For NGO leaders, safeguards can make or break AIIB, BRICS bank

Multilateral organizations are adapting to changing international development priorities by shifting from a growth-focused approach the past few decades to one more focused on sustainability — prioritizing people and the planet at the same time. The World Bank and regional development banks are intent on aligning their programs with sustainability principles and goals, including reforming social and environmental safeguards policies so development is inclusive. Yet, there have been struggles along the road to sustainability and inclusiveness and many of the issues trace back to safeguards. The World Bank is still in the process of finalizing its revised safeguards policy that started almost three years ago. Allegations of displacement and human rights violations have surfaced in Cambodia, Laos and parts of Africa, among other regions. At one time or another, all the regional development banks have attracted negative media attention over the implementation of appropriate safeguards that are supposed to protect vulnerable people and the environment. So it raised some eyebrows recently when the China-led Asian Infrastructure Investment Bank took less than a month to consult civil society and other stakeholders on its own social and environmental safeguards framework. The unusually rapid process has alarmed some development leaders who say that AIIB’s actual commitment to sustainable development will depend largely on a world-class safeguards framework that member states and development practitioners can agree on. The same applies to the $100 billion Shanghai-based New Development Bank by Brazil, Russia, India, China and South Africa. As these banks ramp up operations, NGO leaders are watching. It would be a “massive regression back to the days of blunt, monolithic top-down ‘development’” if AIIB and NDB “eschew or water down vital environmental or social safeguards, or limit the options to redress available to people that could be harmed by lending,” said Winnie Byanyima, executive director of Oxfam International. “The devil will be in the detail,” she said, adding that safeguards should not be “risk mitigation” tools or mere boxes to be ticked at the end of a project, but a crosscutting element in the entire development process. Lack of clarity China’s history in developing countries is no doubt influencing the perceptions of the NGO community. And as a key planner and financial supporter of AIIB and NDB, China will play a major role shaping the safeguards of both banks. Wawa Wang, sustainable finance adviser of multilateral watchdog CEE Bankwatch Network, said that AIIB and NDB management’s implementation of its safeguards — and not just the depth of their pockets — can be the difference between success or failure of its existence once it becomes operational. “We are deeply concerned that burden of problems — if projects or policies are not carefully guided by shareholders — will cause irreversible impacts to the livelihood of the affected communities and the ecosystem,” she said. “There’s concern from CSOs around the world about whether AIIB will recognize the financing of high carbon-emitting projects is often in conflict with development and climate change goals.” Many questions remain unanswered, specifically how the bank intends to apply the vaguely worded environmental and social standards to its operations and the degree to which the bank will disclose environmental and social impact assessment results. International NGOs and local civil society are also questioning if and how AIIB and NDB plan to release information to affected communities and concerned citizens. If the poor are to benefit from the two new banks, NGO leaders stress that social and environmental safeguards and sustainability must be built into the operations from the beginning and should be made clear. Ursula Schaefer-Preuss, chair of the Sweden-based Global Water Partnership, told Devex that one of the biggest challenges in establishing the new institution would be installing a proper safeguards policy that examines the social, economic and environmental aspects of development projects life cycle. Failure to do this, the former ADB vice president shared, would otherwise pose a serious funding and legitimacy problem to AIIB and NDB, especially when member countries start monitoring and evaluating the way the banks are conducting business. Jeffrey Sachs, renowned economist and director of Columbia University’s Earth Institute, told Devex that while the two China-based banks will add more money to the funding pool for the world’s poor, the way the money will be spent will be key as much as the number of zeros in the checks the leaders of these institutions will sign. “The question for these banks … is to fund truly sustainable infrastructure,” he told Devex at the sidelines of a speaking engagement at the ADB headquarters in Manila in August. “If the funding is merely funding more of what we’re doing right now, it will not be environmentally sustainable. The quality of their portfolios depends on a good and accurate environmental strategy,” said Sachs. Golden opportunity But NGO leaders also highlight a “golden opportunity” for AIIB and NDB to change the way the international development system currently works for the better. “Emerging markets are frustrated at the pace of change at international financial institutions and they’re right to be — the World Bank and IMF have been too slow to reform,” Byanyima explained, revealing that the international financial architecture has been “rigged in favor of the United States and European interests for too long” so new players shaking things up can be a breath of fresh air. While the official reason for the emergence of AIIB and NDB has almost always focused on the need for more development financing, some experts believe there are far-reaching reasons: that of operational inefficiencies and the need for more developing country influence. Countries like China and Russia, for example, have been lobbying for greater shareholdings and decision-making influence in traditional multilateral institutions including the World Bank, IMF and the ADB, which are sometimes accused for falling short of expectations, particularly in terms of providing sustainable solutions for the world’s poor. Byanyima said the gaps open up a chance for the newcomers to do things right. But she warned that the objectives of the new institutions should, in a way, remain on point: fast track and improve the world’s achievement of crosscutting development goals. “NDB and the AIIB will change the development landscape — I think that’s undeniable — but they must not repeat past mistakes of leaving behind the poorest people,” she explained. “Everything they do must move us closer to achieving the Sustainable Development Goals.” AIIB and NDB will both primarily focus on infrastructure development to address the developing world’s major infrastructure shortfalls, but opinions are mixed on this specialized focus will link and contribute to broader development strategies and impact. Kristin Lord, president of Washington, D.C.-based nonprofit IREX, shared that while infrastructure may facilitate growth, it does not always translate to sustainable development, especially if the banks are to sidestep international standards. “I think the concern is that typically, Chinese investment and foreign assistance has been steered largely towards infrastructure for it to play a role in economic growth,” she said. “However, I think that we in the development community have learned for many years that at least it is important to invest in human development and the future.” “The concern being that the new banks may only focus on infrastructure and would neglect this critical aspect of human development,” Lord added. “If they do shift their focus to be more about education, governance, social engagement, and economic inclusion, then we would be open to a conversation. But we have no reason to suggest that that’s where we’re heading right now.” Byanyima concluded that the leaders of these new institutions “have an extraordinary opportunity to positively change the shape of the world development … architecture. Make sure your bank is transparent and accountable both to citizens of these banks’ shareholders and to ordinary people in the countries you’re lending to.” Join the Devex community and access more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.