Forest Peoples Programme: Briefing: IFC's draft "Policy on Social and Environmental Sustainability and Performaance Standards"

This briefing provides an overview of the content and issues raised in the International Finance Corporation’s (IFC) proposed revision of its safeguard policies, with an emphasis on indigenous peoples and human rights, as well as some of the related process issues. [1] The proposed new safeguard policy is subject to public consultation over the coming months. These consultations have been severely criticised for being rushed and lacking basic information to ensure transparency and effective public scrutiny of the IFC’s controversial proposals (see below).

At the time of writing, the IFC plans to hold just four regional consultations and a number of topic specific meetings between September–December 2004, including one devoted to indigenous peoples (no date as yet). [2] Despite calls for a self-selection process, the IFC maintains that each regional consultation will be by invitation only. The IFC is then proposing a short period of just 30-days for electronic comment in January–February 2005 to solicit final input. After that it will seek Board approval of the revised safeguard policy in February 2005.

The IFC is part of the private sector arm of the World Bank Group (WBG) and as such provides loans and other support to corporations and other private sector entities rather than to governments. According to the IFC, its mission is “to promote sustainable private sector development in developing countries to help reduce poverty and improve peoples’ lives. IFC believes that sound economic growth, grounded in successful private investment, is key to poverty reduction.” (Intro., p.1)

Revision of the IFC's safeguard policies is a critically important process. The IFC’s safeguard policies do not just affect the obligations of the IFC and its private sector borrowers; in the past two years, more than 20 commercial banks have agreed to follow a set of environmental and social standards – known as the “Equator Principles” – that are based on the IFC’s safeguard policies. These banks provide over 75% of all private sector project financing around the world. Further, national export credit agencies (ECAs) are increasingly relying on IFC safeguard standards. As the IFC revises its own policies, it is in effect undertaking a global standard setting exercise for environmental and social standards for privately financed development projects.

The IFC proposes that all its existing 10 mandatory safeguard policies will be completely replaced by nine new ‘Performance Standards’ (PS) that will eliminate the WBG Operational Directive/Policy format that remains in use by IBRD/IDA and introduce an entirely new safeguard approach for IFC-sponsored investments. The nine so-called Performance Standards proposed are as follows:

Performance Standard 6 (PS6): Conservation of Biodiversity and Sustainable Natural Resource Management

Performance Standard 7 (PS7): Indigenous Peoples and Natural Resource Dependent Communities

The above draft PSs set out “IFC’s roles and responsibilities in its investment operations, as well as the requirements that IFC’s clients are expected to fulfil for IFC financing.” In addition to the PSs requirements, “Clients must comply with all applicable national laws, including those laws implementing host country obligations under international law. In the event that these laws establish levels of performance below those articulated in the Performance Standards, the Performance Standards will be used as supplementary requirements for financing.” (PS, p.1)

According to the IFC, it proposes to use “the Performance Standards to manage social and environmental risks and impacts and enhance development opportunities in private sector financing in its member countries eligible for financing. … Together, the nine Performance Standards establish standards that the client is to meet throughout the life of the investment by IFC or the relevant financial institution….” (Intro., p.7) It should be noted that the IFC plans to develop “[d]etailed procedural requirements” for implementation of the PSs, which will be set out in its Corporate Procedure. (Intro., p.1).

In parallel with the proposal to completely overhaul its safeguard framework, the IFC is in the process of revising its policy on information disclosure. Civil society organisations and indigenous peoples stress that the two processes are closely inter-linked as improved mechanisms for accountability of the IFC and its clients to the public and affected communities will require greater transparency and much more disclosure of information (see below)

The main concern regarding the IFC’s plans is that they imply a dangerous move away from a mandatory and compliance-based approach to social and environmental issues towards a mainly discretionary approach. Such a shift would dilute the responsibilities of a public institution and undermine its accountability to affected communities.

