World Bank Risks Weakening Environmental and Social Standards

The World Bank has started a process that appears likely to weaken its environmental and social safeguard policies.  Although the Bank has repeatedly stated there will be no “dilution” of the policies, the Bank’s scoping paper released in October and its ongoing consultations clearly reveal a desire to replace clear standards with discretion and deference to its developing country borrowers.  The Bank, whose environmental and social safeguard policies have long provided important minimum standards for protecting communities affected by international development projects, now runs the risk of sacrificing its leadership role, disempowering affected communities, and forfeiting development effectiveness by once again financing projects that are human rights and environmental disasters. 

Of course the Bank doesn’t say in so many words that it wants to deregulate, but the goals of the policy review is now clear from their scoping paper.  It speaks of the desire to take a less “prescriptive” approach and one that will be more “supportive” of its developing country borrowers.  Nothing in the paper speaks to protecting minimum rights or interests of affected people.  The Bank anticipates that one of the risks is they will be “perceived to weaken their standards,” implicitly dismissing the likelihood they will actually weaken their standards and rejecting those who want clear standards as just fighting over words. The Bank fails to recognize that a change in words from “must” to “may” disempowers communities affected by their projects when it sacrifices rights as requirements to the discretion of the Bank staff. 

The Bank’s strategy is to follow their sister organization, the International Finance Corporation (IFC), in replacing clear environmental standards with a more “integrated approach” that relies on environmental management systems. The IFC’s Environmental and Social Performance Standards apply to private sector lending.  The Bank views the IFC standards as a success, in part because they have been widely followed by commercial banks conducting private finance in developing countries.  Although accepted by industry, there is no evidence the IFC’s discretion-laden approach has contributed to development effectiveness or protected vulnerable communities.  The World Bank is also mistaken if it thinks the same discretion-laden approach will work better in the public sector.

Particularly telling is the Bank’s failure to mention developments in international law as a background for its future policies. It continues to be politically hamstrung in addressing human rights obligations because some borrowers won’t let it say the “h” word, but its scoping paper also ignored the great growth in international environmental law over the past few decades.  That’s absurd for a major international institution looking to update its environmental standards.  Ignoring developments in international law will undermine the Bank’s aspirations of being a leader.  Although the Bank resists recognizing its own international law obligations, its borrowers are clearly subject to international law.  Any reform of Bank policies must ensure that their projects do not undermine the international law obligations of their borrowers in how they implement their projects.  Otherwise, we may again return to a time when the Bank finances projects with gross environmental and human rights impacts.

Also telling was that the Bank’s management has made no indication that it wants to learn from the many investigations into compliance that have been undertaken by the World Bank Inspection Panel, an independent panel created to monitor compliance of the Bank’s safeguard policies.  Although this is just one new example of the Bank management’s continued and largely inexplicable antagonism toward the Panel, it also reflects the Bank’s larger discomfort with “compliance” or “accountability.”  Rather than embracing the possibility of learning from past lessons about how its development mandate has been undermined by failing to meet its environmental and social benchmarks, the Bank chooses instead to ignore these experiences and look for ways to eliminate clear standards for their projects. 

To be sure, the Bank’s safeguard policies are in need of modernizing; they are mostly two decades old and reflect an ad hoc approach to policy development.  The policies have been important in shaping the policies at other international institutions beyond the Bank, both because of the Bank’s leadership position in development finance and because these policies were the first environmental and social safeguards in development finance.  Others have followed suit and the Bank’s leadership position is no longer secure.

To have any claim toward leadership in the future, the Bank must manage a balanced approach that both supports its borrowers and protects the rights and interests of affected communities. This includes maintaining clear requirements for public consultation in environmental assessment, land-for-land compensation in involuntary resettlement, and the use of indigenous peoples’ development plans.  But as argued by many environmental organizations, the Bank’s new policy must also take clear steps to improve its framework, by embracing free and prior informed consent for indigenous peoples, explicitly promoting human rights and labor standards, preventing forced evictions in Bank-finance projects, and reshaping its portfolio to reflect the full social cost of carbon. 

A balanced approach must build from a floor of clear, enforceable standards that protect the rights and interests of affected communities from disproportionate and unacceptable harm.  In this way, the Bank can reaffirm that protecting those rights and interests are as important to development effectiveness as is a good relationship with the government borrowers.  Added to this would be a set of more general principles and aspirations to guide the Bank’s engagement with its borrowers and its evaluations of the borrowers’ country systems.  In this way, the Bank’s policies could also embrace a more flexible approach that supports its borrowers to improve environmental management over time.