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July 28, 2004
Keeping Score: The Mathematics and Linguistics of the World Bank Extractive Industries Review
    by William Baue

World Bank Group management and socially responsible investors interpret EIR recommendations differently.

Today, a subcommittee of the Board of the World Bank Group (WBG) is meeting to discuss WBG management's draft response to the Extractive Industries Review (EIR). WBG President James Wolfensohn commissioned EIR in 2000 to determine whether investment in oil, gas, and mining sector companies could in fact fulfill the WBG's mission of promoting poverty alleviation and environmental sustainability. While WBG management "agree[s] with the majority of [EIR] recommendations," the draft response also outlines several significant disagreements. On August 4, the full WBG Board will meet to determine how to implement EIR recommendations in light of management's counter-recommendations.

EIR, headed by Dr. Emil Salim, chair of the 2002 World Summit on Sustainable Development in Johannesburg, South Africa, delivered its final report in late 2003.

At the close of the comment period on the WBG draft response last week, a group of socially responsible investment (SRI) advocates sent a letter detailing several areas of concern, including renewable energy commitments and free, prior, and informed consent (FPIC). The advocates include SRI firms such as Boston Common Asset Management, Christian Brothers Investment Services (CBIS), and Domini Social Investments, as well as religious investors, such as the Interfaith Center for Corporate Responsibility (ICCR).

EIR calls for the WBG to "aggressively increase investments in renewable energies by about 20 percent annually," to which management responds, "this is fully consistent with the direction in which we are headed, and we will redouble our efforts."

The social investment coalition questions the math behind management's definition of "redouble."

"[I]t is our understanding that the current baseline for the Bank's investment in renewables is set at the level of its average annual investment in the sector over the past three years," the letter states, emphasizing management's interpretive departure from EIR. "As a result, the target of $200 million for this year will actually be approximately $30 million less than what the Bank invested last year."

"Since the Bank achieved investment in renewables and energy efficiency of approximately $400 million in both 1994 and 1996, we find that to be a more appropriate target to strive to attain," the letter continues, effectively doubling management's target.

Joe O'Keefe, corporate relations manager for the International Finance Corporation (IFC), the private sector arm of the WBG, justifies the calculations.

"Renewable energy and energy efficiency projects are highly dependent on getting the right combination of country or market circumstances: sponsors, technology, regulatory environment, institutions, and, in many cases, subsidies," Mr. O'Keefe told "As a result, our lending activity in these sectors fluctuates quite widely, and one year's activity is rarely indicative of what may be possible the next--pegging the baseline against a three-year average provides an ambitious but realistic target for the Bank Group."

The social investors' concern over FIPC also boils down to a question of terminology, and parsing the definition of one word carries significant implications for communities affected by extractive industries. WBG management transforms EIR's calls for free, prior, and informed consent to a call for free, prior, and informed consultation. Mr. O'Keefe explains why.

"There is no universally agreed working definition of free, prior, and informed consent," said Mr. O'Keefe. "Rather, there is a great deal of dispute about whether it implies a right of veto regarding a project and, if so, who could exercise that veto right."

Julie Tanner, corporate advocacy coordinator for CBIS and a signatory of the SRI letter, begs to differ.

"Free, prior, and informed consent is an internationally accepted standard, and UN agencies have recognized and adopted it--the IDB [Inter-American Development Bank] has in its draft policy that it will accept FPIC," Ms. Tanner told "With consent, communities actually agree and have a say in the project and influence it; with consultation, there is no real requirement that community concerns are actually addressed."

Bruce Rich of Environmental Defense exposes the potential contradiction of community consultation.

"Bank management states it refuses to give local communities and indigenous peoples what it calls a 'veto power' over Bank financed investments that adversely affect their lives, but expressly cites objections of 'industry stakeholders' as a ground for the Bank to veto free prior informed consent of affected communities as a precondition of financing," Mr. Rich states in a critique of the management draft response.

A comparison of management's draft response with an April 14 letter sent to Mr. Wolfensohn by 11 banks that have signed the Equator Principles (EPs) reveals significant overlap. For example, the EP banks favor consultation over consent, and caution about commitment to renewables.

"There is now an increasing closeness between IFC and the Equator Principle banks, given the EPs use of World Bank and IFC policies and guidelines in addition to the training IFC provides to the banks," said Ms. Tanner. "The IFC, as part of the World Bank Group, should be the organization that lobbies for improvements in their practices, fights for poverty alleviation, and champions best practices in sustainability."

"However, as the EIR management response has demonstrated, IFC's lobbying positions are beginning to look quite similar to those of the private banks," she pointed out.

Mr. O'Keefe defends the management response, pointing out that it "covers dozens of policy and program reform proposals."

"Our goal has been to get the substance of these policies right, not to keep score on the agendas of particular stakeholders," Mr. O'Keefe said.

In the game of poverty alleviation, tallying a scorecard of how policies actually affect the poor compared to their effects on the rich seems consistent with WBG's mission.


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