IFC funds Amazon deforestation, undermines safeguard policies

26 January 2005

International and Brazilian NGOs charge that IFC-funded soy and cattle projects in the Amazon further deforestation, ignore social and environmental risks and contradict World Bank policy. The Bank’s private sector arm, the International Finance Corporation (IFC) has lent $155 million to André Amaggi Corporation for two soy plantations over the past two years (see Update 40), and is currently considering whether to provide $300 million to Bertin Limited for cattle ranching. A decision by the board is expected at the end of February.

Robert Goodland, former environmental advisor to the World Bank for 25 years, has stated that “the Bertin project violates the Bank’s environmental safeguards, including the Bank’s environmental assessment policy, the natural habitats policy, probably the indigenous peoples policy and also the World Bank Group’s new official strategy on cattle ranching”.

Both the existing soya and the proposed cattle projects have been classified by the IFC as environmental risks. Civil society groups state that this is in direct contradiction with the World Bank’s environmental assessment policy, which mandates a ‘category A’ designation for large-scale agro-industries, controversial projects, and those threatening indigenous peoples and critical natural habitats. While the two soy projects’ environmental assessments mention relatively trivial issues, they omit the fundamental impacts of exacerbating forest loss, in particular on indigenous peoples. IFC have responded that a category B rating is “more appropriate” and claim that the environmental and social impacts are both “limited and manageable”.

the Bertin project violates the Bank's environmental safeguards

During the ongoing review of its environmental and social safeguard policies, the IFC has claimed that it is “committed to maintaining its leadership in social and environmental sustainability among financial institutions”. This assertion is weakened by comparison the European Bank for Reconstruction and Development with in this instance when IFC standards are compared to those of other banks, such as , which automatically assigns a ‘category A’ designation to every large-scale livestock project.

The Bank and IFC at odds

According to the Bank’s 2001 strategy on cattle ranching, Livestock development: implications for rural poverty, the environment, and global food security, the Bank should be phasing out its support for large-scale industrial cattle projects. The publication, co-authored by the Bank’s livestock specialists, goes into much greater detail regarding the Bank’s recommended approach to the livestock sector than the board-approved rural development strategy. It states that the Bank’s support for small-scale mixed farmers that integrate crops and livestock should be strengthened in the interests of both the environment and equity. Since the publication was issued in 2001, the Bank has not invested in any large-scale industrial livestock project.

The livestock publication also argues that the Bank should avoid “funding large-scale commercial grain-fed feedlot systems and industrial milk, pork and poultry production”. However, as the US environmental NGO Sierra Club highlighted in a letter to Bank president James Wolfensohn in January 2004, since the issuance of the publication the IFC has financed five industrial milk, pork and poultry production projects.

The IFC has said in two separate letters to the Sierra Club that the livestock paper is “not an official World Bank Group strategy paper”, the first from Jean-Pinard Director, Agribusiness Department, and the second from Rachel Kyte, Director, Environment and Social Development Department. Rather, “it was developed as part of a discussion to support a review of the Bank’s rural strategy and has not been discussed or endorsed by the board”.

Such a contradiction adds weight to the argument that the current development of environmental and social safeguard policies for the IFC separate from that of the rest of the World Bank Group, will allow it to disregard Bank policies to which it had to formerly adhere (see article on safeguards).

The IFC has reportedly said funding for the cattle project would only take place if “certain standards” are met. A meeting was planned between civil society groups and IFC staff in early February to discuss the soy and livestock loans.

CAO investigation

Friends of the Earth Brazil have expressed their concerns to Bank president Wolfensohn about the soy projects. As a result of this. Peter Woicke (the outgoing Executive Vice President of IFC) asked the CAO to conduct a compliance audit of IFC’s categorization of the most recent loan to Amaggi. This was to start at the end of January.