The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Appraisal Environmental and Social Review Summary Appraisal Stage For Official Use Only (ESRS Appraisal Stage) Date Prepared/Updated: 05/15/2023 | Report No: ESRSA02778 May 04, 2023 Page 1 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Chile LATIN AMERICA AND P177533 CARIBBEAN Project Name Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Energy & Extractives Investment Project 4/26/2023 6/22/2023 Financing Borrower(s) Implementing Agency(ies) Republic of Chile CORFO -Corporacion de Fomento de la Produccion, Corporación de Fomento de For Official Use Only la Producción - CORFO Proposed Development Objective The Project Development Objective is to support the development of the green hydrogen industry in Chile. Financing (in USD Million) Amount Total Project Cost 431.00 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] The Project will support the early deployment of green hydrogen supply investments in Chile through the creation of a Green Hydrogen Facility (GHF). The Project will consist of an Investment Project Financing (IPF) loan for US$150 million to the Government of Chile (GoCl) to be implemented through the Economic Development Promotion Agency (Corporación de Fomento de la Producción, or CORFO). over a five-year period. The Project will comprise two May 04, 2023 Page 2 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) components: (i) green hydrogen sub-loans and risk-mitigation instruments; and (ii) capacity building and project management. Both components will support the establishment of the GHF and help develop the enabling environment. The components are described below. Component 1: Green Hydrogen Investment Sub-loans and Risk-Mitigation Facility (US$141.79 million, IBRD). Under this Component, the Project will provide investment sub-loans and risk-mitigation reserve accounts to help mitigate the financial and early-stage constraints currently faced by the green hydrogen industry. Component 1 will finance credit lines that will comprise: (i) sub-loans to finance up to 40 percent of electrolyzer system costs, and (ii) risk- mitigation instruments through a debt service reserve account (DSRA) and a liquidity reserve account (LRA) to mitigate payment and performance risk respectively to developers, lenders, and financiers. The GHF instruments under Component 1 will be deployed via lending through retail financial institutions (RFIs) and, eventually, CORFO will be providing direct lending to sub-projects, for which it will need to build its capacity and establish a project finance unit. The specific sub-components are described below: - Sub-component 1a: Green Hydrogen Investment Sub-loans (estimated US$120.79 million, IBRD) will provide sub- loans for up to 40 percent of the investment costs (capital expenditures, CAPEX) of electrolysis systems. - Sub-component 1b: Risk-Mitigation Reserve Accounts (estimated US$21 million, IBRD) will finance reserve accounts to mitigate the payment and operational risk associated to the green hydrogen production sub-projects. The DSRA will be created to cover unexpected or untimely cash needs for commercial debt repayment related to the financing For Official Use Only of electrolysis systems of green hydrogen generation plant and will be available to cover up to 12 months of interest and principal. The LRA will be created to cover unexpected short-term technical underperformance in the green hydrogen generation plant and provide liquidity to the sub-project to mitigate its potential technical underperformance. Component 2: Capacity Building and Project Management (US$6.625 million, IBRD). This component will finance technical assistance, capacity-building activities, and overall Project management activities to strengthen the enabling environment for green hydrogen through the development of necessary professional, financial, and technical skills. Component 2 would support knowledge products and studies in the following areas: (i) assessments to help inform ways to foster demand for green hydrogen; (ii) promoting the use and access of public infrastructure; and (iii) analyses of the expected hydrogen international commodities markets. Overall project management support will include, among other, the following: (i) independent third-party consultants (firms) to assess the risks and support the technical, financial, legal, and Environmental and Social (E&S) evaluation of sub-projects under Component 1; (ii) capacity training in the technical, financial, and E&S assessment of green hydrogen sub-projects; (iii) project fiduciary coordinator for the adequate financial management and procurement aspects as well as monitoring of component 1 and 2; and its role as a one-stop-shop to facilitate sub-projects’ access to new and existing financial instruments (e.g., R&D Law subsidies, sub-loans, reserve accounts, guarantees, and coverage); and (iv) project monitoring and evaluation activities. D. Environmental and Social Overview D.1. Detailed project location(s) and salient physical characteristics relevant to the E&S assessment [geographic, environmental, social] May 04, 2023 Page 3 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Location. Based on green hydrogen (GH) development in Chile to date, subprojects (in the range of 10 to 100MW) to be financed through the Green Hydrogen Fund (GHF) could be located nationwide, although the majority are expected to be located in the Antofagasta and Magallanes regions. Even though subprojects are likely to be located in isolated rural areas, and some in scarcely populated peri-urban areas, these could be implemented anywhere in the country, and specific locations are currently unknown. Also, specific required resources, such as access to a significant source of water, or proximity to a renewable energy source, will vary among subprojects, depending on their technical characteristics and scopes. It is important to mention that certain natural vulnerabilities (rising temperatures, decreased rainfall, and the decline of glaciers) are threatening Chile’s water security. The resulting water scarcity is highly specific to a region since it compares the water use to the replenishment of water in the area, so local impact assessments on water availability and cost will be needed to set up a green hydrogen production plants in water-stressed regions, such as Antofagasta, and to avoid competing with the water supply needed for households, agriculture, mining, and other uses. Environmental and Social (E&S) criteria, aimed at avoiding high E&S risks and impacts based on the subprojects’ specific locations and characteristics, are considered in the project Exclusion List (refer to ESS1 for further details). Environmental Overview. The development of GH subprojects in clustered areas that concentrate the most suitable technical and economic conditions for this technology, known as “GH valleys” is expected. The Antofagasta and Magallanes regions (considered GH valleys) have the following environmental characteristics. The Antofagasta region is mostly desert, with small areas of prairie, scrub, and wetlands. It overlaps with 9 National Protected Areas (NPAs), including 2 RAMSAR Wetlands, 2 National Parks, 2 National Reserves, 1 Nature Sanctuary, 1 Marine Reserve, and 1 For Official Use Only Natural Monument. Seven of these are also considered Key Biodiversity Areas. The main watercourse of the region is the Loa River. The Magallanes region is characterized by mountainous peaks and glaciers in the far north, with other mountain ranges and surface waters in the south. It overlaps with several NPAs covering a significant part of its territory, including 2 UNESCO Biosphere Reserves, 1 UNESCO World Heritage Site, 1 RAMSAR Wetland, and 5 National Parks. Social Overview. In the Antofagasta and Magallanes regions, over 90% of the population lives in a few concentrated urban nuclei while the rural areas are sparsely inhabited. The Magallanes region has a population density of 0.1 person per km2 and 79.2% of the population lives in Punta Arenas. The rural areas are characterized by large estates where livestock is raised, although some farmers are diversifying with agritourism. The Antofagasta region has a population density of 3.9 persons per km2 and 60.1% of the region’s population lives in the city of Antofagasta. The main economic activity in Antofagasta is mining, accounting for over 50% of the regional GDP. Regarding vulnerable populations, in 2017 the incidence of income-based poverty was low (5.1% in Antofagasta and 2.1% in Magallanes). However, as a result of COVID-19, the income-based poverty rate has risen to 9.3% in