Palm | Kelapa Sawit

A group of 94 civil society organisations from 38 countries are demanding that the International Finance Corporation should strengthen its environment and social performance standards for loans given to private sector.

IFC, which is under pressure to improve its environmental and social performance standards for project financing, is currently reviewing the standards.

In a joint submission early this month, the civil society organisations describes that IFC's lack of transparency and supervision, failure to recognize human rights, and inadequate climate change policies, undermine IFC's ability to achieve its poverty alleviation mission.

The civil society letter points to a number of cases in which IFC-investments have had devastating impacts on local populations.

"IFC is becoming more like a commercial bank, but failing to incorporate lessons learned from the financial crisis in its lending practices. Standards for its clients are less clear, monitoring and supervision is reduced, and benefits to local communities and countries questionable. This is not how public money should be spent," Anne Perrault of the Center for International Environmental Law, a Washington D.C.-based legal advocacy organization, says.

The letter says that the recent financial crisis underscores the need to provide clear expectations and standards for private sector actors, as well as adequate transparency, due diligence, and oversight procedures to ensure that risks are assessed and addressed fully.

The letter then adds that the approach assumed by IFC in 2006, prior to the crisis, to introduce greater flexibility in IFC standards and to shift monitoring and supervision responsibilities to private sector clients, is clearly inconsistent with new hard-learned lessons about how to deal with financial risks and poses problems for securing strong development outcomes.

The NGOs have also slammed the IFC for approaching only the private sector for feedback on the effectiveness of the IFC environmental and social performance standards.

"The failure of IFC management to interview a single community for the report, despite the opportunity to do so provided by the 182 projects that have been under IFC’s supervision for over a year, is a strong indication that IFC is not, in practice, committed to ensuring that the Policy and Performance Standards are implemented effectively to protect communities and the environment, as intended," the letter says.

Key concerns raised by the organizations include those related to environmental and social due diligence and oversight; accountability; development outcomes; human rights; biodiversity; climate change; financial intermediaries; and disclosure of information.

I wrote a feature on responsible project finance in Ethical Corporation's current issue which investigates the project finance practices, including that of IFC, commercial banks and export credit organisations, and gaps in responsibility.

IFC's own credibility is at stake. It has a good opportunity, while it's reviewing the standards, to honestly consult the civil society organisations and carry out independent impact assessments of current and past IFC funded projects in order to realign the performance standards that truly meet its stated objectives; benefiting the local communities and the environment.

If your are interested in reading more about responsible finance, here is a good resource.