As well as this general concern, there are multiple problems with the substantive proposals set out in the IFC’s draft consultation documents (dated 12 August). The proposals feature numerous weaknesses, which include (but are not limited to):

o No explanation as to how IFC will determine whether a project meets a particular PS, other than to use its discretion in consulting the implementation guidelines (which the IFC has confirmed would not be binding)

o Failure to address key recommendations of civil society on safeguard policy and accountability issues e.g., no clear statement of which standards are mandatory and which procedures are optional [3]

o Failure to follow-up the IFC’s own CAO safeguard review undertaken in 2002 and 2003 e.g., the proposals do not make clear how the new framework would make IFC managers and staff more accountable for compliance issues [4]

o No requirement that client’s comply with international norms such as those contained in ratified international environmental treaties (a substantial departure from existing WBG policy) and human rights law. The sole focus is on domestic law (although there is one circular reference made to international norms)

o There is extremely vague language throughout the PSs, which is too general to be actionable. While the implementation guidelines will provide further detail, if these are not considered to be binding standards, application of the PSs will not be consistent across projects. Many terms are undefined and the IFC has also created new terms (e.g., free, prior and informed consultation) without any definition of what they mean and how they relate to more commonly used language (e.g., free, prior, and informed consent)

o Failure to deal with human rights, which are not even mentioned (other than as in one objective of PS7 which cannot be fulfilled by the same proposed standard – see below)

o A distorted focus on accommodating the needs IFC’s of private sector clients, rather than the needs and interests of affected communities

o Too much emphasis on cost effectiveness, which qualifies most of the potentially binding and/or actionable PSs. In particular, the phrases “wherever technically and economically feasible” and “where demonstrated to be feasible and cost-effective” are used repeatedly. This language could be used to justify any deviation from compliance with strict environmental or social standards. Over-emphasis on cost effectiveness and economic efficiency is inconsistent with the concept of sustainable development [5]

o Too much reliance on client information, such as client-provided EIA/SIAs without specifying whether IFC will consult with affected persons, communities or indigenous not connected to the client or its consultants before making decisions on potential projects

o No clarity on how the IFC will ensure that the action plan that would be used by a client to abide by PSs is successfully implemented and adjusted over the life of the project

o Continued secrecy under the proposed framework under which the private sector clients’ legal commitments and agreed standards for a specific IFC-assisted investment would be hidden in a confidential Action Plan.

o Absence of essential information that the public require to undertake full scrutiny of the proposals and their implications e.g., lack of revised Corporate procedures and implementation guides

o Scant information on the proposed new standards for IFC information disclosure as the consultation document is a basically a discussion note and not a draft policy

o Several elements in the proposed standards fall below safeguard requirements in existing World Bank and IFC safeguard policies e.g., treatment of customary rights under the Involuntary Resettlement Policy (PS5) and review and disclosure procedures for environmental assessments (PS1)

o The treatment on forests in PS6 is severely truncated and superficial and appears to have lost the fundamental safeguard that the IFC will not finance projects/investments that contravene "any relevant international environmental agreement to which the member government is a party" (as stipulated in existing November 1998 Forestry Policy)

The IFC’s stated intention to take a more comprehensive approach to social and environmental issues, including incorporating a social assessment component into its pre-approval assessment process (Performance Standard 1 (page 4) and PS 9) is welcome. This important proposal addresses repeated civil society and indigenous demands for greater attention to social and cultural impacts in IFI policies, projects and programmes. Again, however, the utility of this more integrated approach will depend on the detailed operational standards applied to IFC investments, which cannot be assessed due to a lack of detailed information in the current public consultation documents.

The inclusion of labour and working conditions is generally welcome, though it is not clear to what extent these standards comply with the demands of labour movements and international standards (at this stage, the indications are that the proposed performance standards may be actually weaker than the existing standards used by the IFC) [6] . The recognition of the need to deal with clilmate change issues is also welcome.

General conclusion: Despite these positive elements, the overall conclusion of this preliminary assessment is that the draft IFC policy contains fundamental flaws that would result in substantially weakening the existing WBG safeguard policies.

During the 2002-2003 CAO safeguard policy review, civil society organisations and indigenous peoples made it clear that any revision process would require an inclusive and good faith public consultation process that would need to be carried out in accordance with the highest possible standards in order to be credible. As is clear from the above, the IFC has chosen to disregard this fundamental advice. There are a series of serious problems with the process to be employed by the IFC in its external consultations which are already underway. First, regional consultation meetings are by invitation only, thereby violating the principle of self-selection. Second, the overall consultation period is too short and the number of meetings insufficient; seven meetings over four months plus a 30 day electronic comment period. Other WBG revision processes have been conducted over a one or two year period. This is especially worrying given that the new IFC approach is a radical departure from prior safeguard standards. Questions must be raised about whether this is a genuine and meaningful consultation process or one of simply informing people of the IFC’s position.