Antofagasta and to 5.7% in Magallanes, as did the multidimensional poverty incidence (CASEN, 2020). The last census (2017) shows that in the Magallanes region, 23.1% of the regional population identified as indigenous, while in Antofagasta indigenous peoples account for 14.1% of the regional population. Mirroring demographic trends in the Chilean population overall, 87% of indigenous peoples nationwide live and work in urban areas rather than in isolated rural areas (Census 2017). The last census also shows that immigrants accounted for 4.4% of the population and that 50.4% come from Perú (25.2%), Colombia (14.1%), and Venezuela (11.1%). In Antofagasta immigrants accounted for 11% of the residents, while in Magallanes it was 2.9% of the population. Since 2017, irregular migration has risen in Chile, including from new countries such as Haiti. Irregular immigration is mainly centered in the region of Tarapacá, which is directly to the north of Antofagasta and shares a border with Bolivia. May 04, 2023 Page 4 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Natural disasters. The most recurring threats of natural disasters in Chile and specifically in the Antofagasta and Magallanes region are earthquakes, volcanic eruptions, droughts, and intense rainfall concentrated in short periods of time, which generate floods and landslides. Taking into consideration the magnitude and impact of the event, earthquakes and tsunamis are the most important in terms of victims and economic losses, but hydrometeorological events are the most recurrent in the country. Chile concentrates one of the highest levels of seismic activity in the world, registering an average of 200 daily earthquakes, both perceptible and imperceptible. D. 2. Borrower’s Institutional Capacity The Borrower will be the Government of Chile through the Ministry of Finance (Ministerio de Hacienda), whereas CORFO (Corporación de Fomento de la Producción) will be the implementing agency. CORFO will directly manage and channel loan resources from the Budget Office to a specific account to constitute the GHF and will act in both as first- tier (directly financing subprojects), and as a second-tier (transferring funds to other financial intermediaries, or RFIs, which will provide concessional financing to GH subprojects) capacity. CORFO’s investment and financing office (Gerencia de Inversión y Financiamiento - GIF) will be responsible for the implementation and coordination of the GHF’s activities. (i) CORFO’s current capacity for managing E&S risks and impacts: CORFO has experience managing credit lines for other MDBs (such as KfW and IDB) for a variety of projects and thus it has some experience in complying with multilateral policies and reporting. However, CORFO lacks experience in the implementation of WB projects and thereby in E&S issues management in accordance with the ESF. Also, even though For Official Use Only CORFO has guidelines for developing public consultation and engagement activities and an area dedicated to citizen engagement issues, it currently does not have an E&S Policy nor a standing E&S risk management system. However, CORFO is currently developing its own “environmental and social sustainability policy”, applicable to the entire institution, which is expected to become operational by 2024. CORFO’s ESMS will include a specific E&S Policy for the development of the Green Hydrogen Facility. (ii) RFIs: RFIs will be identified during project implementation. Criteria for the identification and selection of RFIs include technical competence, track record of related investments, E&S risk management capacity, and others per the requirements of applicable WB policies (refer to ESS1). (iii) Other key actors involved: - Ministry of Energy (MoE): The MoE has expertise in managing E&S aspects of energy projects. Two professionals in charge of reviewing environmental aspects of projects work at the Environmental Unit of the Division of Projects of the MoE. The MoE has a Division of Participation and Community Relations (DPRC), focused on promoting greater citizen participation in setting out policies and strategies to pursue inclusive and sustainable energy development. The DPRC comprises three units, including the unit of Processes of Dialogue, Consultation, and Indigenous Participation (PDCIP), responsible for promoting early participation in upcoming projects by orienting and accompanying both owners and the community among others. The MoE, as a key member of the GHF’s Advisory Panel, is readily available to share this knowledge and collaborate with CORFO to facilitate a participatory process with affected stakeholders. - Ministry of Environment (ME): The entity in charge of the E&S assessment and licensing of GH projects is the Environmental Assessment Service (SEA, in Spanish), and the entity in charge of the supervision of projects under May 04, 2023 Page 5 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) implementation is the Superintendency of the Environmental (SMA, in Spanish), both within the ME and with staff at the central and regional levels. The ME, through its Division of Projects, articulates activities with the SEA and the SMA to ensure the required E&S permits (including for GH) are obtained and implemented on time. The ME has trained ME staff at the regional level on GH projects’ technical characteristics to build capacity for assessing the risks and impacts of the sector. As specified in the Environmental and Social Commitment Plan (ESCP), eligible subprojects will have to develop the necessary E&S instruments and obtain the necessary E&S permits in compliance with national regulations and WB’s ESF, as will be laid out in CORFO’s ESMS. The corresponding commitment and related timeframe will be included as part of the evaluation and approval (“Acuerdo”) documentation of each eligible subproject. (iv) Capacity strengthening measures: In order to strengthen CORFO’s (and participant RFIs’) ability to manage social and environmental risks and impacts in accordance with the Bank’s ESF during implementation, the following specific areas of improvement and institutional strengthening measures, which will be financed under Component 2, have been identified and included in the E&S Overview and project’s ESCP: - CORFO will establish an E&S unit within the GIF, under the Sub-directorate of Risk Management Financing and Educational Law, responsible for E&S management for the GHF and operation of CORFO’s ESMS. This unit will be comprised by two full-time senior specialists responsible for the environmental, health and safety, and social aspects of the GHF. The unit will enter into formal operation no later than 150 days after effectiveness. The Project Operations Manual (POM) will outline the specific technical and operational roles of the unit members. The POM is a For Official Use Only Condition of Effectiveness for the Project, as reflected in the Loan Agreement. The specialists of this unit, as well as well as other specialists within the GIF, will be trained by the Bank on the implementation of the requirements of CORFO’s ESMS and relevant ESF requirements during the project’s first year of execution and throughout implementation, as necessary, and as detailed in the ESCP. - Participant RFIs will be requested to designate a responsible point person for the day-to-day implementation of the requirements of CORFO’s ESMS. As specified in the ESCP, this will be reflected in the agreements between each RFI and CORFO. Also, CORFO, with the support of the Bank, will train these personnel on the implementation of the requirements of CORFO’s ESMS and relevant ESF requirements before the signature of the corresponding agreements, as specified in the ESCP. - Third-Party Independent Consultants: Component 2 will fund independent third party consultants to support the technical, financial, legal, environmental and social evaluation and monitoring of subprojects under Component 1. - Subproject Evaluation Team: will be comprised by, among others, the E&S unit specialists and, as necessary, E&S Third-Party Independent Consultants. - Training on ESF requirements, and CORFO’s ESMS, will be carried out by the WB for all relevant CORFO staff and implementation support will be provided by the Bank, as needed, throughout project implementation. Also, CORFO will carry out the necessary training for the participant RFIs on the ESF, CORFO’s ESMS, and related requirements applicable to these. - The POM will reflect the necessary institutional arrangements to allow coordination between CORFO and multiple entities involved in project implementation, including any necessary inter-institutional