IFC’s new standards: a risky step for people and planet

23 February 2006

Warning that the International Finance Corporation’s overhaul of its social and environmental standards relies too heavily on promises of good intentions, international civil society organisations have called the IFC’s new approach a risky experiment that could leave the people and environments affected by its projects more vulnerable than they were before.

Despite the fact that IFC has a development mandate, the proposed revisions – expected to be approved by its Board of Directors today – leave the IFC behind other lenders on issues of critical importance to sustainable development, caution civil society groups. Furthermore, without many of the minimum requirements and concrete benchmarks that provide some guaranteed protections in existing policies, IFC’s new standards undermine the institution’s accountability for the social and environmental impacts of its operations.

“The IFC wants the public to trust them that the vague principles in their standards will be implemented rigorously,” said Lucy Baker from the Bretton Woods Project. “They’ve put in lots of discretionary language with few teeth. Past experience provides little basis for faith that IFC or its clients will ensure that projects leave communities and ecosystems better off.”

The IFC refuses to recognise any area as a "no-go zone"

IFC’s new standards do not specify when consultation with local populations affected by its operations will take place, do not adequately protect the rights of indigenous peoples to their lands and natural resources- including their right to free prior informed consent, undermine existing World Bank policy with respect to resettlement, and do not require independent assessment and verification of project impacts, relying heavily instead on companies’ self-reporting.

Civil society experts argue that both the IFC’s former policies and a growing body of international norms are more stringent than the new standards. “The slippage is a clear weakening of IFC’s commitment to ‘do no harm'” said David Hunter, Department of Law, American University. “Furthermore, the new standards fail to acknowledge, for instance, UN norms on human rights and transnational corporations.”

One example of where IFC finds itself behind the curve is with respect to no-go zones. The mining industry association, ICMM, and some major commercial lenders, including JP Morgan Chase and ABN AMRO, consider UNESCO World Heritage Sites out of bounds for investment. The IFC, however, refuses to recognise any area as a “no-go zone,” identifying instead circumstances in which it could support projects in critical natural habitats.

“In its effort to be a leader in the world of international finance, the IFC has promoted itself more as a consultant to companies than as an institution dedicated to poverty reduction,” said Hunter. “It’s a great way to make money and a lousy way to combat poverty. What is supposed to set the IFC apart from other institutions is its mandate to reduce poverty and improve people’s lives.”

Recently, the IFC has been strongly criticized for its support of highly controversial projects including an oil pipeline in Chad and mines in Ghana and Guatemala.

“Undercutting the rights of the world’s poor to make things easier and cheaper for the IFC’s corporate clients won’t lead to equitable or sustainable development. Rather, it will lead to increased impoverishment and resistance,” said Dana Clark from the International Accountability Project. “It is unfortunate that the IFC has apparently failed to develop rights-respecting standards suitable for the twenty-first century.”

At a time when more than 40 commercial banks are looking to the IFC to set the standard for socially and environmentally responsible finance, IFC has responded with a set of policies that civil society experts call inadequate to ensure sustainable outcomes from private investments.

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