IFI governance

Background

Safeguard policies and performance standards

22 September 2009 | Inside the institutions

Originally drafted as internal operational policies (OPs) to guide staff, World Bank safeguard policies evolved after pressure from environmental and social groups in the 1980s and were first officially implemented in 1998. They aim to protect people and the environment from the adverse effects of Bank-financed operations and are based on international agreements, even if these protections are not explicitly provided for in the borrower country’s national law.

The safeguards consist of ten key environmental and social policies that set standards and procedures that the borrower and Bank must follow in the lead up to and during World Bank-financed projects. Safeguards apply to IBRD and IDA. The International Finance Corporation (IFC) uses its own set of performance standards (see Update 67). The ten safeguards are:

  • Environmental assessment – The ‘umbrella policy’ through which potential social and environmental impacts are identified and mitigation measures proposed.
  • Natural habitats – places limits on Bank financed projects that may impact on areas of important biodiversity.
  • Pest management – promotes the use of biological or environmental control methods and sets conditions on the acquisition and use of pesticides.
  • Indigenous peoples – establishes standards and procedures when projects affect indigenous communities, it is the only safeguard to in some way reference human rights.
  • Involuntary resettlement – sets standards and procedures for projects that displace people from their homes or cause economic displacement;
  • Forestry – establishes minimum standards on the types of forest projects that the Bank will finance, including commercial logging and plantations under restricted conditions.
  • Safety of dams – establishes procedures and safety requirements for construction of new dams and for projects that depend on safe functioning of existing large dams.
  • Projects on international waterways – seeks to reduce potential conflict between states that border an international waterway over projects that may pollute it.
  • Projects in disputed areas – lays out minimum rules for Bank-financing of projects in areas disputed by two or more states.
  • Cultural property – requires the Bank to avoid damage and assist in the preservation of cultural property.

Most safeguard policies comprise OPs that list core requirements and bank procedures (BPs) that Bank staff must follow. They apply to investment projects and programme lending but not development policy lending (DPL) or reform programmes (see Update 66), which have separate relevant policies. However, OP 8.60 requires that the Bank take action if development policy lending will cause “significant poverty and social consequences” or “significant effects on the country’s environment, forests, and other natural resources.” A separate policy covers social and environmental reviews of policy loans which may have significant social and environmental impacts.

a mere smoke screen for continuing in the same failed policies

When the World Bank or a borrower is alleged to be violating any safeguard, complaints can be lodged through the Inspection Panel, a semi-independent body formed in 1993 that enables affected parties to request an investigation into the Bank’s role in projects (see Update 34).

In 1999 the IFC, the private sector lending arm of the Bank adopted the Bank’s safeguards. However, since 2006 it has followed eight separate ‘performance standards’ which govern the client’s role and responsibilities. These performance standards are: social and environmental assessment and management systems; labour and working conditions; pollution prevention and abatement; community, health, safety and security; land acquisition and involuntary resettlement; biodiversity conservation and sustainable natural resource management; indigenous peoples; and cultural heritage.

Prior to IFC financing, a proposed project is subject to a social and environmental review during which potential impacts are identified and remediation measures proposed. In reviewing the potential impact of projects, the World Bank and the IFC use a categorisation system that identifies which safeguards are triggered and what level of action or precaution must be taken. Projects are rated from category A, the highest risk, down to category C, the lowest.

IFC clients must address project-related grievances or complaints from affected parties. Complainants can allege violations of safeguards and approach the Compliance Advisor Ombudsman, an internal watchdog that reports directly to the president of the World Bank Group (see Update 34).

IFC safeguards have also played a standard setting role in developing countries and amongst private banks involved in project finance. The Equator Principles, a set of social and environmental standards based on the IFC’s performance standards, has been adopted by 68 private financial institutions, including BNP Paribas, Citigroup and Lloyds TSB.

The performance standards have been criticised by civil society organisations for being weaker than the Bank’s safeguard policies (see Update 51).