The lack of an effective safeguards policy at the Brazilian Development Bank

Despite the Brazilian Development Bank (BNDES) being a signatory of the Green Protocol, which ties favourable lending rates and terms to the adoption of social and environmental standards, and the Bank’s initiative to develop a specific policy for the cattle sector, the Bank’s environmental policy is still very vague and lacks transparency and concrete criteria.

According to the provisions of the 1981 National Environmental Policy Act and the 1998 Environmental Crimes Act, the BNDES is jointly responsible for any social or environmental damage caused by the undertakings that it finances; this fact should prompt it to establish proper mechanisms to monitor the impacts and effectiveness of compensatory actions.

The BNDES has had a specific environmental division since 1989, within which the requirements for the approval of projects are analysed, and so-called sustainable businesses are financed. According to information published on the Bank’s website, all projects submitted to the BNDES receive an environmental risk classification and socio-environmental recommendations to be observed in the analysis process. In cases where there would be a significant impact on land, the projects are supposed to be subject to a specific policy for operating in the setting in question.

Formally, the only procedure recognised as significant to be considered as a safeguard in the analysis process for projects to be financed by the Bank is verification of the legal compliance of the projects and the suitability of the implementation team. That analysis takes into account the Register of Employers who have kept workers in slave-like conditions; penalties or convictions relating to acts of racial or gender discrimination, child or slave labour, psychological or sexual harassment, or environmental crimes; and the validity of environmental permits duly certified by relevant authorities.

With regard to the potential environmental impacts of the undertakings in question, the BNDES considers presentation of the environmental permit for the project to be sufficient, limiting its checks to verifying the validity of the permit, irrespective of the administrative penalties arising from failure to comply with the conditions and other obligations concerning the prevention, mitigation and compensation of impacts. The Bank is not interested in monitoring the impacts of the projects, let alone the effectiveness of the compensation measures specified for the social and environmental damage resulting from each undertaking.

The Bank claims to verify the socio-environmental compliance of its projects by applying a simple checklist of formal compliance with environmental and labour legislation. This is in spite of the fact that the BNDES is aware of the limitations of the official monitoring, control and surveillance systems of the relevant authorities for each case.

Theoretically, in addition to the official reports, the Bank should adopt measures such as: “conducting supplementary studies; recommending project adjustments; offering resources to strengthen mitigation measures; stimulating social and environmental investment at an internal (employees and supply chain) and external (local development, society and environment) level; withholding financial support in the event of non-compliance or social and environmental risks. In the case of automatic indirect operations carried out by accredited financial institutions, the Bank entrusts the financial agents with checking the social and environmental compliance of the client and undertaking receiving support”[1].

However, the situations in which such options are implemented or even considered are rare.

In addition to the lack of clear procedures for demanding compliance with the policies established and penalties in the event of non-compliance, their monitoring is also very weak. With regard to compliance with environmental permits and their conditions, the BNDES bases its evaluation on the reports issued by the environmental authorities which, in turn, base their evaluation on the accounts of the project implementers.

In other words, there is not currently a system that ensures the independent monitoring of Bank projects, with regard to compliance with safeguards. Therefore, it is essential for the BNDES to develop guaranteed mechanisms to assess the impacts of the projects it finances, using pre-defined methodologies and criteria, and with transparency, to enable social oversight and real monitoring of the investments.

Adriana Ramos[2] and Biviany Rojas Garzon[3]

[1] Socio-environmental Policy of the BNDES: http://www.bndes.gov.br/SiteBNDES/bndes/bndes_pt/Areas_de_Atuacao/Meio_Ambiente/Politica_Socioambiental/ accessed in March 2013. UNOFFICIAL TRANSLATION

[2] Assistant Executive Secretary of Instituto Socioambiental (ISA) www.socioambiental.org.

[3] Lawyer for the Instituto Socioambiental (ISA) Xingu Programme.