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Chapter 5

The sustainability of an investment refers to its ability to continue generating benefits into the future. This, in turn depends upon a number of factors including the continued availability of resources used in the project, the management, and the long-term relationship of benefits to costs. Sustainability is probably the most important aspect in project design and evaluation, but is also the factor that typically receives the least attention - in part because it is hard to look into the future and predict whether an investment will be sustainable in the long run. Many are not, and most people have seen the abandoned factories, empty schools and broken- down tractors that all represent unsustainable investments.

People often think that sustainability is the same as profitability, and it is certainly true that a project conceived to generate income can not be sustainable if that income does not exceed the costs of operating the project. But profitability alone in no way guarantees sustainability. A poorly managed project will fail regardless of the underlying profitability of the investment, and this aspect of projects is considered in its own right in Chapter 8. A profitable investment will also fail if it depletes or damages the natural resources it depends upon, whether they be trees, water or the organic matter in soils, and a considerable part of this chapter will examine the factors affecting the environmental sustainability of rural investments.

As mentioned earlier, there are in addition many types of investment whose principal purpose is not the generation of income, for example a local school. While the sustainability of projects of this type does not depend on their profitability, other factors may be of importance, including environmental sustainability (particularly a concern for access roads, for example) and operational and maintenance costs. If a project generates little or no income, where is the money to be found to maintain and repair it year after year?

The financial sustainability of income-generating projects is dealt with in much greater detail in the next chapter. In this section we analyse the importance and impact of other factors influencing the sustainability of rural projects, and in particular environmental impact and financing of non-income generating projects.

A. Why Consider Environmental Impact?

For many communities and groups seeking investment funding, conducting an environmental impact evaluation may seem merely to increase the work required, while providing very little benefit. All too often, an environmental study is seen as being required for the sole purpose of satisfying the demands of the city slickers or foreigners who barely know anything about the problems that exist in the project area.

However the reality of the matter is very different. Environmental evaluation is not just an obstacle that the applicants must surpass before funding can be approved; rather, it is a tool that will insure that the resources invested will provide the project with the long term sustainability that is essential. At it is important to remember that not all investments require detailed environmental evaluation. Many social projects, involving education, health care, road repair or the provision of other simple infrastructure will have little if any environmental impact and thus require little time to be spent on evaluation.

What is the relationship between environmental evaluation and the sustainability of the project? Although many factors may influence sustainability, in the rural environment the use of natural resources, such as water, soils and vegetation (e.g. trees) is often at the heart of the investment project.

If, in the life of the investment, natural resources are used in such as way as to result in their damage or destruction, it is clear that within a very few years there will be nothing left to exploit. One very common example is the conversion of slopes or tree-clad hillsides into cornfields or other annual crops. Within a very short time, all of the soil on the slope has slid to the bottom of the valley, and been carried away by streams and rivers, leaving behind barren slopes which yield so little there is no point in continuing to farm them. And such bare slopes threaten not only the incomes, but also the very lives, of those living in the valley below. Without the protection provided by the vegetation that once covered the slopes, hurricanes, monsoons and heavy rain can cause giant mudslides, engulfing whole communities.

Poor environmental practices can cause damage not only to those responsible. If a processing plant (e.g. a slaughterhouse) discharges waste materials into a river, it can cause disease, loss of fish, and a reduced quality of life for the entire population downstream.

Sometimes the damages caused by an investment take time to become apparent. For example, the over-utilization of underground water resources can result in effects that become apparent only during the lifetime of our children. Nevertheless they are important impacts and eventually our descendents will accuse us of ruining their lives in the name of a short-lived benefit.

The inhabitants of rural areas are more aware than city dwellers of the relationship between people and the natural world we live in. Of course, everyone wants to have sufficient resources to feed his or her family and to satisfy their needs for education and medical treatment. But a poorly designed project can result in a loss of income and reduced production in the future, which will leave the family in worse conditions than it faces today. The future should not be sold out so cheaply!

B. What is Environmental Evaluation?

Traditionally, environmental evaluation consists of a technical analysis of an activity or proposed project. It is generally undertaken to identify and assess possible negative environmental impacts that may result from the project, and to propose appropriate mitigation and monitoring measures.

