come in with money as long as the shareholders come up with some money as well. The developers want to limit their risk capital. To them, social development is like a black hole in outer space. In Southeast Asia, there’s no end to the social welfare money that’s needed by the poor and vulnerable.
So, the developer has to build schools and health stations, put in running water and wells, build resettlement houses, provide scholarships for students, hire some of these people to work for your company — it goes on and on. That’s just hardware and it’s easy. I haven’t mentioned livelihood restoration. They make a promise in their concession agreements with governments that they will ensure that after the ten-year resettlement period the income of the villagers at some projects will be 200 percent greater than it was before the project arrived. If it’s not, they have to extend the resettlement implementation period.
If the developer borrows from the IFC — the International Finance Corporation, the private sector window for The World Bank — the Asian Development Bank, or any bank that subscribes to the Equator Principles, a set of principles by which the banks agree to follow the IFC standards, they must take into account the sensitivities of indigenous people.
We’re auditors. Companies don’t have to like us coming in. They generally dislike me because Lao is my second language. My third language is Thai. So, I’m able to go out to the villagers and follow up to make sure they’ve received what was promised to them when they agreed to be re-settled. Banks like us because we protect their reputation. Still, ethical people can be some of the most disliked people in the world.
The TBLI Talk series is presented by the TBLI Foundation, serving the global ESG and impact investing communities through conferences, educational services, investor research and tools. Its mission is to increase understanding and awareness of the benefits of a value(s) based financial system and thus help mobilize money flows into ESG and impact investing to ensure a brighter future.