agreements. II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Substantial May 04, 2023 Page 6 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Environmental Risk Rating Substantial The environmental risk classification for the project is Substantial considering the following: (i) The wide range of potential environmental, health and safety (EHS) risks and adverse impacts expected, considering the expected variety of types, scope, components, and technology of the subprojects, (ii) The potential environmental sensitivity of the specific locations where the subprojects will be implemented and their potential to extend over large areas, (iii) The expected complex interinstitutional arrangements necessary to ensure appropriate management, monitoring and oversight of the EHS aspects of the subprojects, (iv) the participation of eligible RFIs, for which the institutional E&S capacity is currently unknown, (v) The novelty of the GH industry in Chile, and (vi) The high vulnerability of the project area to natural disasters. Additionally, (a) current capacity within CORFO and potential RFIs to assess and monitor the E&S aspects of GH subprojects is expected to need strengthening; and (b) even though current national regulatory framework already includes norms and regulations on the safe use of hydrogen, the MoE is currently drafting norms to further regulate the production, storage, transportation and use of hydrogen, expected to be promulgated in the upcoming two years. Based on the E&S Overview developed for the project, which included a review of available documentation, preliminary consultations with relevant stakeholders, and the analysis done on the potential eligible subprojects, key anticipated EHS risks and impacts of the production of GH and its derivatives are expected to be generated by the following activities: (i) generation of renewable energy, (ii) water sourcing, (iii) the construction and operation of electrolysis plants, and (iv) the construction and operation of other related supporting facilities, which could qualify as associated facilities as defined in para. 11 of ESS1. These risks and impacts will vary per subproject depending mainly on its scale, location, scope, and end-use sector, and could include impacts typical of civil works For Official Use Only and production processes such as: i) Nuisances to communities due to noise, vibration, dust, traffic congestion, waste, and visual disturbances; ii) Occupational health and safety issues; iii) Inadequate transportation of construction material, supplies, waste, and/or end products; iv) Increased risk of third-party accidents; v) Environmental liabilities; vi) Impacts on chance finds due to earthworks; vi) Impacts on natural habitats due to terrain conditioning and vegetation clearing, as well as on flora and fauna due to the expansion or establishment of new installations (e.g., such as on birds from wind and on fauna in general from large solar power installations); vii) Impacts on the quality of soil and water due to uncontrolled effluent discharges, mishandling of hazardous products and their disposal, etc.; viii) Emergencies involving spills, fires, etc., due to the storage and handling of fuel, hydrogen, and other hazardous materials; and ix) Impacts on the quality/quantity of the water being used. Considering the complex nature and interrelationship of the elements comprising GH valleys, potential cumulative impacts and risks associated with the development of GH FI subprojects associated with GH valleys could be expected. No adverse impacts on critical natural habitats or cultural heritage sites are expected, as subprojects with potentially high risks and impacts over this type of sites will be excluded. EHS risks and impacts will be managed by the ESIAs/ESMPs that will be developed for each subproject, by the corresponding subproject proponents. The scope and content of these instruments will be included in CORFO’s ESMS. The E&S specialists of CORFO, and designated personnel of the RFIs, will ensure the application of CORFO’s ESMS and of the specific environmental instruments during subproject implementation. Social Risk Rating Substantial The social proposed risk classification for the project is Substantial at the current advanced stage in project preparation. Compared to other energy technologies, activities related to the construction and operation of renewables such as solar and wind facilities typically include low to substantial social risks, depending on the scope and scale of the projects. Yet given factors such as the novelty of the GH industry in Chile, the scope of eligible subprojects, and the nature of possible supporting facilities, a substantial risk rating is warranted. Activities that May 04, 2023 Page 7 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) involve high social risks will not be eligible for support under this project. This includes activities that will require: a) land acquisition that would cause large-scale involuntary physical and/or economic displacement, including permanent economic displacement of vulnerable groups; and b) activities having adverse impacts on indigenous peoples, their territories, their ways of life and/or their cultural practices. Such activities are part of an Exclusion List that will be used as part of the ESMS procedures to determine the eligibility of subprojects to access concessional loans under the project. As specific locations and characteristics of the subprojects to be financed through the RFIs will only be known during project implementation, the potential social risks and impacts identified at this stage are derived from: i) inadequately managed environmental and health and safety issues during construction and operations and maintenance; ii) labor management issues beyond occupational health and safety, including in relation to labor influx; iii) potential acquisition of extensive areas of land, even if this is expected to be done through voluntary means such as land leasing; iv) possible cases of sexual exploitation and abuse and/or gender-based violence towards members of the community; v) inadequate attention to subproject-specific stakeholder engagement as per ESS10; vi) possible discrimination towards indigenous people and/or immigrants due to language barriers, among other issues; and vii) possible community skepticism or outright opposition to subprojects involving multiple installations or facilities, based on a desire to promote development of an entire value chain (e.g., construction of a hydrogen plant as well as associated solar or wind farms, roads, pipelines, etc.). Beyond the Exclusion List, social risks and impacts will be managed through the social instruments that will be included in CORFO’s ESMS. The E&S specialists of CORFO, and designated personnel of the RFIs, will ensure the application of CORFO’s ESMS and of the specific social instruments during subproject implementation. For Official Use Only Sexual Exploitation and Abuse/Sexual Harassment (SEA/SH) Risk Rating Low Gender-based violence (GBV) remains a challenge throughout Chile despite recent government efforts, limiting access to education and economic participation, and hindering efforts to achieve gender equality overall. In Chile, women experience multiple forms of GBV. According to the 2020 Survey on Intrafamily Violence, 41% of women reported having suffered some type of violence at some point in their lives, while 22% reported suffering violence in the past year. An average of 130,000 cases of domestic violence are reported in Chile each year. The Chilean government has developed programs and public policies oriented to eliminating all types of GBV, and strengthening institutional channels to provide support, protection, and reparation services to survivors. As established earlier, this is an FIs project in which CORFO, via its GHF, will make WB financing available to GH developers that will undertake and/or oversee different types of civil works construction. CORFO will not itself undertake any civil works. Therefore, sexual exploitation and abuse (SEA) and sexual harassment (SH) issues in this project will be addressed through CORFO’s ESMS. This will include measures such as adopting and enforcing codes of conduct, awareness raising activities expected for all project workers regarding GBV and SEA/SH, and the elaboration of procedures for registering and following up on any cases of SEA/SH complaints that may come up as part of their GRMs. CORFO will ensure that RFIs comply with the GBV-related provisions included in CORFO’s ESMS, which will in turn be cascaded to the GH developers at the subprojects level. Moreover, the Bank will review