It is important that the environmental assessment process is initiated early in project preparation so that these measures can be incorporated into project design. It is also increasingly recognized that the assessment cannot be a purely technical exercise, carried out by external specialists. Instead, it must involve project beneficiaries and other affected populations. Finally, recent environmental assessments are often not limited to the biophysical environment, but also cover economic, social and cultural aspects.

Environmental assessment (EA)

The general process of assessing environmental impacts associated with human development activities which may include studies ranging from comprehensive (EIA) to more limited reviews. It normally includes assessing potential negative impacts and elaborating measures to mitigate and monitor them.

Environmental Impact Assessment (EIA)

A tool used to identify and assess the potential impacts of a proposed project or activity, evaluate alternatives, and formulate appropriate mitigation, management and monitoring measures (generally in the form of an environmental management plan).

Environmental monitoring

Activities to measure and evaluate (i) environmental changes caused by a project and (ii) implementation of measures taken to prevent or mitigate these changes. Environmental monitoring is based on collection of data before, during and after the project. It often uses indicators, i.e. quantitative and qualitative variables which can be measured and which, if regularly observed, show changes in the project environment.

Environmental mitigation measure

An activity aimed at avoiding, minimizing, reducing the severity of, or controlling, adverse environmental or social impacts of a proposal through designing alternatives, scheduling, adding protective measures, and other actions.

Environmental screening

The first phase of the assessment process, in which an initial ranking is assigned to a project indicating the anticipated level of impact and the corresponding required EA "treatment".

The types of rural investment projects considered in this manual are of micro, small or medium scale. Many of these projects have little or no impact on the environment; their effect may even be positive (e.g. a decrease in erosion resulting from introduction of agroforestry). They generally do not require a full Environmental Impact Assessment (EIA), which are typically defined by national environmental laws. However, as explained in section A, even small rural investment projects may have environmental risks which need to be assessed and, if necessary, mitigated.

As a result, this manual provides simple procedures for environmental assessment which proposed in this manual provide a readily usable tool for environmental assessment of such projects. They are meant to be applied by local technicians, or other persons responsible for assisting the applicants in the preparation of their investment proposals. The procedures also indicate when the potential impacts of a project are so important that a specialized environmental expert is needed.

Some projects included in this manual - such as those involving infrastructure construction, forest exploitation and agroindustry, as well as those that promote agricultural expansion, even on a small scale -involve potentially significant environmental risks. These project types are, in many countries, covered by the national legislation on EIA. In these cases, the responsible parties should follow not only the recommendations proposed in this document, but also the relevant requirements established in the legislation.

C. Procedures and Stages of Environmental Evaluation

Pre-selection of Project Proposals (screening)

Before entering into details in the identification of potential environmental impacts of the proposed actions, the project should be classified into one of the environmental categories described below.

An initial classification should be done by the local technician, preferably during the preparation of the project profile (RuralInvest Module 2) so that the environmental assessment process can be launched at an early stage of project preparation. The classification should then be double-checked during detailed project formulation and evaluation (Module 3). When in doubt about the right category, the local technician should consult environmentally qualified regional/support technicians.

Category A

Projects in which no or negligible adverse impacts on the environment are foreseen and hence no mitigation measures are necessary.

Category B

Projects in which only low environmental impacts are anticipated. In these cases, possible impacts have to be identified as part of the project formulation process, and a series of mitigation measures has to be elaborated and incorporated into project design before the project is submitted for approval.

Category C

Projects whose environmental impacts may be moderate or significant but which are still mitigable. Category C projects normally require an environmental assessment, undertaken by an environmental specialist, and detailed mitigation measure proposals before submission for approval. The technician and the person/committee responsible for project approval should also check whether a full Environmental Impact Assessment (EIA) is required by the national legislation and consider whether specific environmental studies on critical aspects should be carried out.

Category D

Projects in which significant adverse effects are foreseen, for which there are no effective mitigation measures, or projects which are incompatible with the sustainable development policies of the concerned country or of international development agencies. This category also covers activities which are planned to be located within strict nature reserves or national parks[3]. In these the project should either be completely reformulated/relocated or rejected for funding.

