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Conclusions: IFC

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bank logo smallConclusions: World Bank

 

miga logo smallConclusions: MIGA

 

bank logo smallConclusions: World Bank Group

IFC's support has been moderately satisfactory in meeting its due diligence requirements and standards at the project level. But gaps were found in investment projects in Africa and in some industry sectors, and in achieving expected impacts with some environment-oriented Advisory Services.

The environmental and social effects success rate of projects evaluated by IEG was 67 percent. Thus one in three projects did not fully meet IFC requirements. Inadequate performance was especially evident in Sub-Saharan Africa and in the textile, food and beverage, tourism, and agriculture and forestry sectors. IFC helped its clients develop environmental and social management systems to better address those aspects of their operations and has also rapidly developed its environment-related Advisory Services over the past five years. These services that have been evaluated have been generally positive, but findings concerning project impact in three dedicated environmental facilities were mixed, and impacts in the Environment and Social Sustainability business line projects are difficult to assess.

The quality of IFC's environmental work at project appraisal has been good overall, but the quality of environment-related supervision of financial intermediary (FI) projects is a concern.

This is explained in part by limited in-house resources to visit FI projects. Even though the percentage of subprojects with environmental or social risks in the FI portfolio appears to be small, the aggregate impacts of a large number of subprojects may be significant, especially when FI clients lack resources to ensure proper mitigation of pollution. IFC has recognized this gap and has increased supervision resources and improved review processes for such operations.

Despite recent progress, IFC faces substantial environment-related challenges.

IFC has developed a Policy on Social and Environmental Sustainability and Performance Standards, launched sustainable business initiatives, geared its Advisory Services more toward sustainability, and enhanced its systems to identify, monitor, and evaluate performance criteria for both investments and Advisory Services. It has also increased its potential to indirectly influence environmental and social impacts of private sector activities by launching the Equator Principles, which now cover the majority of large-scale project financing in the developing world. But, in addition to it being too soon to evaluate the results of these recent changes, three challenges are especially noteworthy:

  • Implementation of the Global/Local Strategy. The strategy is to move environmental specialists closer to clients. However, maintaining the coherence and knowledge base of IFC's more decentralized environmental staff will be a challenge. The strategic focus on frontier markets, especially in Sub-Saharan Africa, requires that IFC develop and intensify its environmental investment support and Advisory Services. In addition, corporate finance is increasing and involves greater environmental risks compared to project finance, making development of more effective environmental and social management systems even more important for IFC and its clients.

  • Improve sustainability of financial intermediary subprojects with environmental and social risks. FIs often do not have legal obligations to the host country to ensure sustainability of their subprojects, lack environmental management capacity, and are unwilling to hire external consultants because of the associated costs in a competitive market situation. There is thus a need for IFC to expand its own environmental supervision resources, nurture consultancies and partnerships to help FIs identify, monitor, and mitigate ESHS risks; and provide adequate capacity building and incentives for FIs and their clients to improve environmental performance.

  • Introduce more effective safeguards in environmentally sensitive regions that have weak environmental governance, such as the last large areas of tropical biodiversity. Indirect, induced, and cumulative environmental impacts are difficult to identify and mitigate, especially when governance or political will in the public sector is weak. Better up-front environmental and social assessment and stronger mitigation efforts are required in similarly complex situations.

To consider the performance of IFC and MIGA as part of the World Bank Group's contributions, a shift is needed to focus on issues beyond those of individual projects to include the aggregation of impacts in the affected sector or region of a country.

Individual project performance is confined mainly to compliance with standards at the company level, but the evaluation of IFC and MIGA as parts of the World Bank Group must also consider the sectorwide or regionwide effects. This is a direction that both self-evaluation and independent evaluation must take.




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