of CORFO’s ESMS to ensure that these issues are properly addressed. Based on all the above, the SEA/SH for the project is expected to be Low. B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment May 04, 2023 Page 8 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: This standard is relevant. Green Hydrogen Sub-loans and Risk-Mitigation Facility (Component 1): During project preparation, CORFO developed an Environmental and Social Overview (disclosed prior to Appraisal, after Bank review) which includes, among others, the identification and assessment of key E&S risks and impacts of potential subprojects, and corresponding necessary mitigation measures. This assessment was developed based on secondary information available for this innovative industry and preliminary information obtained on a list of 20 GH production subprojects, proposed in Chile. It is expected that most (but not necessarily all) subprojects to be financed through the GHF are currently part of this list. Based on this assessment, the main E&S risks and impacts that could emerge during the execution of subprojects include: adverse effects on water, impacts generated by any wastewater from the purification process and/or use of electrolyzers; land use, flora and fauna, and cultural heritage site impacts, due to expansion of existing facilities to accommodate large GH projects or due to the creation of new facilities on non-urbanized land; hydrogen leaks resulting from loading/unloading operations and storage; hydrogen hazards associated with fires or explosions from accidental leaks or releases; soil, surface water, marine or groundwater contamination due to release of hazardous substances during construction; discharge of construction worker site/camp sewage effluent polluting watercourses; use of surface or groundwater during the construction and operating phases, which could affect existing supply for For Official Use Only human communities and ecosystems; releases of emissions to air in particular during construction and decommissioning; noise and vibration from equipment, traffic and activities during construction and operation; displacement or damage to cultural heritage sites by construction activities; damage to landscape value due to visual impacts from the facilities; construction impacts (and to a lesser extent operational impacts) on habitats and species (e.g. from changes in drainage, soil erosion, pollution of water, soils or air, and general human disturbance); loss or fragmentation of natural areas; adverse effects on safety, human health and wellbeing due to poor construction health and safety management practices; accidents, injuries and illnesses among workers; discrimination and harassment due to differences in nationality, ethnicity, race, religion, etc.; increased occurrence of communicable diseases, including COVID, HIV/AIDS and sexually transmitted diseases (STDs) due to interaction between workforce and local communities; disruption to normal community life, through the physical presence of a construction workforce (including as a result of an influx of laborers coming from outside the area); procurement of local goods and services for the project and workforce could deplete resources available for local communities; development of project infrastructure that may economically and/or physically displace people, or lead to loss of assets; loss of agricultural/ livestock/ other productive use land; and the vulnerability to natural disasters. Additionally, even though the assessment mainly focused on the GH production stage, it also covers other stages of the GH value chain. As such, it considers risks and impacts of the construction and operation of electrolysis plants, as well as of the construction and operation of other related supporting facilities, which could qualify as associated facilities as defined in para. 11 of ESS1. Based on the results of the Environmental and Social Overview, CORFO is currently preparing an ESMS for the GHF. CORFO’s ESMS would have to ensure that any subproject receiving funding, directly or through an RFI, is compliant with the WB’s ESF requirements. May 04, 2023 Page 9 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Additionally to the identification and preliminary assessment of key environmental and social risks and impacts of potential subprojects, the Environmental and Social Overview includes: (a) A roadmap specifying timelines and responsibilities for the development, consultation on, and adoption of CORFO’s ESMS (which is also reflected in the project ESCP). The ESMS must be in place in CORFO as a disbursement condition for Component 1. Relevant aspects of CORFO’s ESMS will be disclosed both in-country and in the Bank’s website. (b) Detailed Terms of Reference for CORFO’s ESMS. (c) The necessary implementation arrangements and capacity-building activities for the successful implementation of such ESMS. Besides CORFO’s ESMS, this operation will adopt the following provisions to avoid and mitigate ESHS risks and impacts: (i) Exclusion List. It covers all necessary exclusions to be consistent with a substantial E&S risk classification and aims at avoiding high E&S risks and impacts based on the subprojects’ scale, location, and characteristics. The Environmental and Social Overview includes a preliminary Exclusion List, which is also reflected in the Loan Agreement, and which will be further detailed and expanded in the ESMS. The list rules out subprojects with the following characteristics: - Significant adverse risks and impacts, long-term, permanent, and/or irreversible, impossible to avoid entirely, and For Official Use Only that require complex, unproven mitigation, or a sophisticated E&S analysis. - Overlap with national/sub-national protected areas, and other types of critical habitats and that have the potential to generate significant adverse effects on these. - Significant adverse cumulative or transboundary impacts. - Overlap with designated cultural heritage sites and with the potential to generate significant adverse effects on these or that have a high probability of intersecting (and adversely impacting) sites of high archaeological or cultural interest. - Significant adverse impacts on the rights of indigenous peoples and/ or other vulnerable minorities. - Land acquisition resulting in large-scale, involuntary economic and/or physical displacement, including permanent economic displacement of vulnerable groups. - Activities that may give rise to significant social conflict, harm or human security risks. - Involve child labor, non-compliance with the fundamental principles of workers’ rights, forced labor, exploitation, and/or discriminatory practices. - Are associated with high emissions of pollutants to water, soil, and/or the atmosphere. - Are likely to cause high visual, physical, and/or health and safety-related risks and impacts to surrounding communities. - Involve significant concerns related to the E&S capacity and past experience of the developer; etc. (ii) Eligibility criteria of subprojects. Subprojects will need to comply with a subset of technical, environmental, and social criteria to be eligible for financing. Among others, eligible subprojects would be required to prepare the E&S instruments (ESIA/ESMP) required by the national law and the project’s ESMS to obtain the necessary environmental permits from the SEA or relevant authorities before any execution of works (or present a plan to secure the corresponding permits before any execution of works) and satisfactorily comply with the implementation of the May 04, 2023 Page 10 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) ESMPs and monitoring/oversight requirements of the SMA. These eligibility criteria will also extend to potential subprojects that involve activities already under implementation, and/or that depend on supporting facilities already in place. (iii) Criteria for the identification and selection of RFIs. As per ESS9 requirements, all RFIs channeling project funds will need to comply with CORFO’s ESMS, and demonstrate capacity to do so, which will make this an eligibility criterion for RFI to participate in the project. Given the different levels of institutional capacity of the RFIs, a graduation approach is being considered through which CORFO, with the support of the Bank, will offer capacity building to the RFIs that require improvements on their E&S management processes and which will make them eligible to channel project financing. Obligations will be contractually passed through CORFO to the RFIs and from the RFIs to the final benefiting entities. CORFO’s ESMS will include the necessary tools to ensure that