Safeguards to avert damage that development projects can do to the environment and communities are essential in development finance.
Safeguards to avert damage that development projects can do to the environment and communities are essential in development finance. For practitioners, safeguard measures are in the spotlight amid the World Bank Group reviewing its safeguard policy and the entry of two new multilateral lenders from emerging economies. Moreover, heightened concerns over climate change from the latest projections of the Intergovernmental Panel on Climate Change are upping the ante that these defenses are implemented effectively.
The ongoing shake-up in development banking is an opportunity for strengthening institutional commitment to subject infrastructure investments to safeguard due diligence. Independent Evaluation recently released a generally favorable assessment of how the Asian Development Bank (ADB) is applying its Safeguard Policy Statement (SPS) in operations. Indeed, with some important modifications and improvements, especially in the area of policy implementation, the SPS could be a benchmark in the development community.
The basic rationale for safeguards being used as conditions to the loans is that public and private investors do not automatically mitigate the damages that spill over from their actions. When well-managed, safeguards help mitigate big risks to the ecology and communities—as in the Xiaolangdi Hydropower Project in the People’s Republic of China (PRC) and the Urban Transport Project in India—and at administrative costs that are small compared to the environmental and social benefits.
The need for better implemented safeguard measures—particularly in the areas of enforcement and supervision—is becoming starkly apparent. A worry is that countries—be they the PRC and India or the United States or from the European Union—trying to ramp up economic growth would cut corners on safeguards, which come at a cost to environmental care and climate change mitigation as well as social aspects. To this volatile mix comes the prospect of two new multilateral lenders—the PRC-led Asian Infrastructure Investment Bank, launched last October, and the New Development Bank set up by the BRICS countries.
The World Bank Group, meanwhile, has put out for consultation a proposal for a more flexible approach to project safeguards under its proposed Environmental and Social Framework. This shares some important features with the SPS in the responsibilities of bank and borrower.
There are major areas of divergence as well. The most critical of these is how the World Bank Group’s proposed framework, applied to investment lending, offers flexibility in trying to comply with safeguards after Board approval of projects, which, problematically, makes compliance more aspirational than binding. The framework also allows the borrower to opt out of the indigenous peoples safeguard standard and contains potential weaknesses on biodiversity protection. Consultations on the framework began last August and have been extended to March 2015.
A worrying scenario would be that new lenders and the possibility of more flexible safeguard due diligence at the World Bank Group could weaken the outcomes of environmental and social protection. But this could also be turned into an opportunity to reform safeguards in ways that add even more value to countries by guaranteeing these defenses, giving them the appropriate institutional weight and, at the end of the day, ensuring better environmental and social outcomes in efficient ways.
In principle, ADB’s policy strikes a balance between maintaining a compliance-based regulatory system (rather than standards that are aspirational) on the one side and flexibility and efficiency gains in operations on the other. Since it was adopted in 2009, new requirements for biodiversity conservation, greenhouse gas emissions, and livelihood improvements when projects cause people to be resettled have been introduced—and these could provide useful benchmarks in the wider development community.
There are also important gaps in the application of the SPS, particularly in monitoring and supervision. A key recommendation is for better quality preparation of safeguards in order to avoid lengthy project delays and inadequate safeguard measures for projects. Improving the supervision of the implementation of safeguards is crucial for addressing ADB’s increased risk profile in some areas.
ADB and its partners must strengthen efforts through policy dialogue and other engagement to increase the capacity and commitment of countries for applying safeguard measures to their projects—in three respects.
First, progress needs to be made on the adequacy of country safeguard systems. Second, their use must be complemented by legally binding indicators for social and environmental impacts, such as air and water pollution levels. And third, the performance of these indicators need to be monitored and verified by a reliable and independent third party and disclosed publicly.
Safeguards remain firmly on Independent Evaluation’s radar screen and as it embarks on a more detailed assessment of ADB’s safeguards in 2015 there will be a greater focus on field verification of safeguard outcomes, with a view to helping strengthen results on the ground.