Dr. Jim Yong Kim President
The World Bank Group
cc: Executive Directors of the World Bank Group
Sassenberg/Washington, March 1, 2017
Dear Dr. Kim,
You have stated your commitment to combating climate change and have highlighted that those living in poverty will suffer the most severe impacts of climate change.1
However, this commitment is put at risk where a large portion of the World Bank Group’s (WBG’s) portfolio, including lending for environmentally and socially sensitive sectors, is not covered by effective environmental and social standards. Furthermore, the Bank’s own Independent Evaluation Group (IEG) has found that there is no system in place to monitor the impacts of these loans.
We are referring to Development Policy Finance (DPF), which has been oscillating between 30% (2015) and 50% (2012) of all Bank lending in recent years. DPF in areas such as management of tropical forests, the energy sector, and mining are directly contributing to climate change. Policy-based lending includes, for example, support for public-private partnerships (PPPs) in the fossil fuel-intensive sectors. Contrary to your commitment on climate change, these PPPs lock borrowing countries into a high carbon future and can pose huge risks to forests.
At the launch of the WBG’s Climate Action Plan in April 2016 you promised bold action to protect our planet for future generations. These commitments included providing assistance to countries to help them transition away from high carbon to renewable energy sources and to support protection of forests. Bold action ought to begin by ensuring that the World Bank’s own lending is consistent with the Climate Action Plan’s goals, as well as those of the Forest Action Plan.
Findings and recommendations of World Bank Evaluation Reports and the Bank’s 2015 Development Policy Financing Retrospective confirm the need for significant reform in the Bank’s approach to Development Policy Finance.
In anticipation of the World Bank’s Safeguard Review, the IEG recommended using consistent standards across lending instruments to ensure coherence in environmental and social outcomes.2 Plus, many civil society organizations also called for the new Environmental and Social Framework to include Development Policy Loans (DPLs).
Unfortunately, WBG Management sidestepped this recommendation as it set about developing the Bank’s new Environmental & Social Framework. It argued that the environmental and social footprint associated with DPLs was not tangible enough to require that DPLs be evaluated under the new Environmental and Social Framework. Instead, the Bank concluded that the environmental and social provisions in OP 8.603 would address whatever residual problems there might be for DPLs.
This assessment was thoroughly mistaken. The 2015 DPF Retrospective highlights the ineffectiveness of OP 8.60 in addressing significant negative environmental impacts even when those had been identified.4 Similarly, the IEG demonstrates the ineffectiveness of OP 8.60 by referring to serious underreporting of social and environmental risk in DPF. The same report noted a lack of access to information on DPFs and the absence of any formal system to monitor social and environmental risks and their mitigation.5
The World Bank’s own reports acknowledged the shortcomings of current procedures for assessing DPF lending practices, including the fact that borrowers can earmark DPLs for specific investments. This means that DPLs can be used just like investment lending but without the scrutiny or safeguard protections provided by the environmental and social framework applied to investment lending. Then there is the problem of Bank staff picking the lending instrument with fewer environmental and social requirements in order to accelerate lending or avoid controversy, known as instrument arbitrage.
The Bank has engaged in policy-based lending, which previously was known as Structural Adjustment Lending, for several decades. Yet, as the 2015 Retrospective points out “It is difficult, however, to demonstrate conclusively whether reforms undertaken in DPOs addressed the most binding constraints to poverty reduction and shared prosperity.”6 The Review also states that only a low share of the Bank’s analytic work on poverty and social impacts and environmental effects is actually made public or benefits from stakeholder consultations.7
A recent NGO-report led by the Bank Information Center (BIC) with participation of organizations in Peru, Egypt, Mozambique, and Indonesia investigated DPF operations in these countries.8 The report found that they introduced new fossil fuel subsidies, including for coal, and lacked adequate policy support and incentives for renewable energy, while simultaneously exacerbating climate change and deforestation risks posed by large-scale infrastructure.9
The World Bank has responded to this report by calling it a misrepresentation. We disagree. The risks to the environment and to people are far too serious to simply dismiss the BIC report.
