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World Bank told to stop investing in oil projects

February 2004

An independent review commissioned by the World Bank has proposed the institution phase out financial support for oil projects in favour of lending to renewable energy schemes.

The Extractive Industries Review, published last month, has also told the bank to recruit more corporate social responsibility and sustainability specialists, and to make more use of consultancies versed in sustainability.

The review says the bank’s lending priorities within the energy sector ‘need to be re-balanced’ to help governments ‘adopt sustainable energy strategies that address the energy needs of the poor and that minimize climate change’.

This means the bank should stop investing in oil production by 2008 and instead put the money into renewable energy and energy conservation projects. Any oil investments made before that date should be ‘exceptional’ and limited to poor countries with scarce energy resources.

A tenth of the $19.5billion (£10.6bn) the World Bank lent in the fiscal year 2002 was for energy and mining projects.

The review says the bank, which stopped investing in new coalmining developments several years ago, should ‘aggressively’ increase investment in renewable energy by about 20 per cent annually. At the moment fossil fuel projects comprise 94 per cent of its energy portfolio, while renewables account for six per cent.

On internal matters, the review suggests the bank promote sustainability by changing the ‘success indicators’ used in career development reviews. It recommends that existing indicators based on lending targets be rewritten specifically to encourage loans made to projects which alleviate poverty and foster sustainable development.

It says the bank should also adjust the skill mix of its staff, ‘to increase the ratio of people with knowledge of social, environmental, and human rights aspects of development’.

The review concludes that in terms of staff and budget allocation, ‘the bank does not appear to be as committed to the social and environmental aspects of sustainable development as it is to the economic aspects of development’.

The review, chaired by Emil Salim, former Indonesian minister of population and the environment, was established in July 2001 by World Bank president James Wolfensohn to advise the bank on involvement in oil, gas and mining projects. The review commissioned six research projects, and held meetings and regional workshops with interested parties.

It says that extractive industries other than oil can be compatible with the bank’s goals on sustainable development, but need to focus more on the benefits to communities.

This means requiring companies to engage with communities directly in order to ‘obtain their free prior and informed consent’. There should also be some form of revenue sharing with communities, and no projects should involve moving villagers from their homes against their will.

The World Bank will respond in April to the recommendations of the review, which took two-and-a-half years to complete.




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