Raising the Standards for Development Finance

Indigenous groups in the Congo, children in the Gaza Strip, disabled and religious minorities in India, LGBT persons in the Caribbean, Pacific islanders facing climate change—there’s an infinite variety of potential beneficiaries for World Bank projects across some 80 borrowing countries. At the same time, the bank must address the risks of such projects inadvertently creating adverse impacts on the lives and livelihoods of affected communities.

For some 20 years, many parties—including other development banks, NGOs, and private sector organizations—have used the World Bank’s environmental and social safeguard policies to address risk in their operations. These policies cover, for example, involuntary resettlement generated by large-scale infrastructure projects. In its current effort to modernize these policies, the bank has the opportunity to strengthen protections, clarify roles, and consolidate relevant provisions in one coherent framework. It is the first whole-scale reform of the rules attempting to build on past experience, strengthen coverage, and meet expectations from a global constituency. But where should the bank set the bar, knowing that the development community scrutinizes these project-level rules and often uses them as a global benchmark?

The challenge is legislating for a highly variable and unpredictable risk context. The review has become a lightning rod for “single issue” activists who see the possibility of high-profile gains. On the environmental front, climate change is an issue where the new standards might support both mitigation and adaptation (preparedness) efforts. Likewise, the revised policies might reflect new thinking on biodiversity. On the social side, there is a proposal to create a broader social assessment that goes beyond the current emphasis on involuntary resettlement and indigenous peoples. A more comprehensive social assessment of project risks is widely regarded as an opportunity for the bank to strengthen its commitment to human rights principles, with greater protections for disadvantaged and vulnerable groups; a more comprehensive use of grievance mechanisms; and enhanced stakeholder engagement. The bank’s review team is thus striving to cover a wide swathe of environmental and social issues, taking into account what is perhaps the most important factor that bridges them: changing human behavior.

The first draft of the new framework produced by the bank last July has been the subject of an intense global consultation process over the last nine months. Based on a set of 10 environmental and social standards that apply to borrowing countries, and a policy that defines the “due diligence” role of the bank, the new framework has received a mixed reception. Some parties enthusiastically support some provisions, whilst the same provisions concern others. This is to be expected. The framework—subject to approval by the World Bank’s board of executive directors, which represents the 188 members of the bank, both borrowers and lenders—needs to find common ground on a number of complex issues that address the risks and impacts of development. This is an exercise in negotiation and compromise, all within the shifting space of national systems, culture, religion, and national and international law. 

The starting point for managing the environmental risks and impacts of projects is an increased use of borrowing countries’ systems: laws, regulations, standards, institutions, and capacities. Under the proposed new framework, countries could use their own systems for the project, provided that (in the view of the bank) they will achieve the objectives of the new standards. This avoids a duplication of rule-sets—one of the main criticisms of the current regime—where some countries with adequate environmental and social safeguards find themselves having to meet two sets of overlapping rules. At the same time, where national systems fall short of the objectives, the bank will require that countries take measures to fill the gaps and proceed with project activities only after they have addressed them.

The heart of the proposed framework is an environmental and social assessment that identifies risks and adverse impacts over the lifetime of a project and proposes measures to mitigate them. The test is one of proportionality—it is intended to identify risks in a timely manner throughout the lifetime of a project and always before a project can inflict harm on affected populations. Since the proposed social assessment will take a wider perspective (for example, considering human security and non-discrimination issues), both the bank and borrowers would need to mobilize new skills (for example, determining whether disabled or minority groups have equal access to project benefits). The framework will also introduce new areas of protection, such as a standard for labor and occupational health and safety, mitigating, for example, the risk of harmful child or forced labor. Overall, the proposed framework is designed to offset the demands of increased coverage with a more efficient set of rules that are easier to read and follow.

Consumer feedback—the views of project-affected people—is a major feature of the proposed new rules. An explicit standard on stakeholder engagement provides a foundation that supports the entire structure, with greater clarity on the requirements for meaningful consultation and project-level grievance mechanisms. Every project will have to consult with affected communities, especially those vulnerable to adverse impacts. Consultation is an especially sensitive topic in the case of indigenous peoples, where international law and practice have already established a high level of performance. Here, the new framework proposes to introduce the so-called free, prior, and informed consent (FPIC) of indigenous peoples in cases where they are especially vulnerable to loss or exploitation of land or other cultural resources. However, since there is no universally accepted definition of FPIC, this provision will require elaboration through good practice and cultural sensitivity.

As bank management and the board grapple with the range of views on the first draft (expressed in global consultations across 60 plus countries), the opportunity to find common ground on a new set of modernized environmental and social standards is possibly unique, certainly pressing. With the proposed establishment of new development banks (in particular an Asian Infrastructure Bank), interest in the outcome of the bank’s review is running high—far beyond policymakers in Washington, DC. While the new standards will not of themselves guarantee environmental and social sustainability, they may set a bar for managing environmental and social risks that could achieve international adoption and provide a shot in the arm for social innovation.  

Read the full draft of the World Bank’s proposed new “Environmental and Social Framework,” plus comments received to date during the global consultation here.

Read more stories by Colin Scott.