all participant RFIs have adequate E&S procedures in place, and at the subproject-level, adequate E&S instruments to mitigate E&S risks and impacts. Eligible RFIs will have the necessary management and technical structure and budget to establish and operate an ESMS aligned with CORFO’s ESMS. (iv) Templates to develop the necessary E&S instruments during implementation. The ESMS will include templates and guidelines for the preparation of the E&S instruments that the beneficiaries should have to prepare to receive funds from CORFO or the RFI. These templates will consider requirements of the national legislation, ESF, and the WB’s Environmental and Health and Safety (EHS) General Guidelines, and the specific Guidelines for the energy industry. As such, the templates will facilitate compliance with para. 11 of ESS9. For Official Use Only (v) Staffing of CORFO and RFIs with specialists with experience in the assessment and monitoring of E&S aspects, and trained on the implementation of CORFO’s ESMS. With experience in the assessment and monitoring of ESHS issues related to the project, the applicable national legislation, and adequately trained in the WB ESF, EHS General Guidelines and the specific Guideline for the energy industry, and related Good International Industry Practices. (vi) Third-party monitoring. Given the importance of assessing and monitoring the implementation of the ESMS during implementation, Component 2 will fund independent external consultants to support CORFO in these activities. Capacity Building and Project Management (Component 2): Consultancies, studies, capacity-building activities, and any other technical assistance of Component 2, where relevant, would need to be consistent with the ESF and carried out in accordance with ToRs acceptable to the WB. This requirement is reflected in the project’s ESCP. ESS10 Stakeholder Engagement and Information Disclosure This standard is relevant. During 2020, the MoE took on the task of developing a National Green Hydrogen Strategy, which included several participatory activities: (i) Technical roundtables with participation from companies, universities, research institutions and industry associations, which discussed barriers to the development of GH and possible solutions; (ii) Workshops where NGOs and representatives from local communities presented their concerns and perceptions May 04, 2023 Page 11 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) regarding the GH and the role of the State; (iii) Inter-institutional roundtable with the participation of seven ministries and CORFO, which worked on establishing a shared diagnosis of the GH situation in Chile and propose objectives for the National Green Hydrogen Strategy; and (iv) Online public consultation of the draft National Green Hydrogen Strategy where a public consultation forum was opened during a month for people to comment on the Strategy and post questions and observations (MoE’s website). There were 162 comments and questions posted by citizens, NGOs, trade associations, energy companies, and consulting firms. Main observations and questions raised included: (i) how the strategy will be implemented; (ii) how the goals will be met; (iii) which public agencies will oversee the implementation of the strategy; (iv) advantages and disadvantages of green hydrogen; (v) what a green hydrogen development pole is, and where will they be located; and (vi) environmental impacts of H2V and land use. The MOE responded to all comments and noted where they were considered for modification of the Strategy. The results of the different participatory activities fed into the development of the final National Green Hydrogen Strategy and were used by CORFO to develop the draft Stakeholder Engagement Plan (SEP) for the proposed project and map out the various project stakeholders. Meantime, as part of project preparation and prior to Appraisal, CORFO carried out high-level consultations in the form of a hybrid event that it held on 30th March 2023. This successful event—which featured the virtual participation of project-affected parties from the Antofagasta and Magallanes regions, together with the in-person participation of other interested parties (including potential beneficiaries) at CORFO headquarters in Santiago— covered basic aspects of the design of CORFO’s Green Hydro Financial Program, the more specific features of the proposed GHF project, potential impacts and risks, corresponding mitigation measures for them, and the expected For Official Use Only elements of CORFO’s ESMS. As inputs into the event, drafts of the E&S Overview and the SEP were shared with the confirmed participants, together with a summary PowerPoint presentation. All told, 72 individuals representing a broad variety of institutions in the public, private and civil sectors attended the consultation event (including 30 representatives from different divisions in CORFO, representatives from the participating development banks, and consultants supporting the execution of the event). Many of those attending the event expressed gratitude for the opportunity to provide feedback, and while the bulk of the comments were concentrated around the structure of the Green Hydro Financial Program and issues such as the criteria for its acceptance of RFIs, questions were also raised regarding the practical implications of CORFO’s operation of an ESMS, and the ground-level impacts of green hydro production plants, especially in Magallanes. For example, participants in the civil society break-out group registered their expectation that, beyond the proper mitigation and management of adverse impacts from GH subprojects, these should generate community-level benefits, such as employment. As a result of the questions and feedback received from the participants, CORFO expressed its openness to receiving more feedback in the period following the consultation event, and pledged to take the suggestions received into account when designing its ESMS, as relevant. More immediately, the feedback from the event helped to deepen the analysis in the E&S Overview of risks and potential impacts (both positive and negative) of green hydro development at the territorial level, and to focus CORFO’s attention on the local benefits (e.g. creation of jobs, or generation of partnerships for local-level economic development) that GH subprojects can produce. Though specific subproject locations have not yet been identified, the draft SEP identifies multiple stakeholders at different levels of involvement and/or interests and provides a preliminary listing of stakeholders considering their influence and interest in the project. Key stakeholders include direct beneficiaries such as: (i) State-owned Bank; (ii) May 04, 2023 Page 12 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Financial Intermediaries; and (iii) GH Producers. Other interested parties include stakeholders such as: (i) Development Banks (IDB, KfW, EIB); (ii) Central Government Agencies; (iii) Local authorities; (iv) Green Hydrogen related industries; and (v) Civil society, union organizations, trade associations, and community organizations located close to the possible subprojects. As specified in the ESCP, the development, adoption, and disclosure of the finalized SEP will take place as an effectiveness condition for the project. The multi-stakeholder consultation held confirmed that less favored and/or vulnerable people/groups are expected to be found among the other interested parties. These include stakeholders such as local authorities, civil society, unions, trade associations and community organizations, and they would include men, women, youth, people with disabilities, migrants and indigenous people, among others, who could potentially be affected adversely and/or excluded from the project’s potential benefits. Consistent with ESS10 requirements, the SEP includes: i) activities carried out by CORFO to provide inputs for the project design and elaboration of draft SEP; ii) preliminary stakeholder identification and analysis of vulnerable groups in the areas where GH development will be pursued (such as indigenous peoples, people with disabilities, women, rural dwellers, and migrants); iii) strategies, proposed activities, types of information and dissemination means to be used to inform stakeholders and collect their feedback during the different phases of the project (including language requirements such as indigenous, creole (Haitian migrants) and/or sign language whenever necessary); iv) timelines; v) follow up and monitoring regarding the SEP implementation; vi) institutional arrangements including personnel, functions, and responsibilities