WorldBank by ashrafp


									Jaime Kozerski
International Environmental Law Presentation

The World Bank Group

-Created in 1944
-Set up as a cooperative with member states as shareholders
        -As of now there are 184 members
        -In order to be a member of the World Bank, a state must first become a member
        of the IMF
-The amount of shares a member has is based on that nation’s economy
-The U.S. is the single largest shareholder (16.41%)

Primary Actors in the World Bank Group
-The ultimate policy makers of the Bank are the Board of Governors
       -The Board of Governors has a representative from each member state
       -The Board meets once a year
-Day to day decisions are made by the Executive Directors
       -There are 24 Executive Directors
       -The Five largest shareholders appoint one director each, and 19 others represent
       the rest of the member states
-The Bank also has a president
       -Elected for 5 year term
       -By tradition, the president is a national of the largest shareholder

-The World Bank Group is organized into 5 closely associated institutions
-Two arms comprise what is commonly thought of as the World Bank.
        -The International Bank for Reconstruction and Development (IBRD)
               -184 members
               -IBRD membership is a prerequisite to membership in any of the other
               -Provides loans to higher-income developing countries
        -The International Development Association (IDA)
               -164 members
               -Interest free credit and grant financing
 -Other arms
        -The International Finance Corporation (IFC)
               -175 members
               -IFC is the private lending arm
        -The Multilateral Investment Guarantee Agency (MIGA)
               -163 members
               -The risk insurance arm
        -The International Centre for Settle of Investment Disputes (ICSID)
               -159 members
               -ICSID is the non-financial arm
(A note about ICSID: Theoretically this arm could be used to settle environmental
disputes involving foreign investment between member states and multinational
corporations, though it has never actually been used for this purpose)

The Evolution of the World Bank’s Environmental Policy (IBRD and IDA)
-Initially the World Bank created discretionary environmental guidelines due to
increasing criticism.
         -In 1984 a Bank policy was adopted requiring it to refrain from financing any
         project which goes against the borrowing countries obligations under international
         environmental law
-In 1985 these discretionary guidelines were incorporated into the Operational Manual
         -This is the document which outlines the World Bank’s mandatory procedures
         -Environmental Assessment was adopted in 1991
         -The Operational Manual policy and procedures do not necessarily apply to IFC
         or MIGA
-In 1994 The World Bank created a quasi-independent inspection panel which takes
complaints from affected parties
-In 1998 the World Bank Group approved the Pollution Prevention and Abatement
         -Describes the pollution prevention and abatement measures and emissions levels
         that are normally acceptable to the World Bank.
         -The actual approaches required for a particular project will be found in its
         Environmental Assessment report, which has to provide the justification for the
         approaches chosen
                 -The handbook is also used by IFC and MIGA

The Operational Manual
-Environmental operational policies and bank procedures are found in Volume II:
Safeguard Policies

4.01 Environmental Assessment
-Conduct a screening to determine potential environmental impacts
-Based on the screening, assign the project to a category
       -Category A: Likely to have significant adverse impacts. Project requires a full
       -Category B: Potential adverse impacts are important but not as significant. A
       more limited EA is necessary.
       -Category C: Minimal or no adverse impacts. No EA required.
       -Category FI: This category is used when the Bank’s funds are being invested
       through a financial intermediary, for sub-projects which may have adverse
       environmental impacts. The FI is directed to carry out the procedure to the
       Bank’s standards.
-The Environmental Assessment
       -The borrower, not the Bank, conducts the EA (though the Bank may lend the
       money to pay for it)
       -EA is supposed to take into account the natural environment, human health and
       safety, social aspects (such as resettlement of indigenous peoples), as well as
       trans-boundary and global environmental aspects.
       -The EA is supposed to take into account any environmental laws or obligations
       the country is subject to, and the Bank will not finance a project contrary to the
       laws or obligations as explained in the EA
       -EA includes evaluating risks, alternatives, ways to prevent/minimize/mitigate
       adverse impacts
       -The Bank procedures dictate the information contained in the EA is to be made
       available for affected local groups and NGOs, whom the borrower should have
       consulted during the process

