Private sector safeguard review “fundamentally flawed”

21 September 2004

Civil society organisations have expressed alarm at the process recently launched by the International Finance Corporation (IFC) – the World Bank Group’s private sector lending arm- to overhaul its safeguard policies, which sees an unacceptably short timeframe for consultation, and a dilution of principles for environmental and social protection.

The IFC launched a fundamental revision of the environmental and social policy requirements that govern its lending operations, as well as its information disclosure policy in mid-September. The draft proposal sees the IFC replacing its use of the current ten safeguard policies of the World Bank Group with nine IFC-specific ‘performance standards’. These standards would adopt a more flexible approach which critics say would make them less binding and harder to enforce.

Diluting environmental and social protection

Doubts over the recent proposals have been raised within the Bank. A leaked internal report by the World Bank’s legal department and Environmentally and Socially Sustainable Development Council (ESSD), which was submitted to top management accuses the IFC of attempting to dilute the environmental and social assessments attached to its lending. It also said that the proposed IFC approach of principles and guidelines rather than strictly enforced standards “deviated from the clarity attached to the decade-long effort to distinguish mandatory from discretionary action”.

A leaked internal report accuses the IFC of attempting to dilute the environmental and social assessments

A change in IFC rules would also apply to the group of over 20 commercial banks, which agreed to follow the IFC’s environmental and social rules in international project lending under an agreement known as the Equator Principles, drawn up last year. The draft proposals place greater responsibility on the private sector client to ensure poverty reduction and sustainability as an outcome of its investments, rather than on the IFC itself. Civil society groups are concerned that the IFC’s proposed new policies would inevitably result in double standards- one for the World Bank Group and another for the IFC.

No time for consultation

Unlike past World Bank safeguard policy revisions, which have sometimes involved up to several years of dialogue on just one policy, this proposal sees the IFC revising all ten of its safeguard policies at once, as well as its disclosure policy, with a consultation period of only four months. Current plans aim for its conclusion by February 2005, motivated by the desire to complete the process before the retirement of IFC head Peter Woicke. However, Rachel Kyte, director of environment and social development at the IFC justifies such haste with the urgent need to “provide a clear framework for IFC projects, the Equator banks and Export Guarantee Agencies”

Four regional consultations are planned to take place between September and December of 2004 in Brazil, the Philippines, Kenya, and Turkey.

NGOs fear that the timeframe is likely to exclude and marginalise the participation of civil society groups and those most affected by the proposed substantial changes. In a joint letter to Bank president James Wolfensohn, and IFC head Peter Woicke, a coalition of development, environment and human rights NGOs highlighted changes that must be made to the consultation process if/before civil society to consider participation. These include:

  • The immediate suspension of the safeguard policy update until all relevant information has been made publicly available in all appropriate languages at least 30 days prior to the first regional consultation
  • A significant extension of the consultation period on the first draft of consultation documents
  • A self-selection process for civil society groups and indigenous peoples in the regional consultations

For a copy of the leaked Legal/ESSD comment contact the Bretton Woods Project.