regarding the SEP as well as budget for its For Official Use Only implementation; vii) the Grievance Redress Mechanism (GRM) that will be implemented for the project. A project-level Grievance Redress Mechanism (GRM) will be established and, during implementation, managed by CORFO’s E&S Team. Even as the GRM is based on CORFO’s current procedures for the intake and processing of stakeholder feedback, particular attention will be paid to ensure the GRM will be available, inclusive, and easily accessible to all stakeholders, including vulnerable ones. Any gaps detected between what CORFO already uses and what ESS10 requires will be closed by the time of the GRM’s establishment for the purposes of the GHF project. Once established, the GRM will allow CORFO to keep track and follow up on all project-related grievances in a timely manner. The GRM will also have a policy of zero tolerance to retaliation and will allow for confidentiality and anonymity of stakeholders submitting grievances if they so require. RFIs and GH producers will be required to conduct meaningful engagement with multiple stakeholders at the subproject level, in accordance with ESS9 paras 24-27. Relevant provisions and guidelines regarding stakeholder engagement and ESS10 requirements will be included by CORFO in the contracts agreed with these beneficiary entities. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions This standard is relevant. May 04, 2023 Page 13 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) ESS2 applies to CORFO as a first-tier and/or second-tier FI, as well as to the RFIs as first-tier FIs. CORFO has a Human Resources Department (Subgerencia de Personas y Desarrollo Estratégico) that coordinates internal labor management in the institution. This unit will contribute to the Labor Management Procedures (LMP) for CORFO that will be prepared, as draft, and disclosed as an effectiveness condition for the project. Final version of the LMP will be integrated into the ESMS, as well as to the criteria to be included in the ESMS for the RFIs in accordance with national legislation and requirements under ESS2 and ESS9. The LMP will address developers’ direct workers and corresponding sectoral legislation, and indirect workers (contracted workers) for those subprojects that require civil works to be carried out. It will also include labor procedures for CORFO’s staff working directly with the project at the central and regional levels. It is currently unknown if community workers or primary suppliers are foreseen in the context of the subprojects that would be financed directly for CORFO or through the RFIs; this will become clearer during the determination of subprojects eligibility. CORFO has a gender strategy, led by the Gender Committee, that applies to its Programs and Instruments, Customer Service, and Communications and Human Resources areas. For the second-tier concessional lending, the project will include sexual harassment and nondiscrimination requirements in the second-tier provisions of the LMP and will rely on monitoring, supervision, and spot checks, as well as the GRM, to assess associated risks. The LMP will include information on relevant Chilean law, rules, and regulations related to ESS2, and where gaps are identified, they will complement them with measures consistent with ESS2. CORFO should provide adequate information with documented evidence of the application of such procedures during project implementation. CORFO’s LMP will include a grievance redress mechanism (GRM) for workers, as will each RFI for their workers. These For Official Use Only GRMs are separate from that described under the ESS10 for works and activities carried out by sub-borrowers or contractors on the subprojects. Details of the labor-oriented GRM will be included in CORFO’s ESMS. Given that some subprojects to be supported under the project may require labor due to construction or civil works, CORFO’s ESMS needs to address Occupational Health and Safety (OHS) issues, and ensure that sub-borrowers will adopt and monitor labor management procedures consistent with local laws and ESS2. In this context, CORFO is required to ensure that RFIs have and will maintain procedures relating to working conditions and terms of employment, non-discrimination and equal opportunity, and grievance mechanisms for their own workers. CORFO’s ESMS will also ensure that the subprojects have and enforce Environmental Health and Safety (EHS) procedures including specific instruments to protect the health and safety of the workers involved. It will include emergency prevention and response procedures, including in relation to fire safety. Finally, the ESMS will account for health, safety and other community-level impacts of the influx of outside laborers required for the construction of certain subprojects. The ESMS will include as part of its Exclusion List any activities, works or subprojects that involve child labor, non-compliance with the fundamental principles of workers’ rights, forced labor, exploitation, and/or discriminatory practices. With respect to forced labor in particular, it has been associated with the polysilicon suppliers. While the project will not finance non-conventional renewable energy plants, these could figure among the subprojects' supporting facilities. Where it is acting as a first-tier FI, CORFO will therefore require bidders to provide two declarations: a Forced Labor Performance Declaration (which covers past performance), and a Forced Labor Declaration (which covers future commitments to prevent, monitor and report on any forced labor, cascading the requirements to their own sub-contractors and suppliers). In addition, enhanced language on forced labor will be included in the procurement contracts. The same requirements will apply, as relevant, to any RFIs receiving financing from the GHF. May 04, 2023 Page 14 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) Prior to beginning the procurement process, market analysis will be undertaken to identify the possible sellers of solar panels to subprojects. The bidding documents will emphasize forced labor risks in solar panels and components and will require that sellers of solar panels to the subprojects will not engage or employ any forced labor among their work forces. ESS3 Resource Efficiency and Pollution Prevention and Management This standard is relevant and will be addressed through screening and compliance with local/national laws as per paras. 14 and 16 of ESS9. Subprojects with expected substantial risks or impacts related to environmental pollution will apply relevant requirements of this ESS, while those with an overall high-risk categorization (i.e., with a wide range of significant adverse risks and impacts related to this and other ESSs) will not be eligible for financing, as detailed in the project Exclusion List. These include subprojects associated with high emissions of pollutants to water, soil, and/or the atmosphere. CORFO’s ESMS will include provisions to ensure RFIs consider ESS3 requirements in the screening of all potential subprojects, so as to exclude those with a wide range of significant adverse impacts related to this standard and/or others. Special attention will be given to: For Official Use Only (i) Water consumption: Electrolysis is intensive in freshwater consumption, and the extent of the related impacts on this resource depends on the source being used and the equipment and process required for its extraction. As specified in the E&S Overview Assessment, any subproject that might entail significant adverse impacts on the area’s water balance will have to conduct and present a water balance assessment prior to receiving any loans from CORFO’s facility. The assessment should include water availability and cost, the impact of the project on local water resources, ecology, and other local water users over the lifecycle of the subproject. According to the Exclusion List that CORFO’s ESMS will include, subprojects that might cause significant adverse impacts on the quality and use of surface, ground, or marine water in the project area, might generate impacts on the subsistence of local communities that use water or the environment, or have a high potential to generate conflicts over the use of water, will be excluded from financing. Also, CORFO’s ESMS will specify a threshold over which a subproject will not be eligible for financing in the event the water balance studies show that there are significant impacts on human populations and/or the environment. (ii) Pollution risks mainly due to (a) fires and explosions resulting from emergencies related to hydrogen handling, given its high flammability; (b) soil or water contamination resulting from spills of products or byproducts of the subprojects; (c) inadequate management of effluents and liquid industrial waste associated with GH production and its derivatives; and (d) mishandling and final disposal of production equipment and/or components containing hazardous materials such as e-waste, lithium, or platinum. GHG accounting: Chile’s Long-Term Climate Strategy particularly acknowledges the potential role of GH as it could help reduce greenhouse gas (GHG) emissions by 21% by 2050. During project preparation GHG emissions reductions were estimated by considering the replacement of hydrogen produced through Steam Methane Reforming using May 04, 2023 Page 15 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) natural gas with hydrogen produced through water electrolysis, using renewable electricity. Results indicate a lifetime GHG emission reductions: 202,500 tCO2eq (13,500 tCO2eq per year). ESS4 Community Health and Safety This standard is relevant and will be addressed through screening and compliance with local/national laws as per paras. 