Greenfield developments can have a significant environmental impact. Where the impact relates to biodiversity that has a high ecological value, regulatory authorities are increasingly requiring project developers to implement a biodiversity offset. A biodiversity offset is intended to ensure that our biological resources do not suffer a net loss as a result of the project being developed.
For example, the intended site of a new electricity generation facility may require the removal of a large number of protected floral species. Due to the suitability of the site in all other respects, and in order to allow the project to proceed where the presence of the protected species would otherwise be a fatal flaw, approval may be granted conditional on the developer acquiring additional land of a similar ecological value which it must actively rehabilitate and conserve for the lifetime of the project. The conservation of such land is required to effectively offset the ecological value being lost by removing the protected floral species.
Biodiversity offsets, therefore, may have a long-term material effect on the bankability of a project. Not only are the potential cost implications onerous, but the management of an offset is not likely to be within the usual business of the company owning the development.
Although biodiversity offsets are not directly regulated in terms of existing environmental legislation, the Department of Environmental Affairs, and various provincial departments responsible for environmental matters, have prepared guidelines that set the current benchmark for the design and implementation of biodiversity offsets.
Various principles that define the proper design and implementation of these offsets are generally aimed at ensuring implementation of the best and most practicable environmental option for the design and long-term management of the offset. In practice, the design of an offset will involve lengthy engagement with affected stakeholders, including national, provincial and local government departments responsible for environmental management.
An offset may take many forms and the design requires creativity and ecologically sound decision making. For example, an offset that we have been involved in required a developer to delineate and manage a conservation area within the development footprint of a strategic infrastructure project. This offset will conserve a corridor of land connecting two ecologically important areas. Over 700 hectares of land will be formally declared a protected area in terms of National Environmental Management: Protected Areas Act, 2003. The formal declaration of the land will mean that no development can take place within this conservation area.
Therefore, where a project requires the implementation of a biodiversity offset, it is important that developers and their lenders understand the nature and purpose of the offset, and the implications that the offset will have on the project and, in particular, the project economics.