Private Sector


IFC: Learning lessons or institutional amnesia?

20 June 2014

The International Finance Corporation (IFC, the World Bank’s private sector arm) published an early April briefing for the Bank’s executive board on “IFC’s environmental and social lessons learned”. The briefing was developed in response to the controversy over the IFC’s investment in Dinant, a palm oil company alleged to have links to murders and other human rights abuses in Honduras (see Bulletin May 2014, Observer Winter 2014). It is the most comprehensive admission of fault by the IFC ever made public. The briefing follows numerous IFC failures and bad publicity over damages to communities and the environment (see Observer Spring 2014, Update 86), as well as criticisms of its lack of poverty focus (see Update 84).

The briefing, in the form of a PowerPoint presentation rather than a document, argued that, despite the eight year old IFC performance standards, “clients and IFC are still learning, [the] implementation record [is] mixed”, and that “we are learning from tough cases, including Dinant, and mainstreaming lessons to improve process”. It claims that there is a “concerted effort to improve procedures, guidance for staff, clients and training”.

The document focusses on how the IFC is learning from the Compliance Advisor Ombudsman (CAO), the IFC’s independent accountability mechanism. It presented six categories where lessons were said to have been learned and IFC responses implemented: understanding the broader context, stakeholder engagement, land and water issues, supply chains, labour and financial intermediaries.

there is a degree of institutional amnesia each time things go wrongNGO letter to the IFC

In conclusion, it highlighted many implementation challenges, focussing on external obstacles rather than the IFC’s own systems, including “weak client capacity combined with weak regulatory implementation”, “varying client commitment” and the “resource implications” of increased oversight. It states that “challenges will remain and results will not be perfect” but that the IFC “will report to the board (via CODE) more regularly regarding emerging problem projects”.

A separate early April presentation, from the Bank’s spring meetings, more clearly identified the projects that have resulted in these lessons. Aside from the Dinant case in Honduras, the civil society presentation includes references to investments in Wilmar, Agrokasa, Tata Mundra, Maple Energy, Nicaragua Sugar, Yanacocha, Oyu Tolgoi, Bujagali, Tata Tea, Avianca, Cambodia Airports and Standard Profil. The Chad-Cameroon pipeline is specifically mentioned in the briefing to the board. However, neither briefing contained any formal targets, benchmarks, or follow-up procedures for how the IFC will improve its performance.

NGOs criticise “serious omissions”

Civil society organisations were on balance unimpressed with the IFC’s efforts. A June letter to the IFC and the Bank’s board, signed by 29 groups including Indonesian NGO Solidaritas Perempuan and Oxfam International, welcomed positive elements in the briefing, but argued “this exercise will not produce the changes needed to avoid future harm to communities and the environment from IFC investments. This concern arises from two specific issues: a number of serious omissions in the content of the lessons learned document; and a lack of clarity about the future process of how these lessons will be followed through, to implementation, as well as monitoring and evaluation.”

The letter argued that the lessons learned document fails to address institutional culture and incentives, the mis-categorisation of risk and the need to prioritise human rights, among other issues. The signatories found “a degree of institutional amnesia each time things go wrong”, and called for “a public commitment to a time bound plan for the lessons learned exercise”, which should include benchmarks to assess progress, consultation with communities and civil society organisations, proposals for sanctions and other means to hold staff accountable and a risk re-assessment of the current portfolio. Finally, the letter demanded proposals “to ensure that IFC only invests in projects and sub-projects with a genuine poverty reduction rationale based on local and national sustainable development priorities.”

In January, more than 70 international organisations called for the IFC to commission “an independent investigation of the underlying systemic reasons identified by the CAO for the repeated and serious failures to adhere to standards by IFC staff.” This April IFC briefing falls far short of that demand. An audit report into an IFC financial intermediary investment linked to the Dinant case is expected this summer. Recent reports have criticised the IFC’s investments in financial intermediaries for lacking evidence of a tangible pro-poor development impact.