Why does the World Bank finance mining, oil and gas projects (extractive industries)? Don't these projects just hurt the environment and lead to people being moved from their homes?
Extractive industries can be a source of employment, raw materials and energy, revenues, infrastructure, and demand for local services and goods. They can make a significant contribution to sustainable development and poverty reduction-especially if environmental, social and corporate governance issues are properly managed. The revenue from oil, gas and mining industries can be critical to developing countries as they strive to strengthen their economies and give their poorest citizens jobs and better public services.
We take a very selective approach to investing in these projects, and we're committed to promoting sound policies and good investments that will give developing nations the opportunity to achieve sustainable growth and poverty reduction. We believe that our capital and expertise can help ensure that the projects meet high environmental, social, and governance standards. We also go to great lengths to see that revenue from extractive industries projects is used transparently and effectively.
At the same time, we recognize that stakeholders have legitimate concerns about the impact of extractive industries on people and the environment. At the global level there is concern about climate change and biodiversity. At the country level there is debate about the extent to which heavy economic reliance on revenues from extractive industries creates a "resource curse." At the local level, the issue is the impact of extractive industries on the environment and surrounding communities.
The reality is that some 2.3 billion poor people still depend on heating and cooking fuels harmful to their health and the environment and that some 1.6 billion people in developing nations still don't have electricity. By backing projects with the highest standards and investing in new energy technology, we hope to actually help deliver the benefits of extractive industries to the poor.
What is the origin of the Extractive Industries Review (EIR)?
We announced in 2000 that we would conduct a comprehensive review of our activities in the extractive industries sector (oil, gas, and mining production) in response to concerns expressed by a variety of stakeholders, primarily environmental and human rights organizations. The review incorporated an independent evaluation of World Bank's activities in the extractive industries by the Operations Evaluation Group; a Compliance Advisor Ombudsman (CAO) report; and a separate independent stakeholder consultation process headed by Dr. Emil Salim, which concluded in January 2004 and produced a number reports with recommendations for our future involvement in this sector. These reports are found in Striking a Better Balance—the World Bank Group and Extractive Industries: Final Report of the Extractive Industries Review.
What key questions did the Extractive Industries Review cover?
The Extractive Industries Review posed two key questions. First, how effective has our assistance and investment for extractive industries been in helping advance sustainable development? And second, what should our future role in this sector be?
The central message of the reviews was that while extractive industries investments can contribute to sustainable development, we should further enhance our efforts in several areas: more explicitly identifying and tracking poverty reduction associated with our projects, improvement in the overall quality of governance in host countries, broader inclusion of local stakeholders, transparency of revenue management and project documents, and the promotion of renewable energy and cleaner fuel alternatives.
We found wide support for Bank involvement for these types of activities:
technical and advisory services for project design
lending for public sector reforms
environmental rehabilitation
gas-flaring reduction
mine-closure investments
investments that increase local ownership or ownership by previously-disadvantaged groups
linkage programs that help bring small and medium enterprises into the supply chains of EI projects
investments in efficiency upgrades or projects that shift countries toward using cleaner fuels
Conflicting reactions occurred across various constituencies to a number of reform proposals in the stakeholder consultation report. The recommendations generating controversy were those that proposed to phase out Bank support for new investments in the oil and coal sectors; to adopt a rule requiring "prior informed consent" by local residents as a precondition for investments in their communities; and to adopt a "rights-based" approach to development. Many governments and industry representatives expressed reservations about these proposals.
Have you made a "good faith" effort to address the real problems associated with extractive industries?
We've made much more than a "good faith" effort to address these problems. The Extractive Industries Review was one of the most thorough reviews of any sector we've ever conducted. It encompassed two years and several million dollars in operational and staff costs, and produced four research reports by independent evaluation units. The stakeholder consultation process included an advisory group of 10 experts, five regional stakeholder forums, and countless bilateral meetings between stakeholders and staff on the consultation team and between stakeholders and Bank staff. Also, the reports were reviewed by the Executive Directors of all of our 184 shareholder nations.
Moreover, during the period of the EIR, we proceeded - ahead of the final reports - to make many reforms suggested by stakeholders, including initiatives on gas-flaring reduction, carbon-emission trading, transparency of extractive industry revenues, help for small-scale mining operations, supply-chain linkage programs, and increased support for renewable energy, energy efficiency, and biodiversity projects.
In addition, we lead in providing resources to developing countries for environmental protection, biodiversity, education, health, and other sectors that are linked to work in extractive industries. And, we've placed major emphasis in recent years on battling fraud and corruption associated with the development of extractive industries. We are also a leader in developing new models of transparent revenue management, as in the case of the Chad-Cameroon pipeline, and we support initiatives such as the Extractive Industries Transparency Initiative, which seeks to work with both governments and industry to develop workable models of revenue disclosure. Finally, we provide access to training and capacity-building for public sector agencies so they are better able to monitor and regulate extractive industry activities in a professional and accountable way.
Did you accept or reject the findings of the EIR report?
We welcomed the EIR report, and management produced a carefully considered response to the EIR's recommendations. Taking into account the reforms and new directions that we've already undertaken, our reactions are positive to a majority of the EIR report's recommendations. However, we did not adopt the report's recommendations in their entirety. We've considered the legitimate views and interests of all stakeholders, as well as our own best judgment. Now, we must decide what is right for the world's poor people, as we address complex issues where there are strong opposing views. We will continue the dialogue with stakeholders on the issues, learn as we go and continue to refine our approach in light of our experience and outcomes.
What does the Management Response propose with regard to the review's recommendations that the Bank strengthen governance and transparency related to extractive industries?