Third, as already noted, the Implementation Guidelines and revised Corporate Procedures that, according to the IFC, will set out detailed procedural requirements for each of the proposed PSs are not available and therefore, it is extremely difficult to gain an overall appreciation and understanding of the nature and scope of the PSs, how they would be applied in practice or even what their relationship is to the PSs. This is compounded by the extremely vague language used in the PSs.

The conclusion that may be drawn from the preceding is that the process is fundamentally flawed and in need of urgent correction. For this reason, in mid-September 2004 civil society, community and indigenous peoples’ organisations have written to the President of the World Bank and the head of the IFC calling for an immediate halt and revision of the public consultation process. [7] On September 25^th, there was still no response from the Bank, though there are signs that the IFC will increase the number regional meetings and allow some open public sessions, but it is still refusing to prolong the consultation period or address any of the other process demands set out in September 16 joint letter.

The lack of basic documentation makes any assessment of the IFC’s August 2004 proposals very difficult and the following evaluation of the proposed Performance Standard 7 and other related PS is therefore inevitably preliminary and incomplete.

A. Performance Standard 7. Indigenous Peoples and Natural Resource Dependent Communities

The PS on indigenous peoples has changed considerably from the previous IFC draft so that it now includes, among others, a definition of indigenous peoples. This definition is largely consistent with that used in the draft OP 4.10 on Indigenous Peoples. The main difference is that the IFC definition includes the criteria that there is evidence of “[a]n indigenous language, often different from the official language of the country or region” (p. 22) – for some indigenous peoples this could be problematic (see, table below for comparison between OP 4.10 and IFC). Despite a number of changes, the PS still includes an explicit linkage between indigenous peoples and (non-indigenous) natural resource dependent communities (NRDCs). This not only causes confusion – the text is also confusing in terms of when the PS addresses both indigenous peoples and natural resource dependent communities and when it addresses only one of the two – it also undermines indigenous peoples’ rights and status under international law by equating indigenous peoples’ rights and status to those of any local (in this case ‘natural resource dependent’) community. This is clearly unacceptable and should be vigorously challenged and rejected.

· To ensure that the development process fosters full respect for the dignity, human rights, cultures and customary livelihoods of Indigenous Peoples and natural resource dependent communities

· To avoid or minimize risks to Indigenous Peoples and natural resource dependent communities living in or using the area affected by the project

· To obtain broad community support through processes of free, prior and informed consultation with directly affected Indigenous Peoples and natural resource dependent communities

· To realize social and economic benefits and opportunities for affected Indigenous Peoples and natural resource dependent communities in a culturally appropriate way. (p. 21)

With regard to the first objective, the PS clearly fails to ensure that the development process will foster full respect for indigenous peoples’ human rights as the PS itself is inconsistent with those rights. Use of free, prior and informed consultation and broad community support are addressed in the conclusions below.

· Identify at-risk Indigenous Peoples and natural resource dependent communities through the social and environmental assessment process, including those who were previously moved in anticipation of the project;

· Inform affected Indigenous Peoples and natural resource dependent communities of their options, rights and responsibilities vis-à-vis the project and its potential impacts, and obtain broad community support for the project through processes of free, prior and informed consultation with directly affected communities;

· Avoid impacts on customary livelihoods and access to vital natural resources of Indigenous Peoples and natural resource dependent communities where feasible;

· Minimize and mitigate adverse social and economic impacts through a time-bound plan, such as an Indigenous Peoples Plan or a community development plan, as appropriate to the project circumstances, in order to identify development opportunities to improve their standard of living in accordance with their values and culture, and enable the long-term sustainability of the natural resource base on which they rely; and

· Foster participation of affected Indigenous Peoples and natural resource dependent communities in the assessment of relevant project alternatives, planning and implementation of mitigation and development measures. (p. 21-2)

The first requirement appears to be an attempt to address indigenous peoples and NRDCs that would normally fall outside of the scope of an IFC intervention because the impacts predated IFC involvement, although it is restricted to those that have been ‘moved’. Concerning the last point, draft OP 4.10 (in order to be consistent with OD 4.20) now requires indigenous peoples’ informed participation rather than only fostering participation. Note that this requirement should also be read into or in conjunction with the phrase ‘broad community support through free, prior and informed consultation’, thereby substantially raising the degree of indigenous peoples involvement in decision making.

