Can the World Bank Regain its Lead on Sustainable Development?

After falling behind other development organizations, the World Bank now has a chance to update its environmental and social safeguard policies.

Following the recommendations of an internal report, the World Bank has announced plans to overhaul its influential environmental and social safeguard policies. For over two decades, these safeguards have helped (with varying degrees of success) to minimize the harm that Bank-funded development projects have on local people and the natural environment. Until recently, the Bank’s safeguards also served as de-facto international standards for other development banks and governments. As a result, any reforms to the World Bank’s safeguards—whether progressive or regressive—will have far reaching global impacts.

Leading, then Following, on Sustainability

Although the World Bank was an early leader on environmental and social sustainability, it has fallen behind other development actors. For example, the World Bank’s 1991 indigenous peoples policy requires clients to create an “indigenous peoples development plan,” which gives people a voice in the future development path of their community. This has since become global best practice for governments and companies.

In 2004, in contrast, the World Bank slowed the advancement of indigenous peoples’ rights by creating a watered-down alternative to the international legal principle of “free, prior and informed consent.” The principle requires project developers to gain the consent of impacted indigenous communities before starting a project. The World Bank’s policy only requires developers to conduct “free, prior and informed consultations” with indigenous communities, stripping them of the right to control their traditional lands. Only since the UN General Assembly’s adoption in 2007 of the Declaration on the Rights of Indigenous Peoples has the more robust “consent” principle moved forward among governments and companies.

On September 14th, the World Bank’s Independent Evaluation Group (IEG) presented Safeguards and Sustainability Policies in a Changing World to the Bank’s Board of Directors. The IEG’s report calls for a Bank-wide update of safeguards to reflect the Bank’s current ways of doing business. Shortly thereafter, World Bank vice president Joachim von Amsberg announced that the Bank would update its safeguards over the course of the next two years. According to Mr. von Amsberg, “we have been, but no longer are the leaders in this area.”

On September 29th, World Bank Group president Robert Zoellick echoed this concern at a speech at Georgetown University, saying, “To date more attention has focused on financial risk than human risk. We need to redress that imbalance.”

Updating Safeguards for Changing Times

“To date more attention has focused on financial risk than human risk. We need to redress that imbalance.”
- World Bank Group president Robert Zoellick

The World Bank needs these revisions, the IEG report notes, because its portfolio has changed. The majority of the safeguards were formed when the Bank primarily financed specific development projects—such as roads or dams. Now the Bank provides most of its financial support to sector programs (e.g. agriculture) that link less directly to specific projects. The Bank-managed “development policy loans” and “climate investment funds,” for example, are two new investment models aimed at the programmatic level. Often, World Bank staff are not entirely aware of how these funds are used. These investments have expanded the World Bank’s impact on national-level reforms, but have limited its ability to monitor and mitigate actual environmental and social impacts on the ground.

Meanwhile, global sustainability crises—climate change, food and fuel shortages, and financial instability—have emerged that affect all development projects. The Bank created the safeguards before these issues rose to prominence.

Manish Bapna, WRI’s Managing Director, raised key challenges for the World Bank in his speech at the Bank’s launch of the IEG report. The Bank will face a choice, he said. Some borrowers have opposed safeguards for the increased costs they bring. The Bank can seek to please all of its borrowers, which will likely result in a “race to the bottom,” or it can use this opportunity to align its standards with international environmental and human rights norms. Most governments have already committed to these same norms in their negotiations outside the Bank.

Three issues that the Bank will need to address include:

1. Are safeguards the means or the ends?

At the launch event, Bank staff expressed multiple objectives for the safeguards review. Some believe that safeguards will naturally develop if the World Bank invests in broader environmental and social governance reforms. Others view safeguards as the immediate, minimal protections that the Bank should apply to avoid harmful impacts on people and ecosystems.

By focusing only on long-term governance reforms, the Bank could potentially allow short-term investments to go forward without adequate protections for people’s rights and ecosystems. Immediate protection of these rights should be top priority, but ideally will also help to spur longer-term governance reforms in a country.

2. How will the Bank measure clients’ success?

Traditionally, the World Bank has evaluated clients’ performance by requiring them to undertake a set of procedures, such as environmental impact assessments. In 2006, the International Finance Corporation (IFC)—the private sector financing arm of the World Bank Group—introduced a new approach. The IFC evaluates clients’ performance according to a set of (sometimes vaguely defined) outcomes, thus allowing clients more flexibility to choose their own procedures. This theoretically allows clients to choose the least-cost options and build their own capacity to manage environmental and social risks.

Some have argued that the World Bank should move towards the IFC’s approach. Nevertheless, as the IFC’s current policy review reveals, there need not be an either-or choice between two approaches. In many cases, clients and communities have benefited from a flexible approach. Yet in other cases, IFC clients, such as the Equator Principle private banks, have called for clearer standards and guidance. Too much discretion can increase costs and waste clients’ time. And while the World Bank’s approach can appear rigid, the use of well-defined procedures can provide local communities with a clear sense of their rights and what to expect from a project.

3. What is an effective way to resolve communities’ concerns?

As the World Bank devolves greater responsibility to borrowing governments, it should remain responsive to the concerns of communities affected by its investments. This can build local support for Bank-funded development projects, and also reduce the Bank’s reputational risks. The IEG report recommends that the World Bank create a grievance mechanism, which can respond quickly and cheaply to the concerns of affected communities. Yet the World Bank already has an independent mechanism—the Inspection Panel—that evaluates compliance with safeguards, and increasingly helps to mediate conflicts. Bank management has proposed that the grievance mechanism would best sit under management control.

A potential problem with this arrangement could be the lack of independence from Bank staff who may be involved in the conflict. A more effective option might be to strengthen the mediation role of the Inspection Panel. Before making this decision, the Bank should do a careful review of experiences of other multilateral development banks. The ultimate solution should not only seek to minimize costs for the Bank, but also to provide the most effective solutions for affected communities.

Conclusion: Beyond the Rhetoric of “Bureaucratic Hurdles”

The World Bank’s safeguards review will have ripple effects across the world—and will hopefully create an opportunity to strengthen global standards for environmental and social sustainability. But to regain its leadership in this area, the World Bank will need to ensure that the review is not just about overcoming bureaucratic hurdles and speeding transaction times. Instead it should aim to effectively manage risks, minimize harm to communities and resources, and create opportunities for the people affected by Bank investments.

The IEG report and Bank management’s response are available online at https://www.worldbank.org/oed.

Kim Thompson is a former consultant with WRI's Institutions & Governance Program, and a co-author of A Roadmap for Integrating Human Rights into the World Bank Group.