by Vince McElhinny, Senior Policy Advisor at the Bank Information Center
The World Bank management claims that the proposed revision to its safeguard policies, now called Environmental and Social Standards and Policy (ESS/ESP) will “update, strengthen and broaden” the protections to people from risks associated with Bank investments. However, by excluding two of the Bank’s three principal lending instruments from coverage under the new Safeguards, this claim is misleading.
Under the draft World Bank safeguards policy, the social and environmental standards required of investment lending (i.e. traditional project finance) will not apply to the Bank’s other two main lending instruments, Development Policy Lending (DPL) and Program for Results, even though DPLs already constitute 33% of Bank business, with expectation that it will rise to 40%,[1] and Program for Results represents 5% of Bank business but is expected to grow. These percentages do not include climate finance nor other trust fund activities, reinforcing the fact that the proposed scope of the new safeguards will be extremely restricted.
DPLs have been used by the Bank to advance reforms in forestry, energy, transport, agriculture, and water sectors, as well as climate, environmental and social sustainability. Many of these DPLs have involved significant, adverse social and environmental risks and impacts. While the Bank has a set of policies governing DPLs (OP 8.60), the Bank holds these investments to a lower standard when it comes to ensuring that clear risks are effectively avoided or managed to prevent harm to people or the environment and to deliver a fair distribution of benefits (see BIC and Global Witness DPL primer). To date, the Bank has also been silent on the track record or future role of DPLs in advancing the Bank’s corporate goals of eliminating extreme poverty and promoting shared prosperity.
In a May 8th letter, 30 civil society organizations (CSOs) called on World Bank President Kim to include DPLs in the Safeguard Policy Review. The U.S., France and Belgium were among the countries recommending that DPLs be included in the Safeguard review. Nonetheless, on July 30th, the draft Environmental and Social Standards and Policy (ESP/ESS) that excluded DPLs and limited safeguard coverage to investment lending were endorsed by the World Bank’s Committee on Development Effectiveness (CODE) to be released for a second round of public consultation.
Weak Commitment to Evaluate and Review OP 8.60
In an August 11 letter, World Bank OPCS Vice-President Kyle Peters, on behalf of President Kim, responded to the CSO letter on DPLs by essentially ignoring the clear evidence presented by CSOs that questions the efficacy of OP 8.60 in identifying and managing social and environmental risks and impacts associated with policy lending. Instead, he claims that the Bank is in no need of further scrutiny of DPLs as long as OP 8.60 allows staff to “assess the specific poverty, social and environmental effects as part of our due diligence effort.” CSOs have criticized the lack of internal and external accountability for how the Bank manages risks of DPLs, which derives from the lack of transparency, internal checks, and effective monitoring or evaluation.
The letter goes on to note that OPCS is preparing another DPL Retrospective, and CSOs should be reassured by the Bank commitment that it will be “paying close attention to the environmental and social aspects of Development Policy Financing.” A Question and Answer supplement to the Proposed Environment and Social Framework states that “Management will review and reflect upon the conclusions of these retrospectives and the IEG evaluation.”
Past OPCS Retrospectives have unfortunately failed to provide evaluative assessments of DPL performance, particularly the social and risk management aspects of that performance. The Aug. 11 letter acknowledges that the Retrospective will be informed by an IEG evaluation of “the environmental and social impacts of policy lending.” However, none of the OPCS statements make a clear commitment to formally review OP 8.60 after full vetting of a completed IEG evaluation.[2]
IEG has committed in its FY2015 work program to conduct a “major learning product” on DPL performance, which will synthesize several DPL cluster evaluations, or Project Performance Assessment Reports (PPARs) that have been completed. PPARs involve intensive evaluation of DPLs, including field visits, interviews with project stakeholders and a wider review of available documentation. IEG plans to deliver Project Performance Assessment Reports (PPARs) covering about 40-50 World Bank projects and Cluster Assessments covering several IFC projects in FY15, which is about the annual level delivered over the past years.[3]
IEG has provided a background note on the DPO learning product, and has agreed to circulate the concept note for the evaluation after its approval by CODE. In addition to evaluating the effectiveness of a sample of environmental sectoral DPLs, IEG has proposed a specific focus on environmental and social risk under OP 8.60. “Mitigation of adverse environmental and social effects in DPOs.Directives governing safeguards in investment lending do not apply to DPOs but consideration of adverse environmental and social effects is required under OP 8.60. The quality of and constraints to analysis, monitoring, and evaluation of environmental and social effects in DPOs will be evaluated and good practice identified, including the adequacy of coverage under current policies.”[4] A synthesis of the DPO Learning Product findings will be prepared in FY16.
