IFC’s Responsible Exit: A Critical Step for Accountability, But Real Test Lies Ahead – Center for International Environmental Law

Printed October 7, 2024

By Carla García Zendejas, Director of CIEL’s Folks, Land, and Sources Program.

On October 4, the Worldwide Finance Company (IFC) revealed its long-awaited Strategy to Accountable Exit, marking a big milestone for the establishment. This shift represents IFC’s dedication to behave and reply to environmental and social harms confronted by project-affected communities earlier than it considers withdrawing from a challenge it has financed.  

This end result is essential for communities affected by IFC-backed tasks, because it alerts deeper accountability from the establishment. CIEL welcomes this shift, seeing it as the results of years of conversations, consultations, and advocacy efforts — each inside and outdoors IFC — between administration, board, and civil society. 

The Accountable Exit Strategy, whereas succinct, contains 5 key rules that may information IFC in figuring out whether or not and find out how to exit a challenge responsibly. The rules goal to make sure that IFC considers each the event influence and the potential environmental and social penalties of its departure from a challenge. It additionally considers different elements equivalent to its leverage, reputational threat, authorized legal responsibility, and exterior companions within the equation. 

A Nearer Have a look at IFC’s Accountable Exit Ideas

The 5 rules are: 

Precept 1. Consider the achievement and sustainability of the focused improvement influence. 
Precept 2. Tackle environmental and social (E&S) points.
Precept 3. Use leverage pre-exit.
Precept 4. Think about institutional constraints and precedential implications.
Precept 5. Think about influence on mobilization.

Precept 1: Growth Affect

The primary precept focuses on evaluating whether or not the event influence of a financed challenge has been achieved, whether or not remaining invested might additional enhance or maintain that influence, and if this could possibly be executed throughout the vary of established timelines. Nevertheless, the important thing query is how IFC defines “improvement influence.”

Whereas the event influence query is a logical consideration, CIEL has lengthy argued that the focused improvement influence must be rigorously outlined to incorporate measurable enhancements for these meant to profit from improvement, not merely technical, operational, monetary, and market parameters. 

Finally, IFC’s mandate for funding and advisory companies with the intent to “do no hurt” is essential. Merely put, the event influence of an power challenge doesn’t solely depend on attainable reductions in greenhouse gasoline emissions, it also needs to embrace how the development of the challenge resulted in externalities with direct penalties for individuals and the modified atmosphere. Figuring out and understanding these externalities permits a greater understanding of precise sustainability outcomes so improvement impacts will be calculated accordingly when deciding a few attainable exit. 

Precept 2: Addressing Environmental and Social (E&S) Points

This precept is maybe probably the most vital, because it describes 5 methods IFC might want to deal with E&S points when proactively and voluntarily deciding to exit a challenge. 

IFC ought to think about its Consumer’s progress in implementing the Environmental and Social Motion Plan (ESAP) after which structuring the exit to resolve excellent objects. 

CIEL and companions have lengthy advocated for enchancment in ESAP creation and implementation practices at IFC. Early and ongoing stakeholder engagement is vital to making sure that mitigation and corrective measures all through the challenge cycle deal with E&S considerations. Having current relationships with project-affected individuals will enable any exit by IFC to be structured in a clear and constructive means. 

IFC must think about whether or not, by exiting the challenge, the present E&S points might enhance or be made worse by leaving.

CIEL and civil society companions from all over the world have advocated for this significant language that demonstrates IFC’s recognition of the dangers to and typically dangerous penalties for projected affected communities when exiting a challenge. 

In some cases, divestment and exit by IFC happen earlier than challenge building or implementation, which may keep away from any environmental hurt if tasks finally cease, as our Colombian companions skilled in 2016. 

On the similar time, there should be hurt to affected communities, who might have been liable to reprisals from each personal and authorities actors, who might even see them as the reason for tasks not going ahead. That is when public disclosure and knowledge from IFC in regards to the causes for exit would go a protracted option to legitimizing its position as a improvement establishment devoted to bettering lives and livelihoods. Within the absence of knowledge from IFC, we’ve witnessed how our neighborhood companions in Nicaragua bear the brunt of being the messengers.  

IFC must have a look at the lifetime of its funding to evaluate the dangers of exiting: “[w]right here possible, search to handle every other E&S dangers recognized through the lifetime of the funding that might materialize put up exit and trigger imminent and severe hurt to public well being, security, or safety, and/or imminent and important hostile impacts on the atmosphere.”

We welcome this language and are counting on IFC to offer us with detailed procedural details about how this shall be carried out and, most significantly, how project-affected communities shall be engaged to handle E&S points to make sure a accountable exit by IFC. The point out of imminent and severe hurt to public well being, security, or safety is extraordinarily priceless. Nevertheless, understanding how IFC will decide feasibility shall be crucial to make sure this hurt doesn’t happen. 

IFC ought to “[w]ork with the Consumer to think about any remediation measures to handle a., b. and/or c. above as wanted, in every case, to the extent practicable and previous to exit.”

Once more, we acknowledge the significance of contemplating remediation measures, by remaining within the challenge, IFC can work intently with its Consumer to keep away from and deal with environmental and social hurt to communities. This is without doubt one of the final objectives of finishing up a accountable exit. 

IFC’s analysis of its reputational threat by remaining within the challenge whether it is unsuccessful in addressing the E&S dangers, impacts, and harms it ought to deal with.

IFC’s Sustainability Coverage units out its dedication to “do no hurt” to individuals and the atmosphere and to attain social and environmental sustainability. IFC’s Accountable Exit Strategy and the approaching remedial motion framework will cement IFC’s new stance by becoming a member of different monetary establishments in adopting worldwide requirements that decision on people who have prompted or contributed to hurt to contribute to treatment. 

