IFC’S ENVIRONMENTAL AND SOCIAL LESSONS

LEARNED

APRIL 9, 2014CSO SESSION

AGENDA

• Dinant: Lessons Learned / CAO Audit• Learning & Adapting

Key themes Links to recent cases

• Dinant: Update on Action Plan• Discussion

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DINANT: KEY LESSONS LEARNED

IFC acknowledges deficiencies in the handling of the Dinant investment: • During project preparation, IFC underestimated the broader

risks in the Aguan Valley (land conflict, security issues, political instability)

• When acute problems emerged, neither IFC nor client was prepared

• IFC’s project supervision was not commensurate with level of risk

• Internal communication and documentation sub-optimal

Scope of the challenges in the Aguan Valley go beyond Dinant:• Complex history of land conflict/violence requires long-term

solutions• Limited ability of IFC and client to address this

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DINANT: KEY IFC ACTIONS We must:

• Take credible steps on the ground in Honduras with our client

• Internalize and disseminate lessons learned• Ensure we are building these lessons into our operations• Continually adapt our approach to E&S risk management• Continue to build our capacity to identify and mitigate risks

(especially in fragile and conflict-affected project locations)• Strengthen ownership of E&S issues across the institution

* More details and discussion to follow…

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HOW IFC IS LEARNING FROM RECENT

EXPERIENCES

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KEY ISSUES

• Country/Sector Context• Stakeholder Engagement• Land & Water• Supply Chains• Labor• Financial Intermediaries

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• IFC’s target markets are high risk environments

• Fragile and conflict situations• Limited capacity and resources on the

ground Low client capacity Weak Institutions

• Robust E&S risk management will be a key factor in our ability to achieve objectives

• Broader contextual risks often cannot be addressed through a single transaction alone

• Enhanced collaboration across WBG is key to success

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IFC FACING INCREASINGLY COMPLEX CHALLENGES

WHAT ARE WE LEARNING AND DOING

ABOUT COUNTRY/SECTOR CONTEXT?What we are learning

• Narrow transaction focus insufficient (Agrokasa, Dinant, Wilmar)• Broader contextual and inherent risks, e.g. conflict, security forces

(Dinant)• Cumulative impacts (Tata Mundra), legacy issues

What we are doing• Deepen Country Situation Analysis (e.g., for palm oil investments)• Broader use of country studies and data from independent sources• Enhanced engagement with WBG on the ground

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WHAT ARE WE LEARNING AND DOING ABOUT

STAKEHOLDER ENGAGEMENT?What we are learning

• Insufficient consultation can lead to community conflicts (Tata Mundra, Cambodia Airports)

• Clients still struggle to do this well (Maple Energy, Agrokasa)

• Just having a Grievance Mechanism is not enough(Nicaragua Sugar, Harmon Hall)

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What we are doing• Strengthened requirements in 2012 Sustainability Framework,

including grievance mechanisms• Verification of Broad Community Support, Free Prior & Informed

Consent • Portfolio review, tools, lessons on Stakeholder Engagement• Technical training & guidance for staff and clients

WHAT ARE WE LEARNING AND DOINGABOUT LAND AND WATER?

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What we are learning• Frequent source of conflict (Dinant, Agrokasa, Yanacocha, Oyu Tolgoi)• Challenges of Government-led resettlement (Agri-Vie/New Forest

Company)• Poor land governance: public to private land transfers; watershed

issues are difficultWhat we are doing

• Strengthened Performance Standards requirements (PS3, PS6)• New risk screening and assessment tools (GMAP, Guidance Note on

Land)• Applying Principles on Responsible Agriculture Investments• Engagement with World Bank, other multilaterals (e.g. FAO, UN

Compact)

WHAT ARE WE LEARNING AND DOING

ABOUT SUPPLY CHAIN ISSUES?What we are learning

• Verification in extended supply chains is difficult (Bujagali)• Clients often have limited leverage to improve practices• Need for better screening on High Risk Commodities

(Wilmar) Labor Biodiversity

What we are doing• Good practice guidance

Agro-commodities and supply chain Child Labor Monitoring Tool Commodity roundtables

• Expanded scope of verification• Better screening tools (Trade Finance due diligence)

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WHAT ARE WE LEARNING AND DOING ABOUT LABOR?