14 and 16 of ESS9. Subprojects with expected substantial risks or impacts related to community health and safety will apply relevant requirements of this ESS, while those with an overall high-risk categorization (i.e., with a wide range of significant adverse risks and impacts related to this and other ESSs) will not be eligible for financing, as detailed in the project Exclusion List. These include subprojects that are likely to cause high visual, physical, and/or health and safety-related risks and impacts to surrounding communities. CORFO’s ESMS will include provisions to make sure RFIs consider ESS4 requirements in the screening of all potential subprojects, so as to exclude any with a wide range of significant adverse impacts related to this standard and/or others. Beyond risks and impacts related to inadequate management of environmental issues and resources that could affect the health of the community (water, land, emission, waste), potential risks and impacts identified in the E&S For Official Use Only overview prepared by CORFO, related to ESS4, include the following: (i) interaction between the workforce and local communities may increase the occurrence of communicable diseases, including HIV/AIDS and sexually transmitted infections (STIs); (ii) real or perceived disruption of normal community life, through the physical presence of construction workers, increased traffic, increased road accidents; (iii) risk of increased cases of gender-based violence in the community, particularly related to SEA of vulnerable groups such as women, adolescents and children; (iii) risk of explosions, fires, intoxication due to the storage or transportation of flammable, explosive or toxic substances, among others. The prepared E&S overview was disclosed and consulted on before appraisal to seek stakeholders’ inputs regarding issues under ESS4 (see ESS10). Management measures for identified risks to community health and safety and GBV issues (SEA/SH) will have to be reflected in the subrojects’ ESMPs, and could include: adequate fencing of GH production areas; processes in place for attending emergencies involving spills, fires, etc., which could extend outside the project’s footprint; procedures for attending and reporting third-party accidents; measures for ensuring road safety during transport; the dissemination of relevant information on SEA/SH issues and the need for project workers to abide by codes of conduct; and so forth. ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement This standard is relevant and will be addressed through screening by RFIs, compliance with local/national laws, and application of the relevant requirements of ESS5, as per paras. 14 and 16 of ESS9. The Green Hydrogen Facility (GHF) will not itself finance land acquisition, but some subprojects might require the acquisition of areas of land for renewable energy projects and/or supporting facilities. Subproject developers are May 04, 2023 Page 16 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) highly likely to resort to land leasing, if not outright land purchases, as the preferred modality for acquiring land. Any subproject-related resettlement that may result from land acquisition, regardless of the modality, will need to have risks or impacts that are minor for that subproject to be considered eligible for financing. That is to say, land acquisition resulting in large-scale involuntary displacement (economic and/or physical), including the permanent economic displacement of vulnerable groups, is part of the project Exclusion List. (Key terms such as “minor” and “large scale” will be precisely defined as part of the finalization of the List.) In addition, the project will not support any subprojects that require the expropriation of land under Chilean expropriation law. Any subproject that requires land acquisition will be subject to due diligence through the screening and follow-up procedure included in CORFO’s ESMS, to verify that it does not involve the large-scale involuntary physical or economic displacement described above. ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources This standard is relevant and will be addressed through screening and compliance with local/national laws as per paras. 14 and 16 of ESS9. Subprojects with expected substantial risks or impacts related to biodiversity will apply the relevant requirements of this ESS. Subproject activities that could result in adverse impacts on critical habitat and/or protected areas (legally protected and internationally recognized areas of high biodiversity value) will be screened out through the ESMS For Official Use Only (Exclusion List), and subprojects ESIAs/ESMPs with appropriate mitigation measures must be developed before launching the bidding process to execute each subproject. CORFO’s ESMS will also include generic biodiversity- related mitigation measures that will serve as a basis for the subsequent development of subproject ESIAs/ESMPs. CORFO’s ESMS will include provisions to ensure RFIs consider ESS6 requirements in the screening of all potential FI subprojects, so as to exclude any with a wide range of significant adverse impacts related to this standard. Based on the assessment included in the E&S Overview on the 20 potential subprojects, the main environmental and social risks and impacts related to this standard include: (a) adverse effects on water, impacts generated by any wastewater from the purification process and/or use of electrolyzers; (b) construction (and to a lesser extent operational impacts) impacts on habitats and species (e.g. from changes in drainage, soil erosion, pollution of water, soils or air, introduction of invasive species, and general human disturbance); and (c) loss or fragmentation of natural areas. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities This standard is relevant, insofar as indigenous peoples (IP) living and/or working in the vicinity of subprojects may derive benefits from them—for example, by taking advantage of employment opportunities generated by the subprojects. In other words, there should be no barriers to the participation of indigenous peoples in such benefit- sharing opportunities. IP will be engaged through the activities outlined in the SEP for the project; this will include the provision of relevant information on the GHF, and consultations with them in a culturally appropriate manner about the subprojects the Facility supports. They should also have the opportunity to avail of job and training opportunities and other possible benefits generated as part of the Facility’s operation. SEP early engagement activities should help May 04, 2023 Page 17 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) determine if differentiated treatment is needed for any IP that stand to gain from the project. The project will not support FI subprojects that would have an adverse impact on IP, their territories, their ways of life, and/or their cultural practices, as understood under ESS7. Activities that would cause such impacts are part of the project Exclusion List. All subprojects will be subject to due diligence through the procedure included in CORFO’s ESMS to verify that they do not negatively affect indigenous peoples, and any that do will be screened out. ESS8 Cultural Heritage This standard is currently relevant since construction activities will involve soil excavations that could be profound enough to dig up/or uncover archaeological artifacts hidden from view. This standard will be addressed through screening and compliance with local/national laws per paras. 