IFC has been vulnerable to exiting tasks that change into problematic whereas leaving E&S hurt and avoiding accountability. For CIEL, IFC’s divestment from the Alto Maipo Hydroelectric Venture in Chile stays some of the egregious examples of exiting a challenge irresponsibly. The development failures that resulted from improper due diligence early within the challenge cycle nonetheless have devastating impacts on the atmosphere and the neighborhood, with the fifth and most up-to-date tunnel separation reported simply weeks in the past. 

Accountable Exit is now widely known as a global customary. Lastly IFC has made a transparent dedication to establishing and making use of its first accountable exit rules. With companions from civil society, CIEL has made it completely clear that IFC’s mission to enhance the lives of individuals in growing international locations by investing in personal sector progress won’t ever change into a actuality if it fails to acknowledge its errors and work to treatment them.

Precept 3: Utilizing Leverage Pre-Exit

This precept brings ahead IFC’s leverage over its Consumer previous to exiting the challenge, with the aim of implementing the ESAP and taking actions to handle foreseen and extreme E&S dangers and impacts and, maybe most notably, to think about attainable remediation measures.  

We’ve got been discussing leverage extensively with IFC as a elementary a part of attaining treatment and making certain a accountable exit from tasks. Whereas IFC’s contractual provisions enable it to compel its purchasers to stop, mitigate, and finally treatment hurt, we’ve realized that IFC has not been utilizing these provisions in a big means. We’re hopeful that recognizing the significance of utilizing its leverage is a vital a part of the brand new strategy, with the conclusion that utilizing its leverage wouldn’t solely defend its popularity but additionally its consumer’s popularity.  

Precept 4: Institutional Constraints and Precedential Implications

On this precept, IFC references its Articles of Settlement to ascertain that exit from tasks must be according to its improvement mandate, operations, and threat concerns, together with reputational injury and authorized legal responsibility. It additionally states that the implications of setting precedents at IFC must be thought of.

This precept isn’t a surprise contemplating the priority IFC and the World Financial institution Group have proven for brand spanking new litigation in opposition to the establishment. Once more, CIEL would level out that the principal aim of partaking with IFC and the World Financial institution Group for many years has been to make sure that its safeguards work to stop environmental and social hurt and that when errors are made, the mechanisms and methods for attaining accountability and treatment for project-affected persons are in place. 

If the Accountable Exit Strategy proves to be efficient, we will guarantee classes realized from the pilot are carried out for the advantage of these harmed, then the Strategy and its corresponding Remedial Motion Framework will function the response and resolution that we’ve all been working towards with out the necessity for any litigation. 

Precept 5: Capital Mobilization and Exterior Companions

The final precept focuses on the opposite traders and establishments with which IFC might have partnered to mobilize capital for a challenge by way of debt or fairness financing, funds, or different merchandise. Whereas additionally mentioning that IFC ought to think about its personal position on this mobilization when deciding to exit. 

In accordance with IFC’s annual report, it mobilized US $15 billion from exterior companions in 2023. CIEL has usually identified that IFC’s seal of approval on improvement tasks works to sign their viability, thus attracting a broad vary of traders. That is exactly what makes the correct utility of IFC’s Coverage on Environmental and Social Sustainability and its Efficiency Requirements on Environmental and Social Sustainability vital to make sure constructive improvement outcomes and keep away from hurt to those that are supposed to profit from its tasks. 

Due to this fact, the position that IFC should play in setting requirements for accountable exit and addressing hurt to offer treatment goes hand in hand with its position of mobilizing monetary companions. If different personal actors, improvement banks, pension funds, and so forth., aren’t keen to commit to those requirements, then maybe staying away from these traders is the simplest means to make sure IFC’s mandate to do no hurt.  

Shifting Ahead: What’s Subsequent?

Whereas this new strategy is a step in the correct path, the true check lies in its implementation. CIEL and companions will proceed to interact with IFC to broaden and acquire a full understanding of how IFC will operationalize its Accountable Exit Strategy. The Strategy is a large step ahead in acknowledging the position IFC has and should play to make sure that the tasks it has financed don’t go away people who find themselves meant to profit in worse circumstances. 

Whereas the Strategy doesn’t deal with exits carried out by IFC’s purchasers, it nonetheless places ahead commitments that may change into necessary requirements and steerage for purchasers and monetary companions. In a number of the first iterations of the strategy and framework, IFC talked about how contractual provisions could possibly be revised to extend consumer preparedness and IFC’s affect when treatment is required. We hope this may even be part of the sensible functions of the Accountable Exit Strategy.   

Lastly, the Remedial Motion Framework remains to be being accomplished at IFC, and discussions and ultimate approval by the World Financial institution Board are pending. CIEL and civil society companions are extremely cognizant of the direct and inextricable hyperlink between treatment and a accountable exit. To that finish, we hope to debate how these new accountable exit rules shall be carried out, how they match into the remedial motion framework, and the way those that are harmed will have interaction with IFC in designing the remedial actions and accountable exit plans that reply to their wants now and sooner or later.

Many improvement finance establishments (DFI) have been ready for IFC’s lead on accountable exit. Now that it’s right here, we hope different DFIs observe of their footsteps by creating their very own insurance policies and approaches. CIEL and civil society companions look ahead to renewed conversations at IFC and with different establishments worldwide, particularly the Inter-American Growth Financial institution, as they proceed growing their insurance policies.

About CIEL’s Folks, Land, and Sources Program

CIEL’s Folks, Land, and Sources Program seeks to guard and defend the atmosphere and human rights in opposition to the hostile impacts of improvement. This evaluation outlines advocacy efforts that reveal our work accompanying communities who search justice from improvement banks.