The controversy over safeguard policies

The World Bank is consulting with European and other regional stakeholders on its proposals to replace existing social and environmental safeguard policies with revised “standards.” This time, the bank board’s Committee on Development Effectiveness, critical of the conduct so far of this consultation (started in 2012) has requested that 52 important issues defined by the committee and Web-posted in advance, be submitted to transparent public discussion, with accountability on how proposals raised are addressed. The international debate around weakening or strengthening the existing safeguard policies is thus becoming more substantive, as it certainly should.  

The 52 issues incorporated by CODE address, inter-alia, content omissions and the extent of the separation and/or overlap of responsibilities and accountability between the World Bank and its borrowing states for risks and possible adverse impacts on the environment, the society, or particular subgroups by projects financed by development banks (not only the World Bank) and implemented by borrowers. The discussion conveys on the future status of the safeguards in the World Bank’s policy architecture.

The debate’s ultimate core is an old challenge: to prevent and handle justly the economic and social externalities of development projects. Metaphorically, externalities can be compared with the mythical multiheaded dragon — except that in development projects the externalities are not mythical. They are real and toxic. Examples abound: environmental destructions; the impoverishment of displaced people, exposed to risks imposed on them and left worse off; polluted air, etc. Institutionalized safeguard policies are precisely intended — as their name states — to reduce, prevent and “safeguard” against surreptitious externalization of unrecognized project costs.

Safeguard policies emerged in the 1980s at the World Bank in response to damages to the affected people and the environment from projects it funded, signaling a historic paradigm shift. The Brazil Polonoroeste’s BR-364 Amazon highway had destroyed forests and displaced Amazonian inhabitants; the Philippines’ Chico Dam project had endangered the lands and livelihoods of indigenous populations, triggering epic resistance.

By preventing or reducing risks and dysfunctionalities, the safeguard policies have provided over the last three decades immense services, and vastly improved the Bank’s contribution to poverty reduction. The broadest confirmation of the necessity and operational usefulness of such policies came over the next decade, when the safeguard policies pioneered by the World Bank were replicated by all multilateral development banks, all bilateral aid agencies of member countries of the Organization for Economic Cooperation and Development, an increasing number of private sector giant banks (the “Equator Principles Banks”), and by export-credit agencies of all OECD countries.

The World Bank now proposes replacing its safeguard policies with weaker and aspirational “standards,” that may be met “flexibly” during a project’s execution, and the Asian Infrastructure Investment Bank reflects the same approach. Standards that are discretionary are not standards, except in name. The World Bank, all multilateral donors, and borrowing states have embraced the United Nation’s Sustainable Development Goals and signaled support for the objectives of the 2015 Paris climate summit. But the pursuit of sustainability is under pressure from the mistaken notion that applying safeguard policies delays unnecessarily project processing, and thus would slow growth.

The lessons from economic theory and empirical evaluative evidence are clear, but policy positions are split. Some MDB board members call for a reduction in safeguards on the premise that this would speed growth. But the reality is that continued economic development and people’s well-being depend on improving social and environmental results, not on worsening them.

The 2011 independent evaluation of safeguards at the World Bank recommended that downstream oversight of safeguards be strengthened.  It did not suggest that upstream regulations be weakened. It recommended that project processing be speeded through greater process-efficiency and enhanced resources for project preparation and implementation. Yet so far the revision of World Bank safeguards has pursued the exact opposite route. It also proposes reliance on self-monitoring by the borrower, which could hide damages, thereby raising the costs of correction and legacies. If implemented, the World Bank’s current proposal to revise-down and de-rank safeguard policies would gravely weaken social and environmental safeguards on which investments are now premised. This would lower the sustainability and safeguards bar for new entrants like the AIIB and the New Development Bank.

The SDGs aim for fast growth that will endure and not implode under social and environmental risks and dysfunctions. For that, it is essential to have safeguard policy systems that are robust and consistently implemented.  Safeguards need periodic reforms to absorb research-updated knowledge, but not to diminish their effectiveness in delivering social and environmental protection and higher quality projects.

The opinions expressed are the authors’ own, and do not necessarily represent the views of institutions they are associated with.

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