14 and 16 of ESS9. Subprojects with substantial risks and impacts related to cultural heritage will apply relevant requirements of this ESS, while those with an overall high risk classification (i.e., with a wide range of significant adverse risks and impacts related to this and other ESSs) will not be eligible for financing, as specified in the project Exclusion List. CORFO’s ESMS will include provisions for screening and assessment of any known sites of cultural heritage (including sites that are not legally designated), covering both tangible and intangible cultural heritage, which may be impacted by a subproject. CORFO’s ESMS will include: (i) a process for developing a Chance Finds Procedure applicable for all construction works requiring civil contractors to take proper protective measures in case cultural heritage sites are discovered, including stopping construction activities if cultural property sites are encountered during construction; For Official Use Only and (ii) a process for developing a Cultural Heritage Management Plan (for tangible and intangible cultural heritage) for civil works outlining mitigation measures to be considered to avoid or reduce impacts on community cultural heritage sites directly affected by the project, as/if necessary. These instruments will be included in the subproject ESMPs, as necessary, during implementation. ESS9 Financial Intermediaries This standard is relevant. CORFO will directly manage and channel loan resources from the Budget Office to a specific account to constitute the Green Hydrogen Facility and will act both as a second-tier and a first-tier bank, transferring funds to RFIs, which will provide concessional financing to GH FI subprojects, as well as directly providing concessional financing to eligible GH subprojects. The RFIs and the subprojects to be financed will be identified during implementation. The requirements of ESS9 will apply across the entire operation. CORFO will act as the wholesale financial intermediary and will develop and implement an ESMS that applies to the subprojects directly financed by CORFO, as well as to each participant RFI, and thus in turn to the subprojects financed by these RFIs. Since CORFO has not worked before with the ESF and its associated Standards, the following elements, relevant to ESS9, are being considered to avoid and/or mitigate E&S risks and impacts: 1. Environmental and Social Overview Assessment: May 04, 2023 Page 18 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) In accordance with what was indicated under ESS1, as part of project preparation and due-diligence, key environmental and social risks and impacts of potential subprojects were identified and assessed by CORFO based on secondary information of the innovative industry and preliminary information of the 20 potential GH subprojects proposed in Chile, in sufficient detail to inform the stakeholders and Bank decision making. This assessment mainly focuses on the GH production stage, but cover also other stages of the value chain as appropriate. The E&S Overview Assessment includes: i) the description of the project and institutional arrangements for its management and operation, ii) an analysis of the legal and institutional framework applicable to the project, iii) an analysis of the WB ESSs relevant to the project and identification of gaps with respect to the national legal framework, iv) an action plan to close the gaps identified, v) the description of the main elements that must be included in the ESMS that CORFO will prepare, vi) exclusion criteria for subprojects and eligibility criteria regarding E&S aspects, vii) a capacity building plan for the implementation and operation of the ESMS and viii) a roadmap for the development, consultation, and adoption of CORFO’s ESMS. This document has been disclosed and consulted on prior to Appraisal, after Bank’s review and approval, both in-country and in the Bank’s website. 2. ESMS: As per ESS9, para 3 of the ESF, CORFO is required to develop, implement, and maintain an ESMS proportionate / commensurate with the highest level of environmental and social risk that is anticipated in the subprojects supported directly by CORFO and by the RFIs. CORFO’s ESMS will allow CORFO to guarantee the adequate identification, evaluation, categorization, management, and monitoring of subproject-level risks and impacts in compliance with For Official Use Only relevant requirements of the WB’s ESF. Each RFI will have to comply with CORFO’s ESMS. The ESMS must be in place in CORFO as a disbursement condition for Component 1 funds. Relevant aspects of CORFO’s ESMS will be disclosed both in-country and in the Bank’s website. The key aspects that the ESMS will include were mentioned under ESS1. CORFO’s ESMS obligations will be contractually passed through to RFIs before providing any loans from the WB line of credit, as will be reflected in corresponding agreements between CORFO and the participating RFIs. Aligned with CORFO’s ESMS, RFIs are expected to have robust procedures to identify, assess, categorize, manage, and monitor the E&S risks and impacts of FI subprojects. CORFO will be responsible for supervising and monitoring E&S aspects of both the subprojects directly financed by the entity, as well as of subprojects financed through participant RFIs. It is important to mention that CORFO has already developed a draft version of the ESMS based on IDB requirements, and it is expected that based on this first draft ESMS, CORFO will develop an ESMS that complies with all the multilateral banks involved in its Green Hydro Financial Program. The roadmap for CORFO to prepare, consult on and implement its ESMS is included in the E&S Overview Assessment developed by CORFO and reflected in the ESCP. 3. E&S Exclusion List: The E&S Overview Assessment includes a preliminary Exclusion List (also reflected in the Loan Agreement) agreed upon with CORFO, and the final version will be confirmed in CORFO’s ESMS. The Exclusion List is consistent with the E&S risk classification criteria of the Bank’s ESF, as detailed under ESS1. 4. Eligibility criteria for subprojects: As will be reflected in the ESMS and on the Project’s Operations Manual, subprojects will have to comply with a subset of technical, environmental, and social aspects to be eligible for financing. These criteria will include, among May 04, 2023 Page 19 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) others, the demonstration of a good E&S management capacity (experience, staff, etc.), the need to present environmental and social impact studies (ESIAs/ESMPs) approved by SEA and having an environmental permit granted before any execution of works. Criteria for the selection of the RFIs will be included in the ESMS and agreed upon with the Bank, based on consultation with public and private sector stakeholders. 5. Eligibility criteria for RFIs: Among others, the eligibility criteria will include: a) personnel assigned for E&S risk assessment and monitoring; b) E&S policies defined for the institution; c) a GRM in place and functioning. B.3 Other Relevant Project Risks None. Should "Other Relevant Project Risks" be disclosable? No C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No For Official Use Only OP 7.60 Projects in Disputed Areas No B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Is this project being prepared for use of Borrower Framework? No Areas where “Use of Borrower Framework” is being considered: None. III. WORLD BANK ENVIRONMENTAL AND SOCIAL DUE DILIGENCE A. Is a common approach being considered? No Financing Partners None. IV. WORLD BANK ES OVERSIGHT Corporate Oversight is being provided by the Regional Environmental and Social Standards Advisor (RSA). May 04, 2023 Page 20 of 21 The World Bank Chile Green Hydrogen Facility to Support a Green, Resilient and Inclusive Economic Development (P177533) V. CONTACT POINTS World Bank Contact: Janina Andrea Franco Salazar Title: Senior Energy Specialist Telephone No: 458-9860 Email: jfranco3@worldbank.org Borrower/Client/Recipient Borrower: Republic of Chile Implementing Agency(ies) Implementing Agency: CORFO -Corporacion de Fomento de la Produccion Implementing Agency: Corporación de Fomento de la Producción - CORFO VI. FOR MORE INFORMATION CONTACT The World Bank For Official Use Only 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VII. APPROVAL Task Team Leader(s): Janina Andrea Franco Salazar Practice Manager (ENR/Social) Genevieve Connors Cleared on 28-Apr-2023 at 08:30:19 EDT Safeguards Advisor ESSA Angela Nyawira Khaminwa (SAESSA) Concurred on 27-Apr-2023 at 21:23:25 EDT May 04, 2023 Page 21 of 21