managing environmental and social risks anis dani lead evaluator, iegcc october 10, 2012
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Managing Environmental and Social RisksAnis Dani
Lead Evaluator, IEGCC
October 10, 2012
E&S frameworks at the World Bank Group
World Bank safeguards framework, largely for public sector. IFC and MIGA performance standards, for the private sector.
Similar objectives but different strengths and weaknesses: Thematic coverage of World Bank’s social safeguards is much
narrower than in IFC Performance Standards
World Bank’s safeguards emphasize up front mandatory requirements, with mitigation measures designed before project approval. But projects suffer from lack of adequate supervision and monitoring of outcomes, especially in the case of medium-risk (category B) projects.
In IFC, supervision and monitoring was more robust but oversight was by private sector partners without third-party verification or adequate disclosure.
World Bank Group Portfolio Trends indicate increasing risk profile
• In the Bank’s portfolio, Category A increased from 6 to 11%, Category B increased from a third to over half of investment projects• In IFC, slight decline in Category A, and FI Projects are 1/3 of portfolio; • In MIGA, FI guarantees increased from 1/3 to over half of portfolio
Source: Business Warehouse
0%
20%
40%
60%
80%
100%
0%
20%
40%
60%
80%
100%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Percentage of Investment Com
mitm
ents
Perc
enta
ge o
f Pr
ojec
ts
A - No. of Projects B- No. of Projects C- No. of Projects
FI- No. of Projects A - Commitments
A. WB Lending by Safeguard Category B. Trends in IFC Portfolio
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Committment year (FY)
A (by volume) B (by volume) FI (by volume) C (by volume)
A (by number) B (by number) FI (by number) C (by number)
FI
C
A
B
Coverage of Safeguards vs Performance Standards
Supervision of safeguards in WB-financed projects by Env. Category
Supervision in IFC projects improved over time
ICR reporting in WB projects
Reporting in ICRs is much weaker on environment than social issues
ICRs for projects with significant E&S risks (Cat. A and B projects) should report on E&S performance
54% 56%
78%77% 81% 78%
47% 48%
78%
0%
20%
40%
60%
80%
100%
Overall E&S Environment Social
Per
cent
of P
roje
cts
All Projects Category A Category B
n=98 n=31 n=62 n=97 n=31 n=61 n=55 n=27 n=27
Source: IEG portfolio review: Completed projects, FY99-08 approvals
Organizational arrangements at the World Bank and IFC
Recommendation - 1
Revise safeguards policy framework: harmonize categorization criteria to assess E&S risks
consolidate World Bank policies into one social and one environmental policy, harmonizing thematic coverage across the World Bank Group
apply IFC’s Performance Standards to financial intermediaries, listed equities, and trade finance
increase MIGA’s capacity to supervise its projects
Recommendations 2-4
Enhance client capacity, responsibility, and ownership Invest more in analytical work, TA/ Advisory Services
Assign responsibility for safeguards monitoring to WB clients
Revise guidelines, instruments, and incentives to strengthen supervision arrangements, especially at WB
Strengthen safeguards M&E and completion reporting enhance transparency and third-party monitoring for higher
risk WB projects that use E&S policy frameworks and FI projects at IFC.
incorporate E&S effects as essential dimensions of the PDO, as in the XPSRs in IFC
Recommendation - 5
Seek greater symmetry in the structure of Bank Group accountability For WB create grievance redress mechanism to complement
Inspection Panel investigations
For CAO introduce more independent review of audit reports.
Backup Slides
Supervision of Projects with Policy Frameworks vs Mitigation Plan
Strengths/Weaknesses of Safeguards in WB projects
Strengths
Comprehensive coverage of environmental safeguards
Priority to mitigating negative impacts
Preparation (85%)
Good identification of high risk projects (Cat. A): 11%
Supervision of Cat. A (>80%)
Compliance ensured through high quality E&S risk assessments
Use of policy frameworks for FI, CDD, etc. allows rapid preparation
Weaknesses
Narrow coverage of social safeguards
Less attention to client capacity building
Supervision (61%)
Over-categorization of medium risk projects (Cat. B): about10% of 51%
Weak supervision of Cat. B and FI (50-60%)
Poor M&E and reporting instruments lead to inattention to E&S results
Poor supervision of projects with frameworks increases E&S risks
Strengths/Weaknesses of E&S Management in IFC projects
Strengths
Balanced coverage of E&S risks in 2006 PS framework
Mitigation integrated with E&S sustainability
Focus on client’s E