November 23, 2005
New International Finance Corporation Sustainability Standards: Watershed or Watered Down?
by William Baue
A group of socially responsible investors express concern over perceived shortcomings in the
proposed IFC policy revisions, while the IFC points out where the policies break new ground.
This Friday marks the end of the 60-day public comment period on the second draft of the
Policy and Performance Standards on Social & Environmental Sustainability by the
International Finance Corporation (IFC), the
private lending arm of the World Bank Group (WBG). The IFC has engaged stakeholders globally in this
multi-year policy review process with
the goal of creating policies that reflect best practice in the finance industry for addressing
social and environmental problems.
Today, two days before the deadline, a group of
14 socially responsible investing (SRI) firms and organizations representing over $117 billion in
assets filed a letter
with the IFC, following up on a previous letter from April 2005 and an
from April 2004.
"We are writing to express our ongoing concern that while the public
comment period was extended, we do not see many substantive changes to the Performance Standards or
Disclosure Policy from the recommendations provided by companies that are IFC clients, civil
society organizations, and investors over the last year," states Lauren Compere, Chief
Administrative Officer and Global Advocacy Coordinator for Boston Common Asset Management, who authored the
letter. "We also do not perceive willingness from the IFC to make meaningful changes at this stage
in the process and believe there is much need for improvements."
The letter, whose
signatories include Christian Brothers Investment Services (CBIS), KLD
Research & Analytics, General Board of Pension
and Health Benefits of the United Methodist Church, MMA Praxis Funds, Progressive Asset
Management (PAM), Trillium Asset Management,
lists six key concerns. These include strengthening IFC accountability, implementing corporate
screening and minimum human rights standards, the absence of a comprehensive climate strategy, and
the dilution of existing performance standards.
"The proposed new system provides IFC with
increased flexibility and discretion in making lending decisions but does not call for a parallel
strengthening of the IFC's own accountability or improved system of monitoring and oversight that
ensures that IFC clients are adhering to IFC's policies," writes Ms. Compere.
of the Environment and Social Department Rachel Kyte points to several ways the proposed policy
enhances accountability both for companies receiving loans and IFC itself.
consult and engage, through the life of the project--something we've never said before--with those
who may be impacted by their operations, and companies must disclose the measures they're taking to
mitigate and avoid those impacts," Ms. Kyte told SocialFunds.com before she received the SRI
letter. "For our part we will, for the first time, say 60 days before we go to board for all
projects what the project is, why we're doing it, the expected development contribution by the
IFC's involvement in the project, and where the risks and impacts are."
"Then on a yearly
basis, we will report in aggregate across our portfolio the impact we are having," she added "None
of this exists today--it's all new, all improved, all stronger, and all more than any other
While the increase in case-specific disclosure beforehand will enhance
stakeholders ability to critique and influence the design of specific projects, IFC's aggregate
reporting after projects enter its portfolio may hinder the ability of stakeholders to track
accountability for individual projects.
Ms. Kyte also noted that IFC's chief economist has
created a new unit of staff to work on improved matrices for measuring development impact to be
reported annually. However, Ms. Kyte also acknowledged shortcomings in IFC's transparency, a key
element of accountability.
"One thing we've learned throughout the consultation period is
that there are large parts of our operational procedures beyond the environment and social
department that are opaque to our stakeholders," she said. "There's an internal discussion now
about how do we improve access to information that lets people see how we do business and the
values and principles of how we do business."
On the issue of implementing corporate
screening and minimum human rights standards, Ms. Kyte pointed out that the IFC performs a "very
thorough analysis" of all companies it invests in.
"At the same time, there is no
off-the-shelf tool that everyone is using to assess human rights records, and there's nobody in the
SRI community who's come up with one," she said. " I can't put as a requirement into an
environment and social policy something that doesn't exist at the moment--our job is to move the
market forward, and I think we're doing that."
IFC is financing three research projects on
human rights impact assessments, including an adaptation of a human right assessment tool used by the Danish Institute for Human Rights on the financial sector, as
well as one by the International Business Leaders Forum (IBLF) on multiple sectors.
In a similar vein, Ms. Kyte
acknowledged that IFC does not have a Performance Standard on climate change, though Performance
Standard 3 on Pollution Prevention and Abatement addresses greenhouse gas (GHG) emissions.
"We are looking very hard at ways to measure more effectively our renewable energy contribution
as well as the energy efficiency we achieve in the portfolio by requiring companies to seek energy
efficiency solutions as part of the Performance Standards, and also to look at potential
methodologies for monitoring the carbon impact of our portfolio, not just the carbon impact of our
operations," she said. "It's really complicated to do."
Ms. Kyte affirmed that she will
examine any specific recommendations from the SRI community on climate change policy. However, Ms.
Kyte vehemently countered the notion that the proposed policy dilutes existing IFC standards.
"There has never been any intention of diluting, there is not one place that I think we are
diluting our standards," Ms, Kyte said. " We've introduced standards in areas where we've been
silent before, or in fact where we've been equivocal, and now we're being absolutely
unequivocal--there is a whole suite of areas that take us far beyond where we are at the moment,
including labor standards, community health and safety standards, a complete approach to
biodiversity, social assessments integrated for all projects."
"This is what the SRI and
the environment and social NGO communities have been hammering after the Bank Group for more than a
decade to do, and now we're doing it, and why are we doing it?--because we believe that, even in
some of the most tenuous emerging markets, it is in the company's advantage to position themselves
efficiently and effectively on their environment, social, and governance issues," she added. "We
are not doing it so that we can proselytize from Washington that our values are global
values--no, this is about building sustainable companies."
|To the Editor,
With regard to public disclosure and the proposed IFC
Sustainability Policy and Performance Standards, I would like to stress the following:
1. IFC will provide more project specific information pre-investment than ever before.
2. IFC will provide development impact information on an aggregate basis (and, if possible,
offer aggregated information on sector, regional and on other basis )
3. IFC clients will
have to provide much more information early on during project development and share an Action Plan
with stakeholders, which is a result of the engagement process
4. IFC clients will have
to engage in consultation throughout the project operations, sharing information about how they are
implementing the action plan.
We believe these standards will significantly enhance
accountability and help move markets forward on sustainability in general.
Director, Environment and Social Development Department