A mid-August audit released by the Compliance Advisor Ombudsman (CAO), the accountability mechanism of the International Finance Corporation (IFC, the Bank’s private sector arm), has revealed that the IFC failed to adequately address environmental and social risks when it approved a $70 million loan to Ficohsa, Honduras’ largest bank, in 2011.
The CAO found that the IFC excluded serious allegations from its project documents about Ficohsa’s investment in palm oil producer Dinant, the bank’s third biggest client, which made this information “effectively secret and thus divorced from systems which are designed to ensure that IFC, and its clients are accountable to project affected people for delivery on their environmental and social commitments”. A January CAO audit report strongly criticised the IFC for its $30 million loan to Dinant, alleged to have been involved in human rights abuses, including the killing, kidnapping and forced eviction of farmers in the Bajo Aguán region (see Observer Winter 2014).
The CAO audit questioned the IFC’s investment in financial intermediaries finding that “through its banking investments, [it has] an unanalysed and unquantified exposure to projects with potential significant adverse environmental and social impacts” (see Bulletin May 2014). The case of Ficohsa’s investment in Dinant, along with other controversial cases in India and Cambodia, has seen on-going challenges from civil society CSOs have called on the IFC to learn lessons, and to rethink its strategy for investment in financial intermediaries to ensure environmental and social risks are addressed and investments lead to positive development outcomes. Over 60 per cent of IFC funding is now channelled through financial intermediaries, such as banks and private equity funds.
In response to the CAO audit the IFC defended its investment in Ficohsa and said it was implementing already announced action plans, which included measures to review clients’ environmental and social management systems, and to increase the number of client visits. The IFC said Ficohsa had recently committed to expand its staff and training on environmental and social risk management. The IFC did acknowledge there had been gaps in how it dealt with Ficohsa, including “a lack of due consideration of the potential environmental and social risks in the bank’s portfolio”.
Civil society organisations called on World Bank Group president Jim Yong Kim to “clean up these scandals” and develop an action plan to ensure they do not happen again. Miriam Miranda, coordinator of the Fraternal Organization of Black Hondurans (OFRANEH), said: “We call on all multilateral financial institutions to stop providing millions of dollars in loans to corporations that have been accused nationally and internationally of responsibility for serious human rights violations.”