The World Bank Group came under increased scrutiny from nongovernmental organizations in the 1990s due to a number of highly controversial loans that caused major social and environmental impacts in the developing world. Projects such as the Polonoreste Highway in the Brazilian Amazon and the Sardar Sarovar Dam on the Narmada River in India gained international attention, leading the World Bank to institute stricter social and environmental protections in its operational policies.
An extensive review process
The International Finance Corporation is the arm of the World Bank Group that lends to companies rather than sovereign governments. In 2006 it developed the IFC Performance Standards for Social and Environmental Sustainability, which are recognized as some of the most rigorous standards in the world for companies operating in the developing world. As part of an extensive 2010 review of the standards, the IFC solicited feedback from a variety of stakeholders in an effort to identify gaps in the standards and areas for improvement. The changes that are in the final stage of approval right now will come into effect in 2012.
The primary changes that are expected to come into effect relate to ecosystem services, climate change, financial intermediaries, and free, prior and informed consent (FPIC) for projects that involve the resettlement of indigenous peoples. Human rights were a contentious issue during the review process, but the proposed language of the new standards shows few changes that reflect this.
It is worthwhile to examine the proposed changes in greater detail to get a better grasp of what they will mean on the ground.
Ecosystem services are directly addressed for the first time, and this represents a significant change in the scale of environmental impacts that will have to be assessed. The proposed language in Performance Standard 6 (Biodiversity Conservation and Sustainable Management of Living Natural Resources) refers to four types of ecosystem services: provisioning services (i.e. food, water, shelter), regulating services (i.e. flood control, carbon storage and sequestration, climate regulation), cultural services (i.e. sacred sites, aesthetics, recreation), and supporting services (i.e. nutrient cycling, soil formation, primary production). Project impacts on these services will have to be assessed by borrowers, and adverse impacts will have to be avoided or minimized if they are unavoidable.
Climate change is better addressed than in the 2006 standards, and projects will be required to implement, rather than simply evaluate, the “technically and financially feasible and cost-effective options to reduce project-related GHG emissions during the design and operation of the project.” Additionally, projects producing over 25,000 tons of CO2e emissions annually will be required to quantify both direct emissions and indirect emissions from energy used by the project.
Free, prior, and informed consent (FPIC) is another issue that has received a lot of attention from various stakeholders in the review process. For the first time, companies will be required to obtain consent from indigenous peoples rather than merely consulting with them in order to proceed with their projects. While this represents a significant strengthening of the language in Performance Standard 7, it does not appear to give affected indigenous communities the right of refusal. The proposed language states that FPIC needs to be obtained for “project design, implementation, and expected outcomes,” not about whether a project will occur in the first place.
The last major change has to do with financial intermediaries, as the IFC has been increasing the number of deals it signs with investment funds and credit facilities in recent years. The proposed new language will require financial intermediaries to adopt the principles of Performance Standard 1 (Assessment and Management of Social and Environmental Risks and Impacts) in their own management systems, commensurate with the level of risk that is expected to require management.
Since none of these changes have been finalized yet, the new set of standards that comes into effect in 2012 may still hold some surprises in store. Borealis will be monitoring these changes and will be implementing them on the ground in 2012.
Andrew Sanford, Environmental Analyst at Borealis