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What is the Future of the World Bank Group’s Environmental and Social Safeguards?

Here is a summary of a civil society consultation WRI had with the World Bank Group’s (WBG) Independent Evaluation Group (IEG), on the IEG’s review of the effectiveness of the WBG environmental and social safeguards.

The World Bank Group (WBG) has a number of policies to help ensure that its investments “do no harm.” In the 1980s, in response to public criticism of its involvement in controversial projects— such as Polonoroeste’s BR-364 Amazon highway program in Brazil that uprooted indigenous communities, and the Narmada dam in India that displaced 90,000 people—the World Bank began to develop a set of safeguard policies that require clients to consider the environmental and social implications of projects. These policies now require clients to conduct an environmental assessment and consider a project’s potential impacts on surrounding communities.

Similarly, the International Finance Corporation’s (IFC) involvement in high profile projects led to the adoption of similar policies. In 2006, the IFC adopted a set of “Performance Standards” to guide its corporate clients in environmental and social risk management. Through these standards, the IFC’s influence stretches far beyond financing projects, acting as a de facto “standard-setter” for private sector environmental and social risk management in several high impact sectors, such as oil, gas, and mining. More than 118 financial institutions worldwide have adopted the Performance Standards into their own risk management systems.

On January 8th, 2010, the World Bank Group’s Independent Evaluation Group (IEG) met with 9 civil society groups in Washington DC at the World Resources Institute to discuss the IEG’s upcoming report. The report will examine the World Bank’s and IFC’s implementation of the environmental and social safeguard policies. The report is due out in March 2010, will likely influence the review of the IFC performance standards, and may shape a future reform agenda for the World Bank safeguards.

The following is a summary of issues that civil society participants raised during the meeting.

World Bank Group's environmental and social requirements for clients

World Bank safeguard policies

  • OP4.01: Environmental Assessment (1999)
  • OP4.04: Natural Habitats (2001)
  • OP4.09: Pest Management (1998)
  • OP4.11: Physical Cultural Resources (2006)
  • OP4.10: Indigenous Peoples (2005)
  • OP4.12: Involuntary Resettlement (2001)
  • OP4.36: Forests (2002)
  • OP4.37: Safety of Dams (2001)
  • OP7.50: Projects on International Waterways (2001)
  • OP7.60: Projects in Disputed Areas (2001)

IFC performance standards
  • PS1: Social and Environmental Assessment and Management System (2006)
  • PS2: Labor and Working Condition (2006)
  • PS3: Pollution Prevention and Abatement (2006)
  • PS4: Community Health, Safety and Security (2006)
  • PS5: Land Acquisition and Involuntary Resettlement (2006)
  • PS6: Biodiversity Conservation and Sustainable
  • Natural Resource Management (2006)
  • PS7: Indigenous Peoples (2006)
  • PS8: Cultural Heritage (2006)

How does the WBG compare to international norms?

Several participants emphasized that the IEG’s evaluation must consider whether WBG safeguard policies meet global standards, such as international human rights and environmental law. While the WBG may not have a legal obligation to meet these standards, in many cases its government and company clients do.

One example is climate change finance. The WBG has argued that it should be the custodian for any climate finance mechanisms that result from the UN climate change negotiations. One of the WBG’s justifications is that is already has safeguard policies to apply to climate financing. However, the safeguards do not encompass human rights, and in many cases are less stringent than the policies of other multilateral development banks, such as the Asian Development Bank and the European Bank for Reconstruction and Development.

What is the relevance of the safeguards as the nature of WBG’s portfolio changes?

The WBG’s lending portfolio is moving away from traditional “direct finance” in projects towards other forms of “indirect” financing. At the IFC, this includes a shift towards financial intermediaries, trade finance, asset management, and supply chains. At the World Bank, this includes a shift towards “investment lending reform”—providing loans to governments at a broader programmatic or sector level, and through development policy loans. Both IEG and civil society participants indicated that the safeguards as currently designed do not effectively apply to these forms of indirect finance, and in some cases do not apply at all. For example, safeguards do not seem to apply to the World Bank’s development policy loans. There is a risk that the safeguards will increasingly only apply to a small percentage of the WBG’s portfolio.

Furthermore, one participant argued that the WBG needs to update the safeguards more frequently to reflect changing international norms. At the World Bank, it took nine years to update the 2001 indigenous peoples policy, and eleven years to update the 2006 physical cultural resources policy. The 1999 environmental assessment policy was out of date before it even took effect.

When the IFC moved towards the Performance Standards in 2006, it adopted a new model of safeguards that are “outcomes-based”—where IFC clients have to meet broadly defined principles, rather than specific objectives. The IFC’s rationale for doing this was to give clients more flexibility, so that IFC clients could choose which tools to use to achieve these results. But participants emphasized that the new system has faced implementation problems, as IFC clients fail to meet the outcomes, and IFC staff do not monitor to ensure that outcomes are met. Affected communities, in turn, often lack confidence and trust in IFC or its clients. Because of this lack of trust, affected communities need assurances that WBG clients will follow strict rules. Several participants indicated that the World Bank should not move towards the IFC’s model.

Similarly, participants expressed concern with the World Bank’s “country safeguard systems” approach, in which qualifying countries can substitute domestic laws for WBG policies. While the Paris Declaration emphasizes the importance of this approach to build country capacity, in practice the World Bank’s country safeguards approach devotes significant resources to procurement and financing issues, but virtually ignores environmental and social safeguard issues.

