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FINANCE: World Bank’s New Social Standards Slippery to Enforce

Emad Mekay

WASHINGTON, Feb 22 2006 (IPS) - Companies that borrow from the World Bank’s private sector arm will be required to comply with a new set of environmental, labour and social guidelines that the lender says will make businesses more accountable, but which watchdog groups have already decried as lax and vague.

>From water pipelines to seaports, the World Bank funds billions of dollars worth of development projects each year, and the new guidelines will affect millions of people around the world.

The International Finance Corporation (IFC) – the part of the World Bank that lends to the private sector – has backed projects by more than 3,300 companies in 140 developing nations. Last year, the IFC invested more than 24 billion dollars in poor nations.

The new environmental and social standards were adopted on Tuesday, and the IFC says they will minimise the negative impact of projects on the environment and on affected communities.

“The new IFC standards are stronger, better, and more comprehensive than those of any other international finance institution working with the private sector,” said Lars Thunell, IFC’s executive vice president, in a statement.

“We aim, with these new policies, to increase the development impact of projects in which we invest. We also seek to give companies operating projects in emerging markets the capacity to manage fully their environmental and social risks and to compete better in a global economy.”

The IFC said it expects banks that have already endorsed the so-called “Equator Principles”, an agreement to adhere to social and environment safeguards of the World Bank group, to adopt the new rules.

The new IFC guidelines cover how companies should deal with issues like natural habitat, indigenous peoples, involuntary resettlement, dam safety and cultural sites.

The equator banks, which include global names like ABN AMRO, Barclays, Citigroup, Crédit Lyonnais, Credit Suisse Group, Dresdner Bank and Royal Bank of Canada, sometimes co-finance projects with the World Bank in mining, oil, gas and related sectors. The new rules replace the IFC’s current safeguards and contain new requirements for community health, safety, and security; labour conditions; pollution prevention; social and environmental assessments; and management systems.

International advocacy groups offered mixed reviews of the new standards, with environmental and policy groups calling them inadequate, and a major labour organisation saying they are a good start.

The International Confederation of Free Trade Unions (ICFTU) said that borrowing companies will have to abide by the “core labour standards” rules as defined by the International Labor Organisation (ILO).

The Brussels-based ICFTU said the rules prohibit the use of forced labour, child labour and discriminatory practices, and require recognition of freedom of association and the right to collective bargaining.

“Thousands of workers in IFC-financed projects stand to benefit from this decision, which we believe should be a precedent for international lending in both the private and public sectors,” said ICFTU General Secretary Guy Ryder.

The ICFTU offered to work with the IFC to implement the new labour standards, citing the lack of an effective implementation mechanism.

How the rules will be enforced has also prompted concerns among other reputable civil society groups that advocate better business practices towards the environment and social standards.

An alliance of such groups describes the new IFC approach as a “risky experiment” marked by vague language and noncommittal statements that they fear could leave local people and the environment affected by the IFC projects worse off than they were before..

“They’ve put in lots of discretionary language with few teeth. Past experience provides little basis for faith that IFC or its clients will ensure that projects leave communities and ecosystems better off,” said Lucy Baker from the Bretton Woods Project.

The other groups who decried the move include the Bank Information Centre, Environmental Defence, Friends of the Earth-U.S., Indian Law Resource Centre and International Accountability Project.

Last month, a study released by BankTrack and the World Wildlife Fund (WWF) that examined the environmental financing policies of 39 international banks found that banks were failing to maintain environmental and social standards developed by U.N. agencies and other international bodies.

The study also proved that there was a near total lack of publicly available information on how banks were implementing such guidelines, making it virtually impossible to track down the banks’ compliance with the safeguards.

The new IFC rules do not provide for outside monitoring or require independent oversight and verification of project impacts, relying heavily instead on companies’ self-reporting.

The groups criticise the lack of clear language in the IFC’s new rules on so-called no-go zones, referring to UNESCO World Heritage sites, which are out of bounds for development.

David Hunter of the law school at American University in Washington pointed out that that the new standards do not acknowledge, for instance, U.N. norms on human rights and transnational corporations.

“Undercutting the rights of the world’s poor to make things easier and cheaper for the IFC’s corporate clients won’t lead to equitable or sustainable development,” added Dana Clark from the International Accountability Project.

“Rather, it will lead to increased impoverishment and resistance. It is unfortunate that the IFC has apparently failed to develop rights-respecting standards suitable for the twenty-first century.”