Annex 1a contains an illustrative list of investment projects that can be included in the categories described above. However, this list is only indicative, and the categorization of any individual project should reflect the specific characteristics of the project site. It is thus recommended that, before starting RuralInvest use, environmental expert advice is sought on how to apply these categories in the project area.

When a project involves activities in more than one category, the technician should classify it in the category that refers to the activities with most environmental impact. In other words, if a proposal includes activities listed in categories A and B, it should be classified as category B. It is also possible that, during the environmental assessment, the technician is convinced that the project should be classified in another category than the one originally selected. In that case, the project should be reclassified accordingly, and any new requirements followed.

According to this methodology, projects classified in Category A require no environmental mitigation, projects in category D would be excluded from financing, and categories B or C would require an environmental assessment to identify their environmental impacts and respective mitigation measures, which must be incorporated into project design. For these two categories, we recommend the following procedures.

D. Assessment Stages for Category B and C Projects

The procedures presented in this section are proposed for carrying out an environmental assessment in four stages. These procedures are meant to be applied by the local technician (or other person responsible for the environmental assessment) but s/he should closely involve project beneficiaries at all stages. The environmental assessment process should also be launched early enough (during phase 2, see Chapter 1) for the results to be incorporated in the project proposal.

Stage One: Detailed definition of the proposed activities

To carry out an environmental assessment, it is necessary to clearly define the project’s proposed activities. In other words, the following questions should be answered: What does the project want to accomplish? Where? What kind of materials, tasks and resources will be involved? How many different ways are there to carry out these activities?

Stage Two: Definition of the environmental characteristics of the proposed project site and its immediate surroundings

At this stage, the environmental characteristics of the project area should be defined: type and quality of its water bodies (surface and groundwater); types of soil and vegetation (rangeland, bush, forest, etc.); existing or proposed protected areas; distance from ecological, historical, archeological or unique physiological sites; special constraints (slopes, aridity, etc).

In many cases, this information can be found in the local development plan or other similar document.

Stage Three: Identification and evaluation of possible environmental impacts

At this stage, it is necessary to identify and evaluate the environmental impacts that may be generated by the proposed activities in every phase of the project; whether they are probable or unlikely, positive or negative, direct or indirect[4], reversible or irreversible, local or regional, temporary, permanent or periodic. Depending on the nature and characteristics of each particular case, the magnitude of the impacts should be estimated (e.g. insignificant, low, moderate or significant). In category C projects, whenever possible, the impacts should be quantified; for example, the amount of soil that may be lost, the degree of erosion that may occur, or the number of endangered forest species that may disappear from the project area.

To provide guidance for the technician or the person responsible for environmental evaluation, this manual includes a series of specific environmental checklists, applicable to different activities and investments in rural areas (see Appendix 1b). The technician should make sure that the factors presented on the checklists are considered when environmental impacts are analyzed.

Stage Four: Definition of mitigation measures and their incorporation in the project design

Once possible environmental impacts have been identified, the technician should define the measures that can be taken to prevent, minimize, mitigate or compensate them. S/he should also indicate the costs of these measures and define who should take responsibility on their implementation. The environmental checklists presented in Appendix 1b include examples of mitigation measures for impacts associated with a variety of rural activities and investments.

Finally, the analyst should present the results of the evaluation in such a way that the information on potential environmental consequences and possible mitigation measures can be used in the decisionmaking process. This should lead into the incorporation of the suggested measures into project design.

E. Special Cases

Protected Areas

The procedures described in section D are applicable to all rural investment projects, independent of where they will be implemented. In some cases, additional restrictions apply to the project due to its location. This is the case of protected areas, established by the national government or regional/local authorities to protect and maintain biological diversity, and natural and cultural resources. Protected areas often consist of a core zone, with stricter protection, and surrounding buffer zones or so called multiple usage zones, in which more human activities are allowed. In addition, most countries have established, through legislation, a system of protected areas, which often involves several categories with different use and management rules[5].

