IFC green gloss: new private sector guide to biodiversity

26 March 2006

Staff members of the International Finance Corporation (IFC) of the World Bank launched their web-based private sector guide to biodiversity at the eighth meeting of the Conference of the Parties to the Convention on Biological Diversity in Curitiba, Brazil. Asserting that “emerging markets hold the majority of the world’s significant biodiversity” assets, the stated aim of the guide is to “help businesses understand how they can manage the business risks from biodiversity issues”. However, a closer look at the IFC’s lending policy on biodiversity reveals a number of shortcomings, not least for its failure to align itself adequately to the Convention. It has been criticised by civil society, governments and the IFC’s own internal Compliance Advisor Ombudsman (CAO).

The IFC also claims the largest private sector portfolio supported by the Global Environment Facility (GEF), the financing mechanism of the UN Convention on Biological Diversity. With a portfolio of approximately $19.3 billion for fiscal year 2005, the IFC’s self-proclaimed mission is to “promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives”. It upholds itself as a standard setter for the market, and other private investors, including export credit agencies, and the Equator Principles, a voluntary environmental and social lending framework for over 30 private banks.

The IFC recently revised its policy and performance standards on social and environmental sustainability governing its lending decisions. This sees the replacing of the current ten safeguard policies of the World Bank Group with eight IFC-specific ‘performance standards’ (PS), which were made public on 6 March 2006. The revised standards rely far too heavily on client-generated information, supervision and monitoring and employ vague and unenforceable language in relation to what is required from the IFC and its client.

the IFC has the audacity to seek credit for the launch of the biodiversity guide

Criticism from without and within

Implications for biodiversity are found throughout the performance standards, although PS 6 on biodiversity conservation and sustainable natural resource management, and PS 7 on Indigenous Peoples relate most specifically. At its presentation, the IFC reiterated its wholehearted commitment to the Convention. However, its performance standards have been criticised by an international coalition of NGOs for their failure to uphold international standards on biodiversity and indeed social and environmental sustainability in general.

For instance, the IFC refuses to recognise any area as a “no-go zone”. This sets the institution behind some major commercial lenders, including JP Morgan Chase and ABN AMRO, as well as the mining industry association, ICMM, who consider UNESCO World Heritage Sites out of bounds for investment. It has also failed to address illegal logging, or general marine impact issues aside from encouraging certification of sustainable fisheries. Other issues, such as impacts on wetlands, coastal areas or coral reefs for instance have also been omitted. Moreover, PS 7 on indigenous peoples contains no provisions to ensure that the IFC will not be complicit in the exploitation of indigenous peoples’ resources and intellectual property.

In a public submission, the UK government’s Department for International Development (DfID) stated that the performance standards fail to refer to the precautionary principle, and asserts that “the uncertainty of scientific knowledge should not be an invitation to ignore the importance of critical habitats and species”. It also points out that the wording of PS 6 does not go far enough in aligning itself with the Convention, and calls for stronger language on ‘alien and invasive species’.

The IFC’s own internal audit body, the Compliance Advisor Ombudsman (CAO), has expressed concern, specifically on the “weakening of biodiversity provisions”. More generally it emphasizes an overall weakening of current institutional commitments to environmental and social sustainability.

Meanwhile, business as usual

For all of its glossy veneer, the IFC continues to fund projects in a variety of sectors with serious adverse global and local implications for biodiversity and environmental sustainability, most notably in logging, mining, pulp and paper, agricultural monoculture and large hydro. In June 2004, the IFC gave a loan of $30 million to the Amaggi soy expansion project in the Brazilian Amazon. The Amaggi Group, owned by Blairo Maggi, governor of the Brazilian state of Matto Grosso, is one of the largest soy exporters in the world and a major contributor to the destruction of the Amazon. Roberto Smeraldi, from Friends of the Earth Brazil pointed out, “In 2005, the area where IFC financed Amaggi soybean expansion in eastern Mato Grosso was the area with the highest rate of deforestation in the whole of the Amazon, increasing by 34 per cent in a year in which overall rates of deforestation rate actually fell 29 per cent. It is also home to the single most threatened type of transition forest.”

The IFC also recently made known its intention to increase lending for extractive projects, in direct contrast to the Bank’s stated leadership role in creating an investment framework for clean energy and tackling climate change, as agreed at the G8 summit in July 2005.