45.1 Compliance with Domestic Environmental Laws:16 The Company shall comply with the Applicable Law relating to the environment at all times during the term of this Agreement, including laws relating to protection of water quality, air quality, quality of land and soils, the preservation of living natural resources, the protection of biodiversity, the disposal of hazardous and non-hazardous wastes, and the reduction and capture of greenhouse gas emissions.
45.2 A significant and persistent failure to comply with the Applicable Law relating to the environment, the terms of any Applicable Licence relating to the environment, or of the provisions of the Environmental and Social Management Plan, as the same may be revised or changed from time to time, constitutes a Material Breach of this Agreement.
45.3 Monitoring, reporting, and disclosure: The Company shall at all times cooperate with the Grantor [and the Authority] for the monitoring, reporting and enforcement of all provisions of this Agreement and the Applicable Law in relation to the environment, and shall in particular:
(a) ensure that all reports required under the provisions of this Section are provided in a timely way and with the requisite level of detail, in accordance with Section 55, so as to facilitate effective monitoring by the Grantor [and the Authority] of the Company’s obligations under this Agreement and the Applicable Law relating to the environment;
(b) disclose in a prompt and transparent manner any environmental risks or damage that arises during the term of this Agreement, in such a way as to enable a prompt and effective response to that risk or damage by the Parties;
45.4 Certification and Environmental Audit:17 The Company shall, within [insert number] years from the Signature Date, obtain certification of the Project from the [insert applicable scheme] and shall at all times comply with the requirements of that certification scheme so as to maintain certification for the duration of this Agreement.
45.5 The Company shall engage an independent professionally qualified auditor to conduct an environmental audit that shall comply with the requirements of [the Applicable Law]/[ISO 14001]/[insert other relevant standard] and that shall be carried out;
(a) within [insert number] month(s) of the Signature Date (the Initial Environmental Audit); and
(b) within [insert number] month(s) of the end of this Agreement in accordance with its terms (the Final Environmental Audit); and
(c) every [insert number] years during the Term of this Agreement.
45.6 Each environmental audit shall be carried out [at the expense of the Company]/[at the joint expense of the Parties whereby the Company contributes [insert number]% and the Authority contributes [insert number]%].
45.7 The Company shall provide to the Grantor [and the Authority] the results of each environmental audit, accompanied by an action plan detailing any steps which the Company intends to take to address any areas of concern or non-compliance identified in the environmental audit, and to remediate or compensate for any Environmental Damage identified by the environmental audit, in accordance with this Section.
45.8 Liability for environmental damage: The Company shall bear all responsibility for any environmental damage or contamination caused to the Project Area, surrounding areas and nearby natural resources caused by Project Operations including the Company’s use of chemicals, release of pollutants, depletion of soil quality or other adverse environmental impacts (the Environmental Damage).
45.9 The Company shall bear all costs associated with the prevention, control, and clean up of Environmental Damage and shall be liable for the costs of remediation and repair of Environmental Damage and compensation to any affected persons suffering loss caused by Environmental Damage.
45.10 Project closure and restoration of the environment: at the end of this Agreement by way of expiry or termination in accordance with its terms, the Company shall return the Project Area to the Grantor in substantially the same or better condition as that in which it was granted, as identified by the Initial Environmental Audit.
45.11 Where the Final Environmental Audit identifies Environmental Damage that was not identified in the Initial Environmental Audit, such Environmental Damage shall be attributed to the Project Operations and shall be remediated, restored, or compensated at the expense of the Company in accordance with this Section and the Applicable Law.
45.12 Within one month after the submission of the Final Environmental Audit to the Authority, the Parties shall meet to negotiate in good faith an action plan outlining actions to be taken by the Company to remediate or restore any Environmental Damage, and timeframes for the Company to take those actions.
45.13 Where there is Environmental Damage that cannot be reasonably remediated or restored by the Company, the Parties shall negotiate in good faith an amount of monetary compensation payable by the Company to the Grantor or other parties affected by the Environmental Damage, and the currency and payment plan for such compensation.
45.14 Environmental damage bond: The Company shall provide and deliver, within one (1) month after the Signature Date, to the Grantor an unconditional and irrevocable bank guarantee as security for the remediation or restoration of any Environmental Damage (the Environmental Damage Bond) which shall:
(a) be in favour of the Grantor;
(b) be issued by a bank acceptable to all Parties;
(c) be valid until [insert];
(d) be in the amount of [insert amount and currency];
(e) constitute an on-demand, unconditional, and irrevocable commitment to pay by the bank by which it is issued; and
(f) be enforceable and drawable by the Grantor in the amount required to remediate or restore any Environmental Damage identified in accordance with this Section and/or to compensate any affected persons in accordance with this Section.
45.15 Unless drawn upon by the Grantor in accordance with this Agreement, the Environmental Damage Bond shall be returned to the Company upon the return of the Project Area in substantially the same condition as it was granted, in accordance with Section 45.10.
45.16 Where the Parties cannot agree as to remedial actions or compensation for the Environmental Damage, and/or the amount to be withdrawn from the Environmental Damage Bond to remediate, restore, or compensate for the Environmental Damage, the Parties shall refer the matter to an Independent Expert for final determination in accordance with Section 61.
45.17 This Section is without prejudice to the rights of the Grantor, the Authority, any Third-Party Beneficiary, or any other party affected by Environmental Damage to seek recourse under the Applicable Law for such damage that has not otherwise been remedied or compensated in accordance with this Section.
For more information: See generally Cotula, 2016, Section 4.5 (Environmental Protection – Environmental Standards, Agencies and Liability); UNIDROIT & IFAD, 2021, Sections 4.113 (4.113. Preventing Pollution), 4.122. (Monitoring and Reporting Environmental Protection), and 4.123 (Project Closure and Restoration of the Environment); Aizawa & Mann, 2021, p. 94, Box 5.5 (Financial Mechanisms to Ensure Corrective Action).
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See generally IISD, 2014, Section 9.1 (Domestic Environmental Laws); Szoke-Burke et al., 2018, Section 10 (Protections Against Environmental Damage and Harm to Human Health).
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This provision can be used and adapted for other forms of audit that may be relevant to the project, such as social, labour, or gender audits.