Safeguards reform: an important crossroads

Article as analysis
The World Bank is changing. Some aid recipients have become competitors. What has not changed is civil society’s struggle for more co-decision and better rules when it comes to investments in development.

In the 1980s and 1990s the World Bank was constantly in the crosshairs of criticism. Major infrastructure projects in Brazil, massive dams in India or extensive resettlements in Indonesia elicited protests from those affected and from international civil society. This forced the World Bank to gradually introduce a system of environmental and social standards, called safeguards, for its project funding.
The power balance in the world economy has meanwhile shifted fundamentally and turned into a race for new business and investment opportunities. Former World Bank clients such as China, Brazil or India have become competitors for lucrative contracts.
The World Bank has now started a comprehensive review of its safeguards. Throughout the entire financial world, World Bank standards are accepted as benchmarks and serve as guidance for all others. Hence the far-reaching implications of this process.

Stubborn interference or meaningful rules?

Some parts of the World Bank management hold the view that the safeguards are bad for business in that they have a deterrent effect on recipient countries and affect the Bank's competitiveness. Emerging countries often argue that the safeguards amount to interference in the sovereignty of recipient countries.
International civil society is concerned that these views could prevail in the review process, leading to the watering down of the safeguards. Yet research – including by the World Bank's Internal Evaluation Group (IEG) [1] – shows that properly and comprehensively applied safeguards prevent harm to the affected people and the environment.
Forced resettlements are constantly taking place as part of infrastructure, mining and agribusiness projects. According to IDG estimates, at least 1 million people are affected worldwide on any given day. The real figures may well be higher, but the World Bank does not record them. Only strong and stringently applied standards can ensure that the resettled people are not plunged into even deeper poverty. Yet it is also clear from the reports of the Inspection Panel, the World Bank's independent complaints mechanism, that there are already significant shortcomings in the implementation of the safeguards. Watering them down would nevertheless be fatal.

Back to the 1990s?

Unfortunately, the new World Bank strategy approved in October 2013 gives cause for concern. Alongside the overarching goals of reducing poverty by 2030, it sets great store by largely quixotic «transformative projects», through which decisive groundwork is to be laid in countries and regions. This approach is highly reminiscent of the mega-projects that triggered the introduction of environmental and social safeguards. At the same time, red tape is to be eliminated, projects more rapidly approved and funds therefore more quickly disbursed. This will clearly be at the expense of careful planning and public participation. Besides, there is a willingness to take even greater risks without saying who will ultimately bear the risk – the Bank or the people affected by the project.
There has long been a culture of approval [2] at the Bank, whereby for those in management with project responsibility, it is important (and good for their careers) to disburse large amounts as quickly as possible without regard for the possible repercussions on the poor or the environment. The new strategy will tend to reinforce this trend.
In their present form, the environmental and social safeguards are inadequate for the World Bank's portfolio, which has undergone major change. The share of pure project funding has been contracting steadily. Programme or policy-based funding as well as fund allocation through financial intermediaries (government-owned and private banks, investment funds) make up a large part of the World Bank's business. And there are as yet no safeguards for these areas of business.

Civil society demands

Civil society is in agreement on the central demands for the review of the World Bank's environmental and social standards:

  • Existing standards ought not to be watered down. Harmonization with standards of other financial institutions must always be guided by the highest standard.
  • Safeguards should apply to the entire World Bank portfolio, in other words also to development policy lending or the so-called «programmes for results».
  • Standards should also incorporate topics such as human rights, gender, the disabled, labour rights or climate, which have so far not been covered.

Besides, safeguards for the entire realm of public financing should remain entirely under World Bank responsibility. Specifically, this concerns the World Bank and its subsidiary organizations the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). In the case of private sector funding as practiced by the two World Bank entities the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), it was decided to transfer liability for risk management to clients and retain a supervisory role only. The IEG concludes that this model is inappropriate for the public sector and also shows considerable shortcomings with respect to the private sector. [3]

Environmental and social standards are not ends in themselves and certainly no «starry-eyed idealism». They are inextricably linked with poverty reduction. If properly implemented, they protect the environment, prevent suffering and improve the living standards of the marginalized, vulnerable and poorest members of society. Any watering down of the standards would send the wrong signal and allow funding to flow into projects and programmes that ignore their social and environmental costs.

Author Knud Vöcking is responsible for international financial institutions at the German NGO urgewald e.V.

[1] IEG, Safeguards and Sustainability Policies in a Changing World, An Independent Evaluation of the World Bank Group Experience, 2010: Download

[2] Described in: Wapenhans W., Report on the Portfolio Management Taskforce, World Bank, 1992

[3] IEG, Evaluative Directions for the World Bank Group’s Safeguard and Sustainability Policies, Evaluation Brief 15, 2011: Download