UK parliament says support for Bank fossil fuel investments is unacceptable

Bank environment policy “incoherent”

11 September 2006

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A cross-party parliamentary enquiry into the role of the IMF produced a hard-hitting report calling for substantial reform, while another parliamentary group has criticised the Department for International Development over its energy and climate change policy.

The Treasury Select Committee, responsible for oversight of the UK Treasury, released its report on the role of the IMF in July. The report called for increasing IMF voting rights for both emerging market and low-income countries and asked the government to “look at whether any more innovative solutions, beyond reform of the quota system, are possible”. The committee also advocated against a two-stage reform process, pushed for a consolidation of euro-zone representation on the IMF’s executive board and backed a reduction of the scope of the US veto in regards to economic surveillance.

DFID's climate change policy lacks coherence

The report elaborated recommendations for UK IMF policy in the spheres of surveillance, lending and financing. The committee stated its agreement with the UK policy against the use of economic policy conditionality and asked the government to work for reform at the Fund in this regard. The committee also supported the move for the IMF to have fewer and clearer roles focusing solely on areas squarely in its mandate such as addressing global imbalances and their spillovers.

Chancellor Gordon Brown, welcomed the committee’s report on the floor of parliament the day it was released. However he did not expressly state his support for the committee’s stance on governance at the Fund. The Tresury has not been vocal on its stance in the negotiations surrounding quota increases and governance reform. UK NGO Jubilee Research responded to the report, saying “While not going nearly as far as we would like, it makes some useful proposals – including support for an international insolvency process independent of the IMF as well as increased democracy, transparency and accountability in the Fund itself; and for economic conditionality to be more appropriate and not ‘driven by a single economic philosophy’.”

DFID environmental incoherence

Another parliamentary group, the Environmental Audit Committee, took a swipe at the Department for International Development (DFID) over the consistency of its environmental policy. In an August report, the cross-party committee stated “DFID’s climate change policy lacks coherence. On the one hand it highlights the seriously detrimental impacts of climate change on the most poor. On the other it is directly and indirectly responsible for very significant emissions of carbon into the atmosphere through the projects it funds.” This echoes a joint UK NGO statement, issued in July, which found cross-ministry contradictions in UK policy related to the World Bank’s clean energy investment framework.

The report emphasised that DFID support for oil, gas and coal projects is contradictory to its stated aims of addressing the effect of climate change on development. DFID’s reliance on funnelling energy sector funding through World Bank institutions such as the International Finance Corporation (IFC) was heavily criticised. “For DFID to have no clear strategy in this area, and for its main focus to be to work through multilateral organisations … is entirely unacceptable.”

The report also directly questioned the World Bank’s commitment to the environment. In discussing Poverty Reduction Strategy Papers, the committee wondered why the Bank ignored that poverty alleviation programmes may have negative impacts on the environment of the poor. This “raises the question of whether the World Bank has a coherent policy towards sustainable development.”

White paper not clear

DFID’s new white paper on its strategy for tackling global poverty included a chapter on reforming the international development system but it contained few details or concrete commitments in relation to the Bank and Fund. The strategy notes that “developing countries need more influence in the World Bank and IMF. They are weakly represented on both boards, where voting rights are decided by financial contributions. This balance must change.” But the white paper did not set out any ways the UK would help to change the situation.

It asserts that the Bank has roles in ensuring the predictability of aid and loans, working in fragile states, financing clean energy and tackling corruption. For the IMF, DFID sees a “focus more on macro-economic policy advice, and less on structural issues like privatisation and trade liberalisation where its track record has been mixed.” It does however support the IMF’s role as a gatekeeper of aid.

While most UK development NGOs welcomed the DFID white paper as a whole, there was significant criticism of its handling of international institutions. On the question of governance, David Woodward of Jubilee Research was scathing about the inconsistencies of the Bank tackling corruption and good governance: “After all, doesn’t the World Bank itself have the perfect model of governance for developing countries to follow? A model where votes are weighted according to income, so that a small rich minority have a permanent majority of the votes . What better model could there be for the governance of developing countries, and what greater expertise on good governance than the institution that operates it?” Charles Abugre, policy director at Christian Aid also slated the architecture of the Bank and Fund: “These institutions should be dragged into the 21st century and made into genuine instruments that work for poverty reduction.”

Compared to its treatment of the Bank and Fund, DFID was significantly more critical of the UN and the EU in its white paper, but Simon Maxwell, director of the UK think tank Overseas Development Institute, felt this was only surface deep. “Hilary Benn is signalling differences with the World Bank and a more positive approach to two other pillars of the international system, the EU and the UN.”

IFC safeguards response

While the white paper expresses support for environmental and social safeguards on Bank lending, DFID ignored a number of civil society demands in regards to the IFC’s safeguard policy review (see Updates 46, 50). The recently revised social and environmental lending standards of the IFC, the private sector financing arm of the World Bank, demonstrate serious shortcomings on international environment and human rights standards; rely heavily on the discretion of private sector clients; and do little to address the IFC’s goal of poverty alleviation.

Campaigners in the UK pushed for DFID to honour its rhetoric on the need for stronger safeguards and in a series of letters and meetings with the agency detailed how it was not meeting its own policies on principles-based decision making, a rights-based approach to development and the Extractive Industries Review. Despite NGOs asking for “a considered response” to each of the points raised”, DFID’s final reply was to point the organisations back to the very documents they were critiquing and to “encourage broad participation in the comprehensive review” of the safeguards that will take place in three years.

DFID made a number of progressive recommendations, for instance on involuntary resettlement and community engagement. However, its acceptance of the new IFC safeguards, despite obvious incompatibilities with its own policies, and its unwillingness to respond to this contradiction have greatly disappointed the NGOs involved in the consultation process. Marcus Colchester of NGO Forest Peoples Programme expressed concern at “the inadequate substantive attention to NGO concerns”, but noted that “this letter is only the latest in a number of similar experiences over the years.”

The lack of accountability and unwillingness genuinely to engage with stakeholders worries Nick Hildyard of UK NGO The Cornerhouse as well. “DFID has a poor record of answering to the concerns of stakeholders. It sits uneasily with their rhetoric of participation and involvement.”