- Acknowledged capacity constraints- as with safeguards, what are the time/ sequencing consequences.
- Social and development impact assessment – studies show that developmental impacts are highly questionable, particularly vis-à-vis most vulnerable.
- Incentives – WB town hall meeting – staff risks of retaliation, how is this being dealt with within IFC.
- Fragile states – very challenging environment – perhaps here an approach not based on FIs is particularly worthy of consideration.
James Scriven – 90% of jobs in developing world created by private sectors. Very large sums of people and SMEs are excluded from financial markets.
Aspire to ‘do no harm’. Acknowledged that FI selection is critical. Must ensure shared values and analyse capacity. Board was critical in cases where capacity does not exist.
Things will go wrong – aim to correct. CAO has previously been critical that IFC has been slow to exit – will now exit at loss in certain points.
CAO – in the past raised the issue of culture. Strong message. There have been changes at the structural level – CAO has raised concern about finance/ ESS risk balance. Risk unit has been integrated in response.
Marcos Gruppi – has taken over for James Scriven as Director in Charge of Financial Institution Group.
Three commitments to CODE – continuous engagement, development of advisory business, continuous improvement.
Morgan Landy – Director Environmental and Social Department
IFC describes high ESS standards as key portion of its work.
Cannot reach SMEs by itself. Use FIs to do what is not possible without them. Mitigate, identify risks, particularly in communities.
Not easy. Mistakes will be made. Do not have all the answer.
What is being done about learning? What is being done with clients? Market shaping stakeholders – governments to include ESS risk in regulatory framework. E.g. Brazil – will demand ESS risk assessment in all regulated banks as of February.
Before, pride of authorship – a bit arrogant. Always listened but more active listeners. EG, Ficohsa – CAO had identified issues with risk assessment. Now working with IFS.
Working together to build capacity. Ficohsa audit – while in Honduras two teams where not communicating. Risk from real sector did not flow to financial sector. Now risks assessment has been streamlined.
Streamlined risk assessment of clients with additional work done by ESS specialists.
Disclosure of fund business – disclosed all equity investments of sub-clients. Not only category A projects, but sub-projects.
How to select sponsors? How to enhance supervision? Team now visits sub-projects. Evaluating the system now in place.
Team of staff will evaluate projects within one joint risk analysis framework.
IFC team in Senegal recently… Requested more people on the ground. Capacity Development is now on ESS Unit. New tools – new diagnostic tools recently launched, in order to proactively assess risk.
- Working with banking regulator.
Balance to ensure that partners who adopt new systems are not disadvantaged in accepting new standards vs. competitors. Thus, effort to integrate new ESS systems into local regulations.
Oswald Gratacos– CAO.
FI audit main issue that has been tackled recently. There have been many changes – report meant to highlight findings and evaluating report on the basis of Action Plan.
Three areas –
1. IFC areas has been responsive.
2. IFC responsive to findings but impact yet to be determined, how will new ESS comprehensive structure impact financial decisions and how will these be presented to the board.
Areas where disagreements remain: Do no harm – aspiration? CAO, this cannot be an aspiration… is the way the system currently implemented placing most of the responsibility on the clients? The heart of the FI audit deals with this particular issue of ensuring ‘no harm’. Perhaps difference of opinion on how this will be done.
- Capacity constraints, what is the nature of the ESS assessment? How to translate IFC understanding and knowledge to the clients.
Progress has been made. Discussions have progressed. New threshold – $10 million and under three-year projects is positive. Questions of implementation, particularly in smaller markets where $10 million is a significant investment. IFC is a developmental organisation.
Present voices from communities. Outlined rising prominence of IFC and work through IF.
Dinant and Ficohsa risks were very high. Ficohsa audit remains valid: How can communities be involved if commercial banks do not disclose investment information (equity investment are only 10% of investments).
IFC would lend us to believe that Ficohsa and Dinant are particular cases – however CSOs suspect that the problems are systemic.
Inadequate assessment of Human Rights impact –
Guatemalan case – Santa Rita hydro project. IFC investment was approved in 2012 in a post- Performance Standard. To date the IFC website states that the Latin Renewables Infrastructure Fund has not undertaken high-risk investments.
Hydroelectric Santa Rita
This case represents to the community everything that an investment should not be. Territory Maya Q’echi. Community owns the land, not in government land.
Many have doubted the relevance of the term ‘indigenous’ in many cases. 2009 the construction begins. When construction material arrived the community sought information about the nature of the project as the community was not previously informed.
20 communities are directly impacted and + 50 indirectly. 1,500 impacted households. Know that IFC has financed the project. Juan Paez – from private equity fund, has this week acknowledged IFC support.
2010 communities expressed their opposition to project. In response there has been a thorough repression by the government (at all levels) and hydroelectric company at all levels.
14-16 August significant events:
2 minors killed and one adult – by a company staff. Various arrests and 25 warrants. Three leaders have been arrested. A social and humanitarian crisis.
Use of costly repression apparatus in face of cost-constrained police force.
UN 179 Declaration on Rights of Indigenous People – companies must respect indigenous and human rights. Without respect of HR investments should not take place. No projects without consultation. Has requested an end to financing of project.
HAGL Human Rights Impact Assessment: Dragon Capital
10,000 hectares for rubber plantation. Previously important forested area. No much denuded given multiple concessions.
Lack of consultations.
Armed police to keep community away from plantation area.
Significant loss of water source, livelihoods, land and cultural areas. 200 households loss personal property. 164 HHs lost farm property. Company only compensated for loss of communal land. Also some HHs did not have title.
Communities complained at quality of land offered as compensation. Felt that no other options were available. Company representative told community that the land had been given to company by government, closing community options.
90% of households report loss of income sources.
Particular significant impact on women. Loss of spiritual land can never be compensated.
Communities request the return of all land. CAO compliant submitted. Indigenous people don’t want cash compensation. Next generation cannot survive without land. CAO process has been significantly delayed.
Case in Guatemala exactly mirrors the case in Uganda and across other areas.
Problems do not concern regulations and systems – the problems concern implementation. Don’t believe in learning statement, you have had enough time to learn.
Natalie Bugalski –
Given that IFC acknowledges that mistakes will happen, perhaps IFC should not invest in high-risk areas.
Is IFC learning, per Uganda? Yes, IFC is learning. 70 full time ESS people. Strongest team in MDB in the world.
Don’t have all the answers. Welcome input.
Positive developmental impact…
A dispute resolution function is essential and happy to see that it is being used by CAO in Cambodia.
Why invest through FI when there is low capacity on the ground. Valid question linking disbursement to capacity. Strong pressure from conflicted-affected states for IFC investments, including from Board.
Ficohsa – question, would IFC have investment in Ficohsa knowing it had exposure to Dinant. No straight forward answer.
Agrees that attention to capacity development is required. CAO – agrees that the key remains on the implementation side. That is, the structural reforms are welcome, however the challenges remains on implementation.
Highlight tensions – fundamental responsibility to abide by do no harm.
Differentiate between ‘merely’ identifying when IFC has been a cause of harm vs. progressively work for solutions.
Other trade offs – Fragile states – Board is pushing IFC for private sector investment in these areas.
Balance between formal and more informal arrangements vis-à-vis standards. Need analysis of IFC’s reach to most vulnerable and adapt systems accordingly.
Board would like expanded reach.