Since the last IFC Performance Standard (PS) review more than a decade ago, it has become abundantly clear that much of the harm resulting from multilateral development bank (MDB) investments is happening due to private rather than public sector lending. The private sector arms of the MDBs repeatedly invest in projects that harm communities and the environment, a pattern that is true across regions and institutions. This dynamic is particularly notable within the World Bank Group, where IFC has one of the worst track records of all MDB private sector lending arms. IFC continually supports projects that cause severe environmental and social harm, violating its PSs and failing to learn lessons from the World Bank’s public sector investments. In nearly every way, IFC’s monitoring and supervision of projects and implementation of standards is considerably worse than the public sector policies and operations of the World Bank, from transparency and access to information to prevention of sexual exploitation and abuse.
Failure to learn lessons from public sector operations
Generally, the public sector arms of the MDBs are more willing to adapt and improve their operations based on harms stemming from past projects. For instance, in 2016, the World Bank’s Inspection Panel became the first independent accountability mechanism to receive a gender-based violence (GBV) complaint on the Transport Sector Development Project (TSDP) in Uganda, a landmark case that resulted in remedy for victims. The following year, the Panel accepted another GBV complaint stemming from the Pro-Routes Project in the Democratic Republic of the Congo (DRC), contributing to the lessons learned from the TSDP case and resulting in redress for the victims.
In addition to the measures put in place to provide redress to the communities harmed by both projects, the Bank also took several steps to address systemic failures that lead to harm. These policy-level changes led to institutional learning on gender and GBV by the World Bank, including new guidance notes on addressing risks related to influxes of workers due to construction projects and the risks and impacts of using security personnel. More importantly, the World Bank’s public sector lending has operationalized these guidance notes, implemented additional mitigation measures around preventing GBV, and shown more willingness to provide remedy when their projects lead to GBV and sexual exploitation, abuse, and harassment (SEA/H). However, these measures were only put in place in public sector lending.
By contrast, new details recently came to light about widespread child SEA/H stemming from IFC’s investment in the world's largest for-profit primary school chain, Bridge International Academies, operating in Kenya, Uganda, Nigeria, Liberia, and India. Instead of following the model set by the World Bank’s public sector arm, IFC engaged in a cover-up by entering into a non-disclosure agreement (NDA) with the client. Even after IFC disclosed details of its failure to comply with its PSs and its role in the harm, IFC continues to be reluctant to provide remedy for the victims in line with their expectations. Notably, IFC has not taken any steps to learn from this experience or apply lessons from the World Bank’s public sector operations in its response. Despite claims by many World Bank leaders that the World Bank Group is moving towards a consistent approach across lending arms to become a “bigger, better Bank,” it’s clear that the environmental, social, accountability, and transparency standards of its private sector operations continue to fall short.
Poor due diligence and supervision of E&S policies and failure to provide remedy
Another troubling tendency is that the private sector arms of MDBs often fail to comply with their own E&S safeguards policies and refuse to provide remedy, even when their accountability mechanisms find them at fault for policy noncompliance. In contrast, the public sector arms of MDBs are generally more diligent in adhering to their E&S policies and are more likely to provide remedies when policy violations occur, as demonstrated by the TSDP project described above. IFC, in particular, consistently fails to hold its clients accountable for violations of its PSs and refuses to develop remedial action plans in line with the recommendations of its accountability mechanism, the Compliance Advisor Ombudsman (CAO). For instance, despite findings from the CAO that IFC was in serious violation of its PSs for the Titan and Alto Maipo projects, IFC's resulting management action plans failed to include concrete measures to mitigate the negative environmental and social impacts on communities. IFC also avoided its responsibility to provide remedy by divesting from both projects before the CAO completed its investigation, giving up its leverage over the clients. In comparison, it is uncommon for the World Bank to divest from projects before addressing the measures recommended by an Inspection Panel (IP) investigation. When an IP report identifies noncompliance and harm, World Bank management is required to develop action plans to directly address the findings of the report and remediate harm, engaging with requesters throughout the process.
The private sector arms of MDBs do not sufficiently consider their own E&S policies or a client’s capacity to implement these policies when deciding to lend. For instance, IFC often backs projects that the World Bank would not, such as the Sal de Vida lithium mining project in Argentina, where the financial or non-financial additionality that IFC brings to the project remains unclear. Furthermore, private sector arms like IFC and IDB Invest often fail to meaningfully incorporate E&S policies, such as the PSs, into contractual agreements. As a result, the implementation of these policies frequently becomes a low priority for both management and clients. By contrast, the World Bank demonstrates a stronger commitment to holding borrowers accountable to its Environmental and Social Framework (ESF) and other E&S, transparency, and accountability policies. The World Bank is also more inclined to suspend disbursements until borrowers take corrective actions to align with ESF requirements, a stance that IFC is far less likely to adopt with its clients.
Conclusion
Private sector MDB lending continues to have a disproportionately adverse impact on the environment and communities. We call on IFC, IDB Invest, and other private sector MDB operations to learn lessons from their public sector counterparts. This includes developing E&S policies that align more closely with those of the public sector, reforming their operations to better adhere to their E&S policies, and providing remedy when their projects cause harm, in line with the recommendations of their accountability mechanisms. We also encourage MDBs to improve coordination across their private and public sector operations. For instance, the private sector arms of the MDBs would benefit from more efficient and coordinated upstream planning, including country and sector strategies, and improved institutional information management practices.
The client’s priority is access to public finance, but MDBs have an obligation to invest in sustainable development and include marginalized groups in project benefits. MDBs can only achieve this objective by implementing high environmental and social standards, providing remedy when projects harm communities, and operationalizing the lessons learned from past failures.