Other than a short paragraph on NRDCs, the remainder of the PS addresses lands and resources and project utilization of natural resources. Both apply only to indigenous peoples “who primarily rely on the customary use of land or natural resources in the project area for their livelihood.” (p. 22) Both are also substantially inadequate and conflict with indigenous peoples’ internationally guaranteed rights.

With regard to lands and resources, the PS states that clients will assess and identify indigenous peoples’ customary use or occupation of ancestral lands and natural resources, including seasonal or cyclical use, and take into account associated customary rights where vital to the sustainability of their cultures and livelihoods. What clients are required to do once they have assessed and identified the preceding is not addressed except by reference to the general statement in PS 9 on adoption ‘Action Plans’ (PS, p. 26) (see below). Indigenous peoples’ ownership rights under customary law are also not addressed, the assessment being limited to use and occupation. A further limitation may be contained in the phrase ‘vital to sustainability of cultures and livelihoods’. Non-indigenous peoples property rights are not limited to those ‘vital’ to cultural or livelihood sustainability and it is manifestly discriminatory to apply this standard to indigenous peoples. This section is also substantially weaker than the corresponding provision in draft OP 4.10 (see table below).

The language pertaining to project utilization of natural resources is worse than that pertaining to lands and arguably inconsistent with the general objectives and requirements set forth elsewhere in PS 7. It reads:

Where projects involve the utilization of natural resources on lands owned or customarily used by Indigenous Peoples or natural resource dependent communities, the client shall engage in free, prior and informed consultation with those communities concerning their rights to compensation for use of such resources. Where the national law does not formally recognize such usage, the customary use of natural resources by those affected will be taken into account in determining compensation, and the client will engage with affected communities to explore how they may share in the benefits derived from such development, including culturally-compatible benefits. The client will manage and use natural resources in accordance with the requirements of Performance Standard 6 [on Conservation of Biodiversity and Sustainable Management of Natural Resources]. (p. 23)

The general requirement that broad community support be obtained is absent from the formulation used here (free, prior and informed consultation alone) and the consultation requirement is restricted only to compensation for the use of natural resources rather than whether those resources are used in the first place. Where use rights are not recognized by national law, the client is only required take such use of resources into account for the purposes of compensation and ‘explore’ how benefits may be shared. PS 6 (circuitously) provides that

The client will manage all renewable natural resources in an ecologically sustainable fashion. Where possible, the client will demonstrate the sustainable management of the resource through an appropriate system of independent certification. Where Indigenous Peoples or natural resource dependent communities use these resources, the client will meet the requirements of Performance Standard 7.

Any impact of non-renewable resource extraction and processing must be appropriately mitigated so as to ensure that extraction and processing activities will have no significant, irreversible impact on renewable resources in the project’s area of influence. (p. 19)

Finally, PS 7 does not contain anything that may be equivalent to an Indigenous Peoples Development Plan, which has been required under World Bank policies since at least 1991. Instead, PS 9 requires that all clients adopt Action Plans. These Action Plans will describe measures needed to give effect to the results of the EIA/SIA and be consistent with the requirements of PSs 2-8. PS 9 adds that “The Action Plan may be comprised of one or more plans [this presumably includes “the Indigenous Peoples Plan or a community development plan” referred to on p. 21-2] and will, describe the implementation time-line, the desired outcomes as measurable events to the extent possible, such as performance indicators, targets, or acceptance criteria that can be tracked over defined time periods, and indicate the resources, including budget, and responsibilities required for implementation.” (p. 26) The Action Plan also has to specify monitoring and reporting mechanisms.