Recent Bank Management responses to IEG evaluations of DPLs suggest there will be strong resistance to a robust analysis that could suggest the need for reform. One PPAR of two large environmental DPLs to Brazil has been mired in nearly a year of debate between IEG, Bank management and the Brazilian government over the evaluation findings, which has delayed the disclosure of the report. Due to the sensitivities associated with the DPL’s support for safeguard reforms at Brazil’s largest and least transparent development bank, BNDES, excessive extensions and over 150 pages of comments by country office staff and government officials have prevented the release of the report.
A comprehensive and independent analysis of DPL performance is long overdue. This is because for the majority of 60-70 DPLs approved annually by the World Bank, IEG validates the self-assessments. This validation does not allow for independent corroboration of environmental or social aspects of performance if those issues are not substantively addressed in the project’s Implementation Completion Report (ICR). Inclusion of environmental and social issues in the ICR is not mandatory. In a well-documented failure of assessment procedures under OP8.60, few DPLs even recognize the full range of possible social or environmental risks associated with these reforms, and in the few instances when these risks are identified and reported, there tends to be positive bias to expected outcomes. In other words, the only negative result of Bank-supported reforms typically recognized is the risk of their not being fully implemented.
Failure to Adopt International Best Practice
Despite claims to the contrary in the proposed Environmental and Social Framework Vision Statement, the World Bank has steadfastly ignored best practice for managing environmental and social risks for policy lending. By carefully avoiding comparative review of international standards, the World Bank asserts that its decision to preserve the carve-out of policy lending from the purview of the proposed Safeguards Framework is “concordant with the approach of other MDBs.”
This claim that the DPL carve-out is consistent with approaches at other MDBs is technically accurate, but substantially misleading. In fact on December 17, 2013 the board of the African Development Bank (AfDB) approved a new set of environmental and social safeguard policies to update and replace its decade-old policies and procedures. The new AfDB safeguards cover policy lending. As a rationale for expanding the breadth of its safeguards coverage, AfDB cites its changing portfolio away from single project investments toward greater policy and programmatic lending, a situation not unlike that of the World Bank. According to the AfDB’s new standards, all policy loans will be screened for environmental and social risk and categorized according to the level of potential risk. For those policy loans deemed to have moderate or significant risk, the AfDB introduces the use of the Strategic Environmental and Social Assessment (SESA) tool, which would serve as a basis for public consultation and the preparation of an Environmental and Social Management Plan to manage those risks identified in the SESA. In this regard, the new AfDB Integrated Safeguards System (ISS) surpasses the standard of the World Bank.
Similarly, the Asian Development Bank Safeguard Policy Statement that was updated in 2009 covers all Bank funding instruments, including policy lending. Other bilateral and multilateral finance institutions, including JBIC and the European Commission, apply safeguards to policy instruments (see BIC and Global Witness DPL primer).
In this light, the Bank’s insistence that its continued DPL carve-out is “concordant with the approach of other MDBs” seems to be inaccurate. Instead, the unwillingness of the Bank to disclose higher international standards for policy lending in the internal comparative analysis of MDB safeguard best practice that is implied, points to another motive. The Bank justification for excluding DPLs seems to intentionally obscure the fact that the proposed Safeguard Framework will allow the Bank to fall farther behind higher standards at competing banks and consolidate a fragmented and increasingly incoherent set of practices for environmental and social risk management across the Bank’s portfolio.
By failing to include DPLs in the safeguard review, the Bank has indefinitely postponed a central question for the proposed Safeguard Standards and Policy – how the Bank will avoid further fragmentation of safeguards across the increasingly diverse lending portfolio. Worse still is the prospect that the many dilutions of clear ex ante or ex post requirements in the proposed Safeguard draft strongly suggest that the destination for any future harmonization of Bank-wide safeguard policies will be below what we have today. While the Bank has not made any commitment to revise OP 8.60 based on the findings of the DPL Retrospective or the Independent Evaluation Group’s analysis, the IEG DPL evaluation is likely to generate some important insights, and could be an important opportunity to continue civil society’s push for the review and reform of OP 8.60.
[1] See lending projections in World Bank Medium Term Business Finance paper, April 2014. The FY00-13 average is 33%. [2] The 2012 DPL Retrospective notes that OP 8.60 was in fact changed four times in the period of analysis (2009-2012) without triggering any formal policy review. [3] IEG FY15 work program, pg 21. While IEG has completed a number of DPL PPARs in recent years, most have not focused explicitly on environmental risks or outcomes. [4] Correspondence with R. Scobey, Deputy to IEG Director General on Aug. 4, 2014. See also IEG FY15 work program, pg. 51-52 for background note on DPO Major Learning Product.