4.04 Natural Habitats
-Because conserving natural habitat is essential for sustainable development, the Bank
expects borrowers to apply a precautionary approach to natural resources
-The Bank does not support projects that the Bank things will significantly degrade
critical natural habitat
-Wherever feasible, Bank projects will not be on lands that have only been natural habitat
(not converted)
-The mitigation features for loss of habitat are minimizing the habitat loss and
maintaining an ecologically similar protected area. The Bank accepts other forms of
mitigation measures only when they are technically justified
-If, during screening, it is found that the project indicates the potential for significant
conversion of natural habitat, the project must be classified as Category A. A project
otherwise involving natural habitat may be classified as A or B depending on the degree
of ecological impact

4.09 Pest Management
-The Bank promotes the use of biological or environmental pest control methods and
reduced compliance on synthetic chemical pesticides
-The borrower must address pest management issues in the EA

4.36 Forests
-The Bank does not finance projects that would result in significant conversion or
degradation of critical forest areas
-The Bank will finance a project with significant conversion or degradation so long as the
area is not critical, there are no feasible alternatives, and benefits of the project outweigh
the costs
-The Bank will not finance projects that contravene applicable international
environmental agreements
-The Bank will finance commercial harvesting so long as it does not affect critical forests
or critical natural habitat
-Industrial scale harvesting must be certified by an independent forest certification
The Effectiveness of the Environmental Policies set forth in the Manual
-The EA process is flawed even by the Bank’s own evaluations of it
        -Internal evaluations by the Operations Evaluation Department (OED) in 1996
        found that the EA process was not effective in influencing the project design
                -Further evaluation from OED in 2002 found that the EA process had
                deteriorated even further
-In general, alternatives to the proposed project are not adequately addressed in the EA
        -Example: While the Bank was in the process of approving its loan for the Pak
        Mun Dam in Thailand, other studies were released with alternatives that would
        have cost less and saved more power, such as conservation efforts and efficiency
        improvements. The Bank only analyzed one alternative to the dam, a coal
        burning facility
        -The borrower prepares the EA, and often the country or developers have come to
        a decision about what they want before the Bank becomes involved, and simply
        produce enough superficial alternatives to meet the Bank’s formal requirements
-Public consultation regarding the EA usually ends up occurring late in the planning
process, giving it very little practical effect
-“Approval Culture” Internal evaluations of the bank have found that there is a
“pervasive pressure to lend” which is undermining the quality of decision-making
-“High-Risk/High-Reward Strategy” Some members of the Bank had been complaining
that the Bank had gotten too risk averse. Internal evaluations in 2001 concluded that the
bank was being excluded from important projects because of the safeguard policies
        -In 2002 the Bank removed its ban on commercial logging in rainforests
        -In 2003 there was a new endorsement of high-risk hydropower projects

Inspection Panel (IBRD and IDA)
-Three member panel created in 1994 to provide an independent forum for affected
parties to lodge complaints that the Bank as not followed its own procedures
Inspection Panel Procedures
-The panel receives a request for investigation from an affected party
-The panel makes a preliminary assessment, and submits a report and recommendation to
the Board of Executive Directors
-The Panel can then conduct a full investigation if:
        -Certain technical standards are met
        -The Board of Executive Directors agrees to the investigation
-After the investigation is concluded the Board of Executive Directors decides what
action to take

The Flaws of the Panel
-The structure of the panel is inherently flawed
        -The three members of the Panel are nominated by the president and voted in by
        the Board of Executive Directors.
       -The Panel has no independent authority to decide whether or not to conduct an
       investigation, nor can it determine the scope of the investigation it conducts when
       -The Panel can only investigate violations of the Bank’s procedures committed by
       the Bank. Affected parties cannot lodge a complaint regarding violation of the
       procedures by the borrower
-Access to the Panel has also been a problem for affected persons
       -The Bank tend to challenge the eligibility of anyone who lodges a complaint
       -The Panel will only accept claims when a claimant can demonstrate failed
attempts at recourse through Bank management
       -In many developing nations communities are unaware of the existence of the
       -Claims cannot be filed after the closing date of the loan
-Overall use of the Panel has been low (as of 2001)
       -Only 21 requests for inspection had been made, and the Panel only recommended
       investigation in 9 cases
       -The Board of Executive Directors only approved investigation into 5 of those
       claims, and in two cases severely limited the scope (example: an investigation
       into a power project in India was limited to a desk study conducted in the U.S.)