With regard to indigenous involvement in developing the Action Plan and during later stages of the project, PS 9 provides that

The client will engage with employees, affected communities and key stakeholders on the project’s environmental and social impacts and risks and address their views in developing, implementing and amending the Action Plan. To ensure effective engagement, the client will provide affected communities and key stakeholders with relevant and adequate information in a timely manner and in a form and language that are understandable and accessible. Particular attention will be given to engagement with at-risk groups. In order to receive and address concerns raised by communities and stakeholders regarding the client’s environmental and social performance, the client will establish a grievance procedure or mechanism. (p. 27)

refers to both physical displacement (relocation or loss of shelter) and economic displacement (significant loss of assets or access to assets leading to loss of income sources or means of livelihood) as a result of project-related land use or acquisition. Resettlement is considered involuntary in cases where affected individuals or communities do not have the right of refusal in cases of lawful expropriation based on eminent domain and negotiated settlements in which the buyer can resort to expropriation by government if negotiations fail. (PS, p. 14)

Under this definition, where domestic law provides for indigenous peoples’ right to consent to resettlement this would have to be respected. Note also that while ILO 169 requires informed consent in relation to relocation, it also provides that if consent cannot be obtained, the state may then expropriate on the basis of the procedures set forth in national law (ILO 169, art. 16). Specifically addressing indigenous peoples, the PS states that:

Clients should avoid activities that physically displace Indigenous Peoples from their ancestral lands or natural resource dependent communities from land they rely on for their livelihoods. Where displacement cannot be avoided, the client will not displace Indigenous Peoples or natural resource dependent communities without obtaining broad community support through free, prior and informed consultation. Compensation and other benefits for the affected communities will be made available consistent with the requirements of this Performance Standard and in a form that is culturally compatible. When possible, affected communities must be allowed to return to their lands customarily used or occupied.

The PS uses the (undefined) standard approved by the WBG board during its meeting on the Extractive Industries Review: ‘broad community support through free, prior and informed consultation’. With regard to compensation and other benefits, the PS provides that “Prior to the move or land-take, the client will compensate displaced persons or communities for lost assets at full replacement cost. In-kind compensation should be of equal or greater value. The client will also mitigate any adverse impacts resulting from the loss of access to assets and/or restrictions on land use, or loss of access to natural resources (including water resources). Where lost assets are collectively owned, distribution of compensation should be carried out in a transparent and equitable manner.” (p. 15)

However, the precise manner in which this will be undertaken is greatly complicated as the PS adopts a two tiered approach that differentiates between persons with ‘formal legal rights’ and persons without “legally recognized claims to land.” In a number of countries, indigenous peoples will fall into the latter category irrespective of the nature and duration of their relationship to and customary rights over traditional lands and resources. In other countries, the full extent of indigenous peoples’ rights to their traditional lands is not legally recognized. Where this is the case, compensation is not provided for the land expropriated, only for the loss of “dwellings and other improvements to the land.” The same distinction is applied in cases of so-called ‘economic displacement, which is defined as “the taking of land or other natural resources for the project [that] causes significant income loss or loss of livelihoods.” (p. 16)

Where a project uses the knowledge, innovations, and/or practices of indigenous or local communities embodying traditional lifestyles, the client will share the benefits of that knowledge, innovation, or practice with such communities. Unless national law contains guarantees pertaining to indigenous peoples’ intellectual and cultural heritage, PF 8 sanctions non-consensual expropriation and use of that heritage, the only requirement being some unspecified benefit sharing. This is worse than present draft of OP 4.10, which requires that indigenous peoples’ ‘must agree’, and must share benefits as determined by the agreement, and contravenes, among others, the Convention on Biological Diversity (see, article 8j).

In contrast to the previous IFC draft policy, the present version makes no direct reference to human rights except for once in the general objectives in PS 7 on indigenous peoples (this is also stated in draft OP 4.10 and OD 4.20). With the exception of some attention to labour rights, forced and child labour in particular which is IFC policy at present anyway, the substance of the PSs also fails to address or take into account human rights norms (PS, p. 7). The entire focus of the PSs is firmly rooted in national law and disregards obligations states may have under international law, unless these are incorporated into national law (this is again circuitous reasoning as the reference point remains national law) - “Clients must comply with all applicable national laws, including those laws implementing host country obligations under international law. In the event that these laws establish levels of performance below those articulated in the Performance Standards, the Performance Standards will be used as supplementary requirements for financing.” There are a few exceptions to this, but the alternatives are so nondescript that they are equally meaningless. For example, with regard to labour rights PS 2 states that

