IFC safeguard review integrity in question

10 April 2005

Following the extension of the timetable for public consultation of the International Finance Corporation’ s (IFC) review of its social and environmental safeguards, the IFC released its revised policy documents in February. Despite the extended deadline and claims by the IFC that the revised timetable will allow “sufficient time for comment on the performance standards in light of the guidance notes”, heavy criticisms of both process and substance remain.(see Update 43, 42)

The revision sees the replacement of the current ten safeguard policies of the World Bank Group with nine IFC-specific ‘performance standards’ . The impact of the safeguard review is far reaching in terms of private finance: IFC’s standards serve as a benchmark for other regional Banks, Equator Banks, Export Credit Agencies and private companies.

The new documents consist of an ‘indicative draft of the IFC Policy on social and environmental sustainability and performance standards’ which forms a summary of all comments received between August 2004 and January 2005; and ‘guidance notes’, (formerly known as ‘interpretation notes’) which explain the requirements in the performance standards but are “not intended to establish policy by themselves”.

subsidizing corporate welfare and funding billionaire businessmen

Public consultation of the performance standards is now set to end on 29 April, after which IFC has said it will issue a comprehensive summary of external comments it has received. From May to September the redrafted performance standards and guidance notes will be presented to IFC’s management group and then to the Committee on Development Effectiveness (see page 5). A further 30 days public comment period will follow before presentation to the board.

Muddied process

The lack of clear definition between the guidance notes and the indicative draft makes for a confusing read, and it is unclear as to how they are intended to complement each other. For example, suggestions are invited on “text in the performance standard which may be more appropriate for the guidance notes and vice-versa”.

A letter to the acting director of the IFC, Assad Jabre at the start of April expressed disappointment on a number of counts. Notably the IFC has fallen short of its original commitment to provide a “redline draft” version of expected changes as a basis for further dialogue. Instead, it has provided only a partial summary of comments with no clear indication of its acceptance or rejection of stakeholder input. By the IFC’s own admission the draft guidance notes are also incomplete as they do not fully reflect all of the external comments received to date. The letter calls on IFC management to release a revised second draft of the IFC policy and performance standards, as previously promised, as soon as possible and to allow for a minimum of three months public consultation period on a second draft.

Substance watered down

The standards have failed to integrate internationally recognised environmental, labour and human rights standards, as well as the recommendations of the World Bank management response to the Extractive Industries Review. They would result in fewer protections for local communities, indigenous peoples and the environment, and leave much to the discretion of client companies. These issues have been raised in recent letters to governments around the world by civil society groups who are calling for a significant revision of standards before they are finalized and the establishing of clear and binding rules for all parties and stakeholders.

The draft also weakens existing World Bank Group safeguard policies. For example, rural populations who do not have formal title to land will no longer have the right to replacement land if they are displaced. Client companies will be able to determine if indigenous people are affected by a project, as well as if any cultural heritage is affected by a project proposal. There is little mention of the IFC’s purported mission “to promote sustainable private sector development…to help reduce poverty and improve people’s lives”. Lastly, the flexibility of the standards has allowed an alarming devolution of responsibility to the private sector, allowing companies to conduct their own assessments of compliance with social and environmental standards.

Right meets left

Strong criticisms of the IFC are not only lead by civil society organisations. Private companies have also expressed concerns that the policies are too vague and ill-defined: “The performance standards are lacking in the necessary detail for us to comment on anything but the most general way”. A critique of the IFC activities for news agency Bloomberg condemns the IFC both for failing to uphold its environmental and social commitments as well as subsidizing corporate welfare and funding billionaire businessmen. It refutes commonly made claims that without IFC support projects would not go ahead, referring to findings by the IFC’s independent watchdog, the Operations Evaluations Group, that “more than 40% of IFC projects did not meet IFC benchmarks for business performance, economic benefit… or adhering to environmental standards”.