The Inter-American Development Bank Group (IDBG) is revising and updating its safeguard policies. This means that two different policy revisions are being undertaken at the same time, one for the public arm (IDB) and the other for the private arm (IDB Invest). Each policy review will significantly impact the Bank’s approach to addressing social and environmental risks. Better managing such risks requires that the IDBG ensure its new policies are based on the highest international standards for environmental and social governance. Doing so would also establish the IDBG as a standard-setter among international financial institutions active in the region, as well as the private sector.
What are safeguards and why do they matter?
Social and environmental safeguards play a key role in the development process driven by Multilateral Development Banks (MDBs). Safeguards are a system of required rules or standards that serve to mitigate, prevent, and reduce the negative impacts associated with MDB development projects and programs. In order to receive MDB financing, borrowers (governments and/or private actors) are required to comply with the social and environmental safeguards that are triggered for that specific project, which require them to identify and minimize the negative impacts of a project on people and the environment. Examples include conducting assessments of environmental impacts and social risks, ensuring the participation and consent of affected communities, restoring the livelihoods of involuntarily displaced people, protecting natural habitats, forests and waterways, and the monitoring and evaluation of social and environmental outcomes.
It is critical that the revised IDB Group safeguard policies are strengthened to be a tool for achieving the goals of sustainable development and improving livelihoods. Strong safeguards will allow the IDB and IDB Invest to ensure that sustainability is the cornerstone and necessary condition for achieving economic growth. To maximize positive impacts of the Bank’s operations and projects in the region, the IDBG needs to grow in its role as a rules-based lending institution and avoid diluting development standards to sustain lending volume.
IDB INVEST: Current status of the Safeguard review process
In June, IDB Invest announced it was updating its Environmental and Social Sustainability Policy. As part of the process, on June 17th, it opened the public consultation for the draft of the new E&S Sustainability Policy, which will be open for 120 days. IDB Invest wants to submit the final draft of the Policy to the IDBG Board of Executive Directors for final consideration before the end of 2019.
IDB Invest is hosting virtual consultation sessions and in-person consultations in Argentina, Colombia, Jamaica, Panama, and at its headquarters in Washington D.C. in the first two weeks of September. To participate in the consultations, organizations and participants can register on the Consultation E&S Sustainability Policy website.
The proposed draft for the new Environmental and Social Sustainability Policy
The new policy incorporates the 8 Environmental and Social Performance Standards of the International Finance Corporation (IFC), the private arm of the World Bank. Updated in 2012, the Sustainability Framework consists of the Policy on Environmental and Social Sustainability, the Performance Standards, and the Access to Information Policy. The IFC Performance Standards, which define clients’ responsibilities for managing their environmental and social risks, have been globally recognized as a benchmark for the environmental and social risk management in the private sector.
A review that is not a review?
With the Sustainability Policy update, IDB Invest aims to institutionalize what it’s already doing in practice: formalize the use of the IFC Performance Standards. The current E&S Sustainability Policy refers clients to IDB policies, but also allows reliance on multiple third-party policies, particularly the IFC’s Performance Standards. The main recommendation for IDB Invest in the Environmental and Social Safeguards Evaluation done by the Office of Evaluation and Oversight (OVE) was to adopt a single coherent set of standards, and “given the widespread use of IFC PS by IDB Invest and the region’s private sector and IDB Invest’s limited scale and resources, adopting the IFC PSs could be a practical and low-cost solution.”[1]
IDB Invest is thus limiting the scope of the review by adopting the Performance Standards intact with no possibility to suggest changes. The review only provides the opportunity to comment on the draft policy generally, and raise concerns and suggest improvements regarding implementation and supervision.
It is not clear what will happen with the Guidance Notes, which accompany the Performance Standards and are intended to provide additional guidance to clients on how to implement the Performance Standards. The IDB could adopt IFC’s Guidance Notes or may develop entirely new guidance notes. The OVE evaluation recommends IDB Invest to provide more clarity on applicable implementation guidelines and procedures manuals for IFC PSs, “to cover not only processes, but also IDB Invest’s practical approach to interpreting and applying IFC PSs to its various types of operations and clients.”[2]
Lessons learned from IFC: Critical issue areas to consider
By replicating and adopting the IFC PSs, IDB Invest is not only taking the positive elements of the PSs, but also the policy shortcomings. Since the adoption of the new PSs in 2012, civil society and communities have identified and reported several shortcomings, which include gaps in policies governing financial intermediary (FI) lending, transparency and disclosure of its high risk FI clients’ project information [3], lack of capacity to properly oversee and supervise the correct implementation of PS by IFC’s clients, and lack of focus and engagement with communities.
In an op-ed published in June 2019, IFC CEO Philippe Le Houérou acknowledged that the IFC must increase the focus on communities and “do much better at meaningfully engaging with them,” putting a plan in motion to:
- Move the ESG Advice and Solutions department into the operations vice presidency to “help clients address any problems that arise connected to their communities and development,” and
- Create a new Environmental and Social Policy and Risk department that will report directly to the CEO to regulate the E&S functions with a wide range of responsibilities that include:
- ensuring compliance,
- setting E&S risk rating for projects,
- oversight of high-risk projects,
- overseeing operational teams in handling complaints from affected communities,
- incorporating learning and adaptation functions, and
- serving as an interface between management, the World Bank Board, and the Office of the Compliance Advisor Ombudsman.
IDB Invest should take note of all these measures and institutional changes occurring at the IFC which aim to improve E&S risk management, accountability throughout the project cycle, and improve focus and engagement with communities (which, at least on paper, are supposed to be the main beneficiaries of all development projects).
If IDB Invest aims to be a leader in the region, it needs to consider two areas for expansion beyond the 8 IFC PSs: first, adding and adopting a standard for gender and second, a standard for stakeholder engagement.
Regarding the first point, the IDB Group stands out as the first multilateral development bank to adopt a gender policy (OP-761) in 2010, holding the strongest mandates on gender issues [4], and succeeding in mainstreaming gender into projects and operations it finances. It would be a missed opportunity for IDB Invest to exclude the good experiences and practices incorporated after the IDB's adoption of the gender operational policy since 2010. Also, by adopting a new standard on stakeholder engagement, IDB Invest will start a new era with a robust set of 10 standards that incorporates the lessons learned of almost 8 years of IFC PS implementation.
Why is it important to get involved?
IDB Invest is a major lender for private companies investing in risky projects that produce significant social and environmental impacts. As per the 2018 IDB Annual report, IDB Invest financed more projects and mobilized more partners for private sector development (private companies operating in the developing world) than ever before, disbursing $3.2 billion, and approving $4 billion in new projects. [5]
Knowing the requirements that internationally-financed projects are contractually obligated to meet gives civil society and communities a handhold for accountability in the development process. It is a way to ensure that private companies implementing development projects are accountable for their own commitments and that they respect people and the environment. If the requirements are not being met, civil society and communities can report violations to IDB Invest or file a complaint to the IDBG accountability mechanism (MICI).
How can you effectively influence the design, substance, intent, and outcome of the review?
- Learn about key issues. Read civil society analyses and recommendations for IFC Policies and Standards.
- Share your analytical work, case studies, or experiences with IFC projects or application of its policies.
- Strengthen your input with case studies or experiences with IFC projects or IDB Invest and submit your comments and recommendations online or in person during the 120-day consultation period (before October 15).
- Prepare to share your grounded analysis and proposals in a face-to-face consultation in the September in-person consultations in Argentina (Sept 4), Colombia (Sept 4), Jamaica (Sept 6), Panama (Sept 6), or Washington DC (Sept 10), or in virtual sessions (Sept 12 and 13).
- Get in touch with the Executive Director for your country at IDB directly to share your concerns and recommendations.
- Attend meetings with your Executive Director at key moments during the review process: While IDB missed the opportunity to make space for civil society during the IDB Annual Meetings held in July in Ecuador, CSOs should look for any opportunities in the remainder of the year.
- Support sign-on letters with recommendations for improvements on the policy draft.
- Work with civil society networks working on IFC and IDB Invest policies and their impact on communities, social, environment and development practices.
WEBINAR:
For more information on how to engage and participate in the policy review and consultation process, the Bank Information Center (BIC), along with Derecho, Ambiente y Recursos Naturales (DAR), and Asociación Ambiente y Sociedad (AAS) are hosting a webinar on Wednesday, August 28. We invite you to register for the webinar with this link.
Footnotes
[1] See: Environmental and Social Safeguards Evaluation done by the Office of Evaluation and Oversight at the IDB Group https://publications.iadb.org/en/environmental-and-social-safeguards-evaluation. Retrieved: 08/01/2019.
OVE found that IFC PSs cover essentially all aspects included in IDB’s policies and often do so more clearly and extensively. IFC PSs also cover several areas not included in IDB’s policies.
[2] Idem
[3] A year after promising to improve, what has the IFC done to clean up their financial intermedia lending?https://medium.com/@OxfamIFIs/a-year-after-promising-to-improve-what-has-the-ifc-done-to-clean-up-their-financial-intermediary-a8c88f09bf81
[4] For more information on the IDB Operational Gender Policy (OP-761) compared to other Multilateral Development Banks, see 'Gender Policy Tips for Newer IFIs Lessons from Traditional IFIs Gender Policies - a Factsheet and Table' (2019). Publication prepared by: Thanh Mai Bercher, Holly Wertman and Elaine Zuckerman.
[5] IDB Invest Annual Report 2018 https://www.idbinvest.org/en