IFC safeguard review finished: client risk over protecting rights

8 April 2006

Critics assert that the IFC’s new revised standards will lead to more not fewer cases of social and environmental abuse. On 6 March the International Finance Corporation (IFC), the private sector arm of the World Bank, made public its new policy and performance standards on social and environmental sustainability, and disclosure policy (see Updates45,46). Despite a number of changes made in the last round of revisions in response to comments from a variety of stakeholders, the new system is based on discretion and flexibility, rather than increased transparency, accountability and oversight.

The IFC replaces the current ten safeguard policies of the World Bank Group with the following eight IFC-specific ‘performance standards’:

  1. Social and environmental assessment and management system
  2. Labour and working conditions
  3. Pollution prevention and abatement
  4. Community health and safety
  5. Land acquisition and involuntary resettlement
  6. Conservation of biodiversity and sustainable natural resource management
  7. Indigenous peoples
  8. Cultural heritage

Fatal flaws

A coalition of international NGOs who campaigned throughout the consultation period to push the IFC to adopt strong, binding safeguards assert that “despite the IFC’s poverty reduction and development mandate and its self-proclaimed role as a standard setter for private financial investment, the new revisions leave the institution behind other lenders on critical issues of sustainable development.” In general, there is an over-reliance on client-generated information, and insufficient requirements for effective and independent project supervision and verification. The standards also make weak statements on minimum binding standards, in particular on human rights and the environment and employ unenforceable language in relation to what is required from the IFC and its client.

the IFC exposes affected communities, its clients and itself to avoidable risks

Comprehensive analysis on each performance standard submitted to the IFC by civil society was often ignored or only partially incorporated. Specific concerns include:

Human rights: The limited references to human rights in the documents are vague and circular, and address the issue from the purely voluntary approach of corporate social responsibility. Amnesty International has expressed concern that the current drafts: do not sufficiently reflect IFC member-states’ human rights obligations under international human rights law; fail to explicitly refer to the core of relevant international human rights law and standards; and do not accurately reflect the evolving international consensus regarding the accountability of companies to international human rights norms.

Financial intermediaries: The IFC has yet to adequately clarify how the revised performance standards will apply to funding channeled through financial intermediaries, which is estimated to constitute approximately 30 to 50 per cent of the IFC’s portfolio.

Indigenous peoples: The IFC’s proposed policy on indigenous peoples does not match that of the World Bank’s. For example in the latter, ‘broad community support’ must be obtained for any project affecting indigenous peoples’ traditional lands, territories and resources, whilst the IFC only requires broad community support for “large projects with significant impacts”. In addition, there are no provisions to ensure that the IFC will not be complicit in the piracy of indigenous peoples’ resources, the destruction of their cultures and the violation of their human rights.

Extractive industries and climate change: The IFC’s policy and performance standards have failed to respond to several key points raised in the World Bank’s management response to the Extractive Industries Review including requiring independent monitoring for large projects and recognising the principle that there are ‘no-go zones’ in the world for extractive industries. Moreover, in direct contrast to the Bank’s supposed leadership role in tackling climate change, the IFC intends to increase lending for fossil fuel projects. A recent report from Friends of the Earth points out that the IFC is not included in the Bank’s commitment to increase its renewable energy financing by 20 per cent each year for the next five years (see Update48).

Criticisms from without and within

Civil society are not alone in expressing concern over the new policies. During the consultation process, representatives of a number of Equator Principles banks, export credit agencies and regional development banks questioned certain aspects of the proposed IFC policies. For instance, with respect to ‘no-go zones’ some major commercial lenders, including JP Morgan Chase and ABN AMRO, as well as the mining industry association International Council on Mining and Metals, 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.”

The IFC’s own internal audit body, the Compliance Advisor Ombudsman (CAO) also raised questions on transparency and accountability, environmental and social impact assessments, and the inadequacy of public consultation and disclosures. During the revision it noted that “there is also a widely perceived shift in emphasis from [IFC’s] previous safeguard policies which are seen to protect the rights of affected communities, to identifying and managing the risks of private-sector clients”. In comments submitted to the board in February, it stated: “we consider that the IFC exposes affected communities, its clients and itself to avoidable risks” as a result of weaknesses in relation to: development impact reporting, risk assessment, and the incorporation of World Bank commitments on the Extractive Industries Review. Other concerns included: the lack of a definition of ‘broad community support’ and ‘free, prior and informed consultation’; security and human rights; and weakening of biodiversity provisions.