Notes on the IFC and MIGA arms of the World Bank Group
-IFC is the private lending arm of the World Bank Group
        -It is the largest multilateral source of loan and equity financing for private
        investments in developing countries
        -It is legally and financially independent from IBRD and IDA, with its own Board
        of Executive Directors, who have the final authority on projects it undertakes
-IFC chose not to adopt the World Bank Environmental Assessment and disclosure
documents because they seem to be a business disadvantage
        -Need to protect proprietary information
        -Need to take fast advantage of emerging business opportunities
-IFC adopted its own operating procedures, but unlike the World Bank it does not require
Financial Intermediaries to follow these policies, only the environmental policies of the
host country
-MIGA is the insurance arm of the World Bank Group, providing risk insurance to
foreign corporations and banks that want to invest in developing countries
        -MIGA also has its own environmental and disclosure procedures, which are
        considered to be the weakest in the World Bank Group’s lending arms
-IFC and MIGA are not subject to the Inspection Panel, instead they use a Compliance
Advisor/Ombudsman (CAO) which responds to complaints by person affected by
projects and attempts to resolve the issues
        -Lack of disclosures by either of these arms leaves little opportunity for a party to
        complain to the CAO before the approval of a project
        -The CAO has no power to stop/cancel a pending project or compensate the
Desired Improvements
-Make the Bank more involved in the EA process by having Bank staff independently
research/verify possible alternatives
       -Random EA audits to keep the borrowers more honest
-Monitor the compliance of member states to the Bank policies, institute sanctions if
-Reform the Inspection Panel into a truly independent body
       -Panel should decide whether or not the investigation is conducted
       -Panel should be elected by a larger body than the Executive Directors
       -Panel should be able to offer a remedy when it is warranted
-Increased public disclosures
       -When a project with high implications for the community is taking place, notice
       should be posted in areas nearby to the project, and documentation on the project
       should be made available in the community
       -Notice of the existence of the Inspection Panel should also be distributed
-IFC and MIGA need to be held to higher standards
       -Should be placed within the jurisdiction of the (reformed) Inspection Panel
       -Should adopt the broadest disclosure policies possible, stopping short of
       revealing trade secrets or other information about companies that would
       reasonably be expected to be against the law to reveal

List of References:

World Bank at (Both the Operational Manual and the Pollution
Prevention and Abatement handbook can be accessed here)

Dana L. Clark, A Citizens Guide to the World Bank Inspection Panel, Center for
International Environmental Law, available at

Gambling With People’s Lives: What the World Bank’s New “High-Risk/High-Reward”
Strategy Means for the Poor and the Environment NGO Report available at

Erin K. MacDonald, Playing by the Rules: The World Bank’s Failure to Adhere to
Policy in the Funding of Large-Scale Hydropower Projects, 31 Envtl. L. 1011 (2001).

Sophie Hsia, Foreign Direct Investment and the Environment: Are Voluntary Codes of
Conduct and Self-Imposed Standards Enough?, 9 Envtl. Law. 673 (2003).

Gunther Hand, The Legal Mandate of Multilateral Development Banks as Agents for
Change Toward Sustainable Development, 92 Am. J. Int’l L. 642 (1998).
Johanna Rinceanu, Enforcement Mechanism in International Environmental Law” Quo
Vadunt? Homo Sanus in Natura Sana, 15 J. Envtl. L. & Litig. 147 (2000).

Ibrahim F. Shihata, Implementation, Enforcement, and Compliance with International
Environmental Agreements-Practical Suggestions in Light of the World Bank’s
Experience, 9 Geo. Int’l Envtl. L. Rev. 37 (1996).

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