When a project is located within a protected area (or an area proposed for this classification), all investments and activities - agricultural, forestry, commercial, industrial or tourism - should be adapted to the following conditions:

Pest management

Pest management is a sensitive issue that requires special attention in rural investment projects in order to avoid potentially severe adverse health and environmental impacts. When preparing rural investment projects involving crop cultivation, livestock raising or forestry, the technician should ensure that the project adopts an "integrated pest management" approach (see below) and that the following three rules are respected:

First, purchase and use of pesticides classified by the World Health Organization as Extremely Dangerous (Class Ia) or highly dangerous (Class 1b) should be excluded from financing. These substances and examples of pesticide products are listed in Appendix 1a, Table 1.

Second, purchase and use of pesticides over large areas should be excluded from financing due to the significant risk of health and environmental hazards and difficulty of establishing an effective control system.

Third, purchase and use of pesticides classified by the World Health Organization as Moderately Dangerous (Class II) should be excluded from financing if the following preconditions are not met:

i) The country implements adequate legal restrictions on the distribution and use of these pesticides;

ii) safeguards are in place to prevent the use of, and access to, these pesticides by lay personnel, farmers, or others without appropriate training, equipment and facilities to store and apply them properly;

iii) Users adhere to precautionary methods proven to be effective under field conditions in developing countries.

All projects involving crop cultivation, livestock raising or forestry should adopt an integrated pest management (IPM) approach to reduce reliance on synthetic chemical pesticides and to promote the use of biological and environmental pest control methods. Pesticides should be used on an as-needed basis only, as a last resort component of an IPM strategy. In these cases, it should be ensured that (i) the selection of products minimizes health and environmental hazards, and (ii) these pesticides are correctly handled (including mixing and storage) and applied (including use of recommended protective gear and appropriate application equipment and techniques).

It is recommended that all projects involving purchase and use of pesticides, or that are likely to increase pesticide use, are classified in environmental category C (see section C). They would thus require, as a minimum, an environmental assessment, undertaken by a specialist, and detailed mitigation measure proposals before submission for approval.

F Monitoring Environmental Impacts

When carrying out the environmental assessment, the technician, together with future project personnel, should also identify indicators for monitoring the environmental impacts of the project and the implementation of the environmental mitigation measures. Environmental monitoring should be initiated at the start of project activities and continued throughout the project.

Through monitoring indicators, the project personnel can:

a) Verify that the environmental mitigation measures are implemented and are achieving the desired effect;

b) Detect possible unforeseen environmental problems in time to make the necessary adjustments in the operation of the project;

c) Provide information and inputs for the evaluation of the project.

In Appendix 1b, a tentative list of monitoring indicators is presented for different rural activities and investments, according to project type (agriculture, forestry, aquaculture, rural infrastructure, eco-tourism etc.). However, their applicability to micro and small-scale projects should be checked during project formulation. The indicators should be cost-effective, and adapted to the available skills and equipment.

In addition to monitoring the impacts of each investment/activity, it is often necessary to simultaneously evaluate the overall impacts of several investment projects implemented in the same area. For this purpose, a survey instrument is proposed. An environmental survey on each investment should be conducted at the end of the first year or, in the case of medium or long-term projects, every two years. These surveys could be contracted to a consultant firm specialized in the area or field concerned.

For these surveys, three environmental indicators are recommended:

a) Number of projects that have incorporated environmental mitigation measures;
b) Number of person-months contracted to provide technical assistance on environmental aspects;
c) Number of environmental checklists/test charts developed with technical assistance.

G. Specialized Support and Environmental Studies


For environmental impact mitigation measures to be effective, project personnel must receive training in environmental matters. This training should be provided to field technicians with technical responsibility on project execution, and/or to support/regional technician.

Training, which should be organized during the first two years of the project, could include, for example, a one-week course on environmental impact assessment methods.


It is also recommended that the project personnel seek support from technical assistance programs on environmental assessments. These programs could be tapped, for example, to contract - for short periods - an environmental expert during the first year of the project. This consultant would be responsible for providing information and assistance to project technicians on the evaluation of environmental impacts and their mitigation. S/he would also review the proposals presented for financing to identify possible environmental impacts and to determine if they were taken into consideration by the field technician working with the applicant.


