Introduction:

On 31 October 2002, the World Bank adopted a new policy on ‘Forests’. After one of the longest and most controversial consultation processes the Bank has ever carried out, the revised policy was pushed through in two days of unprecedentedly strong debates at the World Bank’s board, despite objections from some governments. Reversing the 1991 policy which had proscribed World Bank funding of logging in primary moist tropical forests, the new policy is instead meant to prevent all Bank operations from causing 'significant' damage to 'critical forests', while ‘commercial harvesting’ (logging) projects are in addition to be subject to certification.

Most NGOs had called for retaining the proscription on old growth logging and extending it to boreal, temperate and tropical dry forests. They are deeply concerned that lack of clarity, about how much damage is 'significant' and in the definition of 'critical' forests, will allow many destructive projects to go ahead. The lack of effective safeguards to protect the rights of vulnerable forest peoples is another major NGO concern. Protections offered to forest-dwellers in forestry projects have not been extended to forest-dwellers affected by non-forestry lending. The new policy also relies on the procedures of the existing Natural Habitats policy which, some critics claim, actually does allow critical habitats to be destroyed, at the discretion of the Bank's Regional Vice-Presidents. The effectiveness of the Natural Habitats policy has never been assessed.

One of the issues longest debated at the Board was whether this policy should apply to Structural Adjustment and Programmatic loans, which now make up over a third of World Bank lending. The new policy does not apply to such loans but a compromise agreement was reached at the Board, requiring the Regional Vice-Presidencies to get technical opinions on any such loans that might cause 'significant' damage to forests. This requirement will not be written into the Policy, however. In view of the controversial nature of the new policy, the Board also required an independent review of the implementation of the new policy in three years time (2005).

This briefing - formatted as a questions and answer sheet - is designed to help NGOs, forest peoples and indigenous peoples to make sense of the new policy.

To which agencies does the new policy apply? The new policy, referred to as Operational Policy OP 4.36, applies to two of the five World Bank agencies: the International Bank for Reconstruction and Development (IBRD) and the International Development Agency (IDA). These are the main parts of the Bank that lend money to governments.

The policy does not apply to the Multilateral Investment Guarantee Agency (MIGA), the International Centre for the Settlement of Investment Disputes (ICSID) or the International Finance Corporation (IFC). These are the parts of the Bank that deal with the private sector. The IFC adopted a ‘Forestry Policy’ in 1998 which prohibits it funding forestry projects, or purchasing machinery, that involve logging primary moist tropical forests.

To which forests does the new policy apply? The new policy applies to all types of forests. Any IDA or IBRD project which may affect forests, forest dependent peoples or change the management of forests and plantations is subject to this policy.

Is the policy binding? Yes, the policy is meant to be applied by IBRD and IDA staff in any project which may affect forests. A document called Bank Procedures BP 4.36 lays out the steps that Bank staff must go through to apply the policy. Borrower countries are also meant to observe the policy and, of course, any specific requirements written into loan agreements. The policy requires borrowers to comply with applicable international environmental agreements ratified by the borrower government. Failure to apply the policy provides a basis for submitting a complaint to the World Bank’s Inspection Panel.

What kind of civil society participation is required under the policy? The policy makes no specific requirements for civil society participation in project design or national planning. Where the Bank finances ‘commercial harvesting’ (logging) projects then civil society groups are meant to be consulted about the certification standards which are to be used. ‘Meaningful participation by locally affected communities’ in forest management and monitoring is required in community forest management schemes. No participation is specifically required in other kinds of projects.

The policy is however meant to be read in conjunction with other applicable World Bank policies. The Natural Habitats policy requires that borrowers ‘take into account the views, roles and rights of groups, including NGOs and local communities affected by Bank-funded projects and to involve such people in planning, designing, implementing, monitoring and evaluating such projects’ (OP 4.04 para 10). The Environment Assessment policy requires borrowers to ‘consult’ affected groups and local NGOs ‘as early as possible’ during assessments. Two consultations are required in the case of projects with major impacts (‘Category A’ projects) (OP 4.01 para 15). The Indigenous Peoples policy requires the establishment of mechanisms for indigenous peoples’ participation throughout the project cycle (OD 4.20 para 8, 14a, 15d).

