Ethical Performance
inside intelligence for responsible business


key guidelines emerge in new, tougher guise

November 2005

The World Bank's private sector lending arm has issued a revised draft of changes to its social and environmental policies after allegations that it has been trying to water them down.

The International Finance Corporation has spent a year rewriting the environmental and social 'safeguard policies', which provide a framework not only for its own lending decisions, but also for the Equator Principles, which are guidelines used by financial institutions to assess the social and environmental risks involved in lending on dams, power stations and similar large projects. The Equator Principles have been adopted by 34 financial institutions, including Barclays, Credit Suisse and Rabobank, who will all be keenly awaiting the outcome of the consultation to see how it will affect their lending criteria.

Non-governmental organizations, notably Friends of the Earth and War on Want, claimed the initial draft issued in August 2004 amounted to a dilution of the safeguards, while some companies, among them Rio Tinto, felt the consultation was being rushed. Since then the IFC has gone through an extended consultation that has resulted in a complete redraft.

The new version is out for public comment until the end of this month, after which it will undergo final revisions and will go to the World Bank's directors for approval in late January. The new policies will be effective immediately they are approved.

Suggestions in the first draft that the safeguards be seen more as principles and guidelines than as strictly enforced rules upset many NGOs, as did a proposal to change their name to performance standards. The new draft retains the name change and the emphasis on principles, but the IFC says it has toughened up its requirements, not weakened them.

Among the changes are new requirements for companies to consult communities for the duration of a project rather than just at the outset, to focus on plans to avoid social and environmental impacts rather than merely to mitigate them, and to introduce grievance procedures for complaints from workers and communities relating to specific projects. Another key change has been to 'elevate the importance of social rather than environmental issues', in particular by requiring companies seeking IFC financial support to integrate their social and environmental assessments of projects, and not to present them separately.

'That may seem just a technical point, but we feel it will force companies to give more attention to the social impacts of proposed projects,' the IFC said.

Tighter requirements are also proposed for greenhouse gas emissions and health and safety standards in nearby communities.

The IFC, which has 178 member countries, has a loan portfolio for the present financial year of $19.3billion (£11bn).

The OECD is developing a 'risk management tool' for companies that have investments in countries whose governments fail to provide the basic conditions for doing business by not protecting property rights or providing basic public services. Consultation ends on 23 November and the recommendations are expected to be ready in mid-2006.

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