What is required for adequate implementation of the safeguards?

Many participants emphasized that transparency and accountability are necessary to implement the safeguards effectively. The IFC’s performance standard approach has focused on achieving results— clients must demonstrate results, and can achieve those results however they choose. But participants pointed out that the WBG publishes only aggregate results, and has not demonstrated to the public that the development outcomes of its investments are truly making people better off.

IFC, for example, tends to implement and monitor projects behind closed doors. This is particularly problematic with financial intermediaries, where the public does not know how these intermediaries use IFC financing. Similarly, the IFC does not make public how it determines whether an affected community has given its “broad community support.”

Accountability is also essential. What ensures that clients implement the WBG’s requirements? In practice, the WBG will rarely cancel a loan for failure to comply with safeguard policies, so what incentives do clients have to comply? There is an over-reliance on information from clients without verification of what the client provides. Reporting requirements do not appear to be stringent, and the WBG rarely discloses reports after project implementation begins. The WBG does not commit substantial resources to monitoring and continued engagement with clients.

Participants also emphasized the importance of the accountability mechanisms—the World Bank Inspection Panel and the IFC Compliance Advisor Ombudsman—to the safeguards. IEG is considering the impact of these mechanisms within the safeguard system. Participants emphasized the need for a strengthened role for these accountability mechanisms. These mechanisms can provide recommendations to management, but this is insufficient to hold management accountable. Many participants expressed the need for an expanded mandate to monitor the implementation of the recommendations and produced a follow up public report on the WBG success in complying with their recommendations.

Similarly, several participants pointed out that increased flexibility reduces accountability to affected communities. Under the World Bank’s investment lending reform approach, clients have fewer monitoring and reporting requirements, which could reduce WBG oversight over safeguard implementation. For example, the WBG might approve a small-scale agricultural project, which a client could then decide to expand into a large-scale project (with more significant impacts on local communities). These changes could be made without the project going back to the Board of Directors for new approval. The WBG needs to adequately monitor project implementation and if the project design changes significantly they should need additional Board approval.

How does the WBG’s internal organizational structure affect safeguard implementation?

One participant raised concerns with the WBG’s internal staff incentive systems. Staff members are rewarded for quantity of financing, rather than quality. Many staff members still view the safeguards as transaction costs, rather than a core design feature of a good development project. Furthermore, the WBG has developed a culture where criticism (both internal and external) is discouraged. As a result, another participant noted, the WBG lacks mechanisms to learn from past violations of its safeguard policies, despite the growing body of evidence found in the work of the World Bank Inspection Panel and IFC Compliance Advisor Ombudsman.

Specific substantive issues

The discussion also raised a number of specific concerns with the existing safeguards, such as:

  • Past WBG experience demonstrates that financing projects in conflict areas is dangerous. Participants recommended that the WBG does not finance projects in conflict areas.
  • Several participants also discussed the WBG’s indigenous peoples policies. IEG argued that the World Bank’s indigenous peoples policy was written largely for Latin America, and therefore is difficult to apply in other regional contexts such as Africa and Asia. IEG also mentioned its concern that indigenous peoples are often left out of WBG projects because clients consider the standards to be too onerous. IEG assured participants that it would not recommend eliminating the indigenous peoples policy. Several civil society groups emphasized that the benefits of a separate indigenous peoples policy are well documented, that legal rights should not be reduced to a technical trade-off, and that the safeguards must be consistent with international human rights norms. In particular, the WBG needs to take stronger measures to implement the UN principle of free, prior and informed consent.
  • Categorization of environmental assessments has been a significant problem, especially in projects that are categorized as “B” but should be “A.”
  • The definition of “associated facilities” is not broad enough, and has allowed the WBG to invest in portions of projects that might not directly have harmful impacts, but contribute to larger projects or open the door for future development concerns.

Comments and concerns with IEG’s process

During the organization of this meeting, several participants mentioned that civil society groups approached IEG months ago to provide input, and were disappointed that IEG did not approach civil society groups for a consultation until December, after they already completed data collection, and only three months before the paper is to be finalized.

In response to a question on whether IEG consulted with affected communities and is considering the rights of communities, IEG responded that its primary source of information is not based on feedback from communities. IEG provided an opportunity for global civil society to participate through an online survey. IEG also sent out a field team for the Chad-Cameroon pipeline. Participants expressed concern with this methodology, because the purpose of the safeguards system is to protect affected communities, but their voice is lacking in this research.

There were several questions about the scope of IEG’s research, which seems to exclude issues of concern for civil society groups. For example, IEG indicated that it would not look at the human rights dimensions of the safeguard policies, and does not appear to have a staff member with the skill set necessary to examine the WBG’s consistency with international human rights and environmental law. IEG is not examining development policy loans, and will not recommend that the World Bank apply safeguards to them, despite acknowledgement that this is a major gap in current application of the safeguards. In response to a question on whether the IEG is looking at how the safeguards relate to the various strategies now underway (reviews of Energy Strategy, Environment Strategy, and climate change, for example), IEG tends to consider these issues outside of its mandate.

At the same time, IEG was careful to manage expectations of its report. IEG intends that this report will begin a longer process of examining and reforming the safeguards, and encouraged civil society participants to raise their concerns with WBG management. IEG also emphasized the enormous scope of this research, and the time constraints imposed by the IFC Performance Standard review.

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