The PS on indigenous peoples is awful. There is a need to reject the proposed policy and urge the IFC to make substantially changes consistent with indigenous peoples’ rights established in international law. As a minimum, any IFC policy should address key indigenous demands made in previous IBRD/IDA consultations on Draft OP4.10. [8]

a) Indigenous peoples and ‘natural resource dependent communities’ should not be linked for policy purposes. In order to avoid confusion and unnecessary complications, there should be separate performance standards applying to indigenous peoples on the one hand, and all local communities, rather than just natural resource dependent communities, on the other. Linking the two undermines indigenous peoples’ rights in international law (and in many cases domestic law), by equating indigenous peoples’ rights to those of any local community. In principle, the same may also be said for employing a broad community support standard, rather than FPIC, which, as presently used by the WBG, does not amount to a right to say no. In effect, this negates indigenous peoples’ self-determining status and rights by casting indigenous peoples as nothing more than a sub-set of local communities. It is doubtful, however, that the IFC would adopt a different standard given the decision of the WBG board on this point.

b) The phrase ‘free, prior and informed’ is also unacceptable. In the first place, this is illogical/misplaced because ‘free’ is designed to protect against coerced consent whereas people are rarely forced to consult and even if they are the consequences are not comparable to forced consent. ‘Prior’ is intended to protect against agreements after the fact, while consultation after the fact is irrelevant. Second, free, prior and informed consultation lacks any basis in law and will be confusing in relation to FPIConsent as well as undermine the FPIConsent standard. There is a very real possibility that governments will attempt to introduce FPIConsultation into a number of ongoing intergovernmental processes on FPIC, and through the IFC it will also find its way into the standards that may be adopted by Export Credit Agencies and commercial banks applying to private sector lending. Finally, FPIConsultation is a cynical misappropriation of accepted international language, which has been deliberately eviscerated, that makes a mockery of indigenous peoples’ internationally guaranteed rights.

c) The PS or any other revised IFC policy on Indigenous Peoples must ensure meaningful and good faith consultation with indigenous peoples, and informed participation in decision-making leading to their agreement (a possible definition of broad community support) arrived at through indigenous peoples’ customary decision-making processes, both generally and in relation to resettlement. Language previously proposed by indigenous peoples on this point reads:

For such a process to be effective, the PS must also require that indigenous peoples’ rights to lands, territories and resources traditionally/customarily owned or otherwise occupied and used are properly identified and respected in options assessments, project design, implementation and evaluation and otherwise. This is important because impact on traditional lands, territories and resources will trigger the requirement that agreement be obtained.

In addition to the preceding, there are serious problems with regard to rights to lands, territories and resources, a number of issues are not addressed at all, and there is a great deal of uncertainty with regard to implementation, monitoring, enforcement and grievance mechanisms.

[1] International Finance Corporation, Policy on Social and Environmental Sustainability and Performance Standards, Consultation Draft of 12 August 2004. The document and others can be accessed at: www.ifc.org/policyreview

[2] The four regional multi-stakeholder consultations are: Latin America and Caribbean: Rio de Janeiro, September 27-29; Asia and the Pacific: Manila, Philippines, October 27-29; Africa: Nairobi, Kenya, November 29-December 1; Eastern Europe, Central Asia, and Middle East: Istanbul, Turkey, December 13-15.

[3] Comments by the Forest Peoples Programme on the CAO Review of IFC’s Safeguard Policies (Draft for comment dated 25 September 2002). See also Joint NGO Response to CAO Report on IFC Safeguard Policies June 2003.

[4] See CAO (2003) A Review of IFC’s Safeguard Policies World Bank, Washington, DC

[5] See also WRI (2004) WRI comments on IFC Draft Policy on Social and Environmental Sustainability 17 September, 2004

[6] See analysis of PS2 undertaken by the International Confederation of Free Trade unions.

[7] Joint letter sent by 57 Southern and 65 Northern development, human rights, environmental and indigenous organizations on 16 September, 2004.

[8] Indigenous Peoples’ Statement to a Roundtable Discussion on the Revision of the World Bank Policy on Indigenous Peoples, 18 October 2002, Washington, D.C. See also Griffiths, T (2003) Failure of Accountability: Indigenous Peoples, human rights and international development standards FPP, Moreton-in-Marsh.