As mentioned above, in the case of Category C projects, a specialized environmental expert or firm may need to be contracted to study the critical aspects of the project or to undertake a full Environmental Impact Assessment (EIA). Specific studies may also be necessary, for example, in the case of agro-industrial projects, to evaluate the use of clean technologies or the design of waste treatment facilities.

H. Social Impacts of Rural Investment Projects and Sustainability

The small-scale rural investment projects considered in this manual aim at improving the livelihoods of rural populations and, in many cases, also address social issues, such as health and education. It might thus appear improbable that they would result in major negative social impacts.

Nevertheless a number of potential investments in rural communities could result in profound changes in social relations within a community; changes that might ultimately threaten the sustainability of the investment itself. In one case in West Africa, for example, strong resistance developed among many local farmers to the operation of a recently established local school, as it was believed to have contributed to a steep increase in the migration of young people to urban centres and hence a reduction in labour availability within the community. The school was finally closed. Thus, all projects, even small-scale rural investments, should pay attention to possible social impacts.

Key types of projects which may have a significant social impact include:

The environmental checklists presented in Appendix 1b include some social impacts and possible mitigation measures, which should be considered in the environmental assessment.

I. The Sustainability of Non-Income Generating Investments

In addition to considering their relationship with natural resources, investments focused on production support, social benefits and even environmental improvement - in other words, investments whose principal purpose is not to generate income - face the challenge of remaining sustainable once external funding disappears. In contrast to those projects established to make a profit, projects of this type have no guaranteed income flow to finance their ongoing operating costs.

The sustainability of these projects is thus dependent on the necessary resources being available to continue operation, once the initial investment has been made. A school without a teacher, a clinic without a nurse or access to medicines, or a road that has been washed out by spring floods, are all examples of unsuccessful investments. In each case, there was a failure to maintain the availability of the necessary resources (personnel, materials or maintenance) needed to insure the long term functionality of the investment.

The process of formulation for non-profit projects requires that the source of these future resources be precisely identified, and that the nature of the guarantees made as to their availability be detailed. After all, an assurance of future resources is only as good as the guarantee that backs it up! Among the possible sources of resources for future maintenance and operating expenses, are the following:

In fact a combination of several sources is generally necessary. Charging the beneficiaries is a frequent tactic, but rarely covers the entire cost of operations and upkeep.

Whatever the source(s) are, it is important to obtain and attach a letter of commitment to the proposal, specifying the amount and the length of the guarantee. If the source is official (local government or a ministry), you should try and ensure that the commitment.

[3] See section E.
[4] For example in road construction, cutting of trees along the road bed generates direct impacts (e.g. erosion and sedimentation in a nearby river) whereas indirect impacts may result from access to previously isolated areas, leading to the conversion of forest into farmland.
[5] The categories used by the World Conservation Union (IUCN) are presented below to give an example of possible categorisation. However, the number and names of PA categories, and related use and management rules, vary from country to country. The local technician should become familiar with the PA system in use in his/her country.
IUCN categories:
I. Strict Nature Reserve/Wilderness Area: protected area managed mainly for science of wilderness protection;
II. National Park: protected area managed mainly for ecosystem protection and recreation;
III. Natural Monument: protected area managed mainly for conservation of specific natural features;
IV. Habitat/Species Management Area: protected area managed mainly for conservation through management intervention;
V. Protected Landscape/Seascape: protected area managed mainly for landscape/seascape protection and recreation;
VI. Managed Resource Protected Area: protected area managed mainly for the sustainable use of natural ecosystems.
[6] Since each country uses different names for the various types/categories of protected areas; the technician responsible for the environmental evaluation should adjust the names referred to above to those used in his country.
[7] Non-wood forest products (NWFP) include products used as or with food (e.g. fruits, mushrooms, nuts, herbs, spices, cacao, honey, and animals hunted for meat), fibres (such as rattans), rubber, resins, gums, and plant or animal products used for medicinal, cosmetic or cultural purposes. They can be gathered from the wild, or produced in forest plantations, agroforestry schemes and trees outside forests. NWFP are vital to the daily subsistence of forest-dependent communities, and contribute to the subsistence and local commercial economy in other rural communities. Some NWFP are also commercialised in a larger scale (e.g. cork).

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