What we are learning• Increasing concern and source of complaints

(Standard Profil, Avianca, Bujagali,Tata Tea, Harmon Hall)

Weak implementation of national laws Frequently not under clients’ direct control Freedom of association & collective

bargaining; supply chain; working conditions

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What we are doing• Greater use of external experts on

appraisal and supervision• Engagement with global unions, ILO• Technical training for staff• New guidance for staff and clients

(contractor management; child labor)

WHAT ARE WE LEARNING AND DOING

ABOUT FINANCIAL INTERMEDIARIES?What we are learning• Effective E&S Risk Management Systems are key• Time lag: From system to results• Need for enhanced IFC supervision

(esp. for high risk) Sample of sub-projects

• Clients need capacity buildingWhat we are doing• Implementing the Action Plan approved by CODE• Increased supervision of high risk FIs• Expanded capacity building for FI clients• Engagement with broader stakeholder groups,

strengthening of authorizing environment

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GOING FORWARD

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We will:• Share these lessons broadly across IFC• Continue to build capacity – internal as well as client• Increase attention to E&S issues in decision-making at all

levels of IFC• Strengthen our dialogue with the CAO• More actively engage with the Board

However, challenges will remain—we cannot guarantee outcomes

DINANT: UPDATE ON ACTION PLAN

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APPROACH FOR REVISING THE DINANT ACTION PLAN

• Guided by commitments made to the Board and publicly posted in January—Revised Plan is now more comprehensive and robust

• Sought input and advice from CAO, outside experts, NGOs, Board members, WB colleagues and the client

• Taking an iterative & consultative approach to build out/refine the Plan – “Consultation Draft”

• Little IFC or external precedent with respect to backward-looking investigation

• Plan was presented for feedback to Board Members on April 4 and was publicly released April 8

• Consultations with local communities on Draft Action Plan

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THE SECURITY ACTION PLAN AND DINANT'S INVESTIGATION

• Revised Dinant Action Plan comprises four components (all of which will be further informed by consultation):

Dinant Security Action Plan (training, new protocols, compliance investigation of past allegations as per PS 4)

Community Engagement Plan (special focus on Aguan Valley Communities, conflict mapping, baseline surveys)

Establish Grievance Mechanism (conflict-sensitive) Ongoing Implementation of ESAP (ISO 14000/18000, air emissions,

OHS)

Result is a comprehensive document that includes all actions Dinant will take to ensure compliance with IFC's performance

standards

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IFC TO MONITOR AS GUIDED BY EXTERNAL EXPERTISE

Investigation of past allegations• No IFC precedent nor expertise for the investigation that Dinant is

required to undertake in compliance with PS 4 • IFC will hire a security expert to advise us, review ToR, and monitor

implementation• Stakeholder, CAO and expert input indicates need for reputable third

party investigator to lead investigation – candidate must be acceptable to IFC

• “Compliance” investigation by client versus “criminal” investigation by GoH

• If wrongdoing is found corrective actions will be taken (including disciplinary measures and compensation as warranted)

Community Engagement• Recognize that some communities may be in conflict with Dinant –

consultations facilitated by international consultants with participation of client and IFC

• There is a need for specialized expertise familiar with working on dispute resolution and in conflict zones

• IFC will hire its own conflict mediation consultants to support client’s consultation process with affected Aguan Valley communities18

NEXT STEPS• “Consultation Draft” of Revised Action Plan has been posted

on IFC’s website, and will be reviewed with civil society at Spring Meetings

• Dinant will develop the Security Action Plan and the Community Engagement Plan (including Grievance Mechanism) in consultation with local communities (now through December)

• IFC will hire its own expert advisor on security issues/investigations

• IFC will monitor Action Plan implementation directly and via input/guidance from external experts

• “Lessons Learned” has also been posted on IFC’s website• WBG to continue outreach to the Government of Honduras &

partners19

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DISCUSSION

ANNEX: ADDRESSING THE BROADER CHALLENGES IN THE AGUAN

• Stakeholders have made clear that resolving Dinant-specific issues via the Action Plan is a start but not the answer to what drives conflict in the Aguan

• There seem to be at least two key areas of focus to reduce tensions:

Restore the rule of law and personal security/prosecute human rights crimes

Establish a stakeholder dialogue that enables farmer, community, private sector and Government representatives to map the sources of conflict and define a future vision for economic and social development for the Aguan

• The World Bank Group is reviewing what role we might play based on expertise and convening power (or lack thereof)

• The Government is central to any solution and multiple partnerships will be necessary

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