Management pledged the following regarding governance and transparency:
All future Country Assistance Strategies (CAS) for resource-rich countries will systematically address relevant extractive industries issues.
The sequencing of our activities in extractives industries will be based upon governance capacity and risks. Our own and other governance indicators will help assess risk and gauge developing country capacity. The engagement of the IMF, ourselves and our affiliates in the country and specific country and project circumstances will help us judge whether to support projects. We will disclose our rationale in favor of involvement, and where the risks are deemed to be too great and cannot be mitigated, new investments will not be supported. For significant projects we will require risks to be mitigated.
We will require revenue transparency as a condition for new investments in the extractive industries sector. For large projects, we will require revenue transparency immediately; for smaller projects, within two years.
What does the Management Response propose with regard to the review's recommendations that the Bank make sure that extractive industry benefits reach the poor?
Our Management Response commits us to:
Strongly support the principle that communities should benefit from projects that affect them.
Work with stakeholders to develop consistent indicators of the benefits of extractive industries projects on poverty reduction and use these to help identify and track project outcomes. We are already working with the Global Reporting Initiative on this front.
Identify expected development impacts of extractive industries projects we support and make those public before we recommend board approval.
Establish Independent monitoring mechanisms in our largest projects and encourage the development of capacity in communities to monitor projects that affect them.
Ensure that affected communities benefit from projects as broadly as possible, including continuing to encourage and assist small and medium enterprise linkages programs.
How will the Bank mitigate environmental and social risks?
We support the principle that due to the high value of some biodiversity resources, there are effectively "no-go" zones in the world for new extractive industries investments. Our existing natural habitats policy provides a basis for identifying these areas. The International Finance Corporation's (IFC) revision of its safeguards will propose how to best protect bio-diversity both inside and outside internationally agreed protected areas through its Performance Standards and Implementation Guides.
IFC's safeguard policies are also being revised and updated to improve their clarity, accessibility and implementation, in support of some of the specific recommendations in the Extractive Industries Review - for example, social and environmental assessments; community participation in the monitoring of projects; as well as other more technical safeguards that apply.
Will you increase your consultation and disclosure of information in the extractive industries sector?
Yes. We've pledged to expand disclosure of information about the impact of our extractive industry investments and ensure prompt disclosure of relevant information to communities about projects that affect them.
Lessons learned will be shared publicly - and acted upon.
Progress reports will be made to the board about our work in the extractive industries sector every two years and these reports will be made public.
A multi-stakeholder advisory group on extractive industries will be established with representatives of governments, industry, civil society, and others who will provide us their point of view on extractive industry issues.
Will the rights of people affected by extractive industries be protected?
We strongly support protecting the rights of those affected by extractive industry projects, and we will only support extractive industry projects that have the broad support of affected communities. This does not mean a veto power for individuals or any group. It means that we will require a process of free, prior and informed consultation with affected communities that leads to the affected community's broad acceptance of the project. Our Indigenous People's policy was discussed by the Board of Executive Directors and revised in 2005 to reflect this principle. For new projects, we will also implement the specific recommendation in the review on the use of security forces to protect extractive industry project sites-in line with the US/UK Voluntary Principles on Security and Human Rights.
Why does the Management Response propose to continue with investments in oil and coal in developing countries?
We expect to continue with these investments, because all forms of energy have a role to play - and while we strongly support a major scaling up of renewable and clean energy sources - oil and coal will inevitably continue to be major fuel sources for the world's poorest people for the foreseeable future. In addition, extractive industries and how they are developed will be important for the economies of many developing countries. Although our participation in the sector is expected to remain relatively small, less than 5% of total lending per year - and gas is expected to increase its share of our EI financing - by staying engaged in oil and coal, we can have an influential role in ensuring that the best environmental and social practices are followed and that the goal of sustainable poverty reduction is achieved.
What does the Management Response propose with regard to the EIR's recommendations that the Bank promote renewable energy and efficiency to combat climate change?
Through our programs and policies, our strategy to promote renewable energy and efficiency to combat climate change is to:
Aim to ensure that renewable energy and energy efficiency are seen as economically possible and essential ingredients in the energy choices of our member nations, rather than marginal considerations.
Commit to a target of at least 20 percent average growth annually in both our energy efficiency annual commitments and renewable energy annual commitments over the next five years, with the concurrence of our board.
Convene or participate in a "steering group" of nations, academic and research institutions, civil society and industry that can help frame a broader agenda on renewable energy.
Report our annual performance in renewable and energy efficiency programs against the figures of other leading organizations to foster greater collaboration across national and institutional lines.
Provide sector-specific information to better connect a wide range of stakeholders on trends regarding specific technologies, whether they are hydroelectric, wind, solar, geothermal or biomass.
Increase not only our staff's capacity but also the resources they can use and incentives in their programs, so that we can more effectively help country and sector teams succeed in renewable energy and energy efficiency projects.
What does the Management Response propose with regard to the EIR's recommendation that the Bank take a stronger role in support of renewable energy?
We recognize that consumption of fossil fuels increases greenhouse gas emissions that are believed to contribute to climate change. Therefore, we've pledged to redouble our own efforts in support of renewable energy, but we must point out that the entire international community must also act, as renewable energy currently represents only 2 percent of the world's energy investments.
We've already leveraged about $10 billion for renewable energy and energy efficiency in developing countries through our investments and technical support. For us, supporting sustainable energy means assisting our partner countries to access the most cost-effective, best-performing and reliable sustainable energy technologies that are economically practical, affordable and best suited to their needs.
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