Does the policy apply to structural adjustment and programmatic lending? No. Although this was promised during the consultation phases, the new policy does not apply to structural adjustment loans (SALs) and programmatic lending. Bank senior management instead say that this issue will be covered in a revised OP on structural adjustment which is currently being discussed. Its finalisation will probably take months (or, maybe, years). The current policy on Structural Adjustment merely requires that impacts on the environment are taken into account. During negotiations of the Forests Policy at the Board, the World Bank offered assurances to concerned member governments that Regional Vice Presidents would take steps to identify whether adjustment lending may damage forests. It is not clear what these ‘steps’ are or what actions would ensue if potential impacts were identified.

Does the policy apply to non-forestry projects that may affect forests? Apart from SAPs and programmatic lending, the new policy does apply to all IBRD and IDA projects that may affect forests. The policy also requires that potential impacts on forests are identified in Country Assistance Strategies (CAS) and in country level analytic work, referred to by the Bank as Economic and Sector Work (ESW). Where impacts are identified to be ‘significant’, then they are meant to be ‘appropriately addressed’. There is no clarity about what ‘appropriately addressed’ means.

What measures are included to protect forests? The Bank will not finance projects that, in its opinion, would involve ‘significant’ conversion or degradation of ‘critical forests’ or ‘critical natural habitats.’ The Bank may finance projects that destroy other forests if there are no feasible alternatives, benefits are deemed to outweigh costs, and appropriate mitigation measures are in place. The policy invokes the provisions of the Natural Habitats policy OP  4.04 in this regard. However, OP 4.04 is ambiguous and seems to suggest that even critical natural habitats may be impacted subject to Regional Vice-Presidents giving authorisation, even if mitigation is not possible.

Are plantations covered by the policy? The Bank will not finance plantations that involve any conversion or degradation of ‘critical natural habitats’. It prefers not to finance plantations that require forest clearance at all. It expects measures to be taken to protect biodiversity and safeguard against the introduction of invasive species.

So, what are ‘critical forests’? Critical forests include existing officially protected areas, areas recognised as protected by traditional local communities (eg sacred groves) and sites vital for the viability of these areas. Other areas may also be included based on ‘systematic evaluations’.

How much damage is ‘significant’? The policy itself is not clear but Bank staff assured the Board that a Sourcebook would be produced which would include a definition along the following lines. Significant would mean ‘the elimination or severe diminution of the integrity of a critical forest area… caused by major, long term change in land or water use.’ [1]

Who decides what forests are ‘critical’ and how much damage is ‘significant’? Bank staff. Civil society participation in determining which forests are critical is not required.

What kind of certification is needed for forestry projects? Certification must be fair, transparent, independent, based on third party assessment, cost-effective, based on objective and measurable performance standards defined at the national level, compatible with internationally accepted principles and criteria of Sustainable Forest Management, developed with meaningful participation of local people and communities and other members of civil society, and designed to avoid conflicts of interest.

Does the policy protect the rights of forest dwelling peoples? The policy offers limited protection to forest dwellers. In projects involving logging, borrowers must demonstrate recognition and respect for legally documented or customary land tenure and use rights as well as the rights of indigenous peoples and workers. However, no equivalent provisions are required to secure the rights of forest-dependent peoples in plantation schemes, forest protection schemes or cross-sectoral projects impacting forests. Indigenous Peoples are protected under a separate World Bank policy (OD 4.20).

Although this was recommended, the forests policy does not require borrowers to comply with international human rights laws ratified by borrower countries.

THE WORLD BANK’S NEW ‘FORESTS POLICY’ (OP 4.36) AT A GLANCE

Marcus Colchester
Forest Peoples Programme
8 April 2003