The World Bank’s own Evaluators have stated that “…the current environmental and social risk management system for DPF is characterized by shortcomings in multiple areas.”10 It also refers to the need to strengthen environmental and social management in DPF in all aspects of the system: “guidance, procedures, incentives and accountability mechanisms.”11
It is disturbing that these shortcomings affect one third to one half of the Bank’s portfolio. We kindly request that you will let us know about the steps that will be taken to overhaul DPF safeguards, including public consultations. Nothing less is required to help ensure that DPF will not undermine your climate and poverty reduction goals.
Sincerely,
Korinna Horta
urgewald
(korinna@urgewald.org)
Nezir Sinani
Bank Information Center Europe
(nsinani@bankinformationcenter.org)
On behalf of:
urgewald (Germany)
11.11.11 – coalition of Flemish North-South Movement, Belgium
350.org Indonesia
Amigos de la Tierra, Spain
Accountability Counsel, USA
Bank Information Center, International
Both Ends, Netherlands
Bretton Woods Project, UK
CAN – Climate Action Network
Centre for Human Rights and Development
CDCAM – Conservation and Development on Cambodia
CEE Bankwatch Network, Regional
Center for Environmental Justice/Friends of the Earth Sri Lanka
CIEL – Center for International Environmental Law, USA
Clean Air Action Groupp, Hungary
Collectif Camerounais des Organisations des Droits de l’Homme et de la Démocratie
Conservation Action Trust, India
DAR – Derecho Ambiente y Recursos Naturales, Peru
Earth Law Center, USA
EIPR – The Egyptian Initiative for Personal Rights, Egypt
EKOenergy, Finland
Focus.si, Slovenia
Forest Peoples Programme, UK
Friends of the Earth Mozambique
Fundar – Centro de Análisis e Investigación, Mexico
FUNDEPS – Fundacion para el Desarollo de Politicas Sustentables, Argentina
Gaia Foundation
Gobi Soil, Mongolia
Greenpeace Southeast Asia
Human Rights Council, Ethiopia
Inclusive Development International
International Rivers, USA
Jamaa Resource Initiatives, Kenya
KKM –Koordinationskreis Mosambik, Germany
Les Amis de la Terre, France
LINGO _ Leave in in the Ground Initiative, Germany
LSD – Lumiere Synergie pour le Developpement, Senegal
Market Forces, Australia
Narasha Community Development Group, Kenya
NGO Forum on the ADB
OEARSE – Observatoire d’Etudes et d’Appui à la Responsabilité Sociale et Environnementale, DRC
Oil Change International
OT Watch, Mongolia
PowerShift e.V., Germany
Public Interest Law Center, Chad
Rivers without Boundaries Mongolia
Rozwój TAK – Odkrywki NIE, Poland
Save Lamu, Kenya
SEE Change Net, Bosnia & Herzegovina
Sierra Club, USA
Social Justice Connection / Connexion Justice Sociale, Canada Steps without Borders
SustainUS, USA
Tax Justice Network, UK
Ulu Foundation, USA
1 Report here: http://www.worldbank.org/en/topic/climatechange/publication/turn-down-the- heat-climate-extremes-regional-impacts-resilience.
2 IEG, Evaluative Directions for the World Bank Group’s Safeguard and Sustainability Policies, 2011, p.17.
3 OP 8.60 requires the Bank to determine in its risk assessment a) whether specific countries policies supported by the operation are likely to have significant social or environmental impacts, b) whether borrower systems can manage those impacts, or c) whether a gap filling/capacity strengthening action plan is needed (Para. 9 & 10) .
4 World Bank Group, 2015 Development Policy Financing Retrospective: Preliminary Findings, p.36. 5 Independent Evaluation Group, Managing Environmental and Social Risk in Development Program Finance, July 27, 2015.
6 World Bank Group, 2015 Development Policy Financing Retrospective: Preliminary Findings, p 21.
7 Ibid. p. 47.
8 http://www.bankinformationcenter.org/world-bank-breaks-climate-pledges-by-financing-new-fossil- fuel-subsidies-undermining-forest-protection-and-exacerbating-climate-change/
9 http://www.bankinformationcenter.org/world-bank-breaks-climate-pledges-by-financing-new-fossil- fuel-subsidies-undermining-forest-protection-and-exacerbating-climate-change/