Human rights experts warned that World Bank plans to delegate responsibilities for environmental and social monitoring to private banking institutions sub-lending on its behalf will effectively weaken both the level of protection currently offered by environmental and social safeguards and the Bank’s accountability for their implementation.
The analysis was part of a letter to the World Bank President Mr. Jim Kim by 28 UN human rights thematic mandate-holders – an unprecedented number acting together on a single issue – conveying several concerns regarding the World Bank’s latest draft of its Social and Environmental Safeguards (“draft ESF”).
The Bank is embarked in a process to reform and streamline its Safeguard policies, process which Mr. Kim had earlier promised will not lead to their dilution.
The letter offers evidence that dilution would effectively happen if this draft gets passed. The way the draft ESF deals with financial intermediaries is an important aspect of such dilution. According to the letter, the draft Social and Environmental Safeguards involve a significant delegation of responsibilities from the Bank to the borrower and other entities such as financial intermediaries and multilateral or bilateral funding agencies.
“Although we are aware of the importance of ‘country ownership’ as set out in the Paris Declaration and Accra Agenda, we believe a distinction should be made between greater domestic control over the shape and form of development policies and projects, and the responsibility of the Bank not to finance projects that enable, contribute to or exacerbate human rights violations,” the Special Rapporteurs said.
The new draft, in fact, would grant FIs “delegated responsibility for environmental and social assessment, management and monitoring, as well as overall portfolio management.” The letter interpreted other provisions in the draft to mean that the responsibility FIs would have is restricted to ensuring that subprojects meet national environmental and social requirements, except when a subproject is classified as High Risk. One can infer that, as national borrower systems are not required to offer equivalent protection to that of the ESSs, subprojects financed by FIs may therefore be subject to lesser protection than other (parts of) Bank-financed projects. “The Bank does not offer a compelling reason for subjecting FIs to less stringent requirements,” the human rights experts commented.
The potential consequences, should this be approved as the new system of safeguards for the World Bank, are especially significant in the light of recent findings of the International Financial Corporation Compliance Advisor Ombudsman (CAO) — which is this institution’s accountability mechanism—that the letter also referred to.
A report of January 2014 had criticised the International Finance Corporation’s $30 million loan to a controversial Honduran palm oil project managed by Corporación Dinant. The CAO audit in question was initiated in April 2012 due to claims that Dinant had been involved in human rights abuses, including the killing, kidnapping and forced eviction of farmers in the Bajo Aguán region, where the corporation’s palm oil plantations are located and land rights are heavily disputed. The Ombudsman said that IFC acquired an equity stake in a commercial bank with “significant exposure to high risk sectors and clients, but which lacked capacity to implement IFC’s environmental and social requirements.”
However, a more recent report by the CAO involving the activities of Financial Intermediaries in general raises greater concern. It found that the shortcomings identified in the Dinant investigation were not an isolated incident, but indicative of a widespread problem. “CAO’s findings raise concerns that IFC has, through its banking investments an unanalyzed and unquantified exposure to projects with potential significant adverse environmental and social impacts,” that second report said.
Because the draft ESF, including its delegation of responsibilities to FIs, is modeled on the IFC’s Sustainability Framework, the CAO’s assessment is all the more relevant for the Bank, the Special Rapporteurs pointed out.
In addition, the scope of action of accountability mechanisms like the Inspection Panel, an internal mechanism before which victims of projects in violation of the Bank safeguards can bring complaints, will also be reduced. When, for instance, the draft ESF requires the Bank to require financial intermediaries to verify that a subproject is in accordance with domestic law,” the Rapporteurs said, “actions which are the responsibility of the financial intermediary in question are likely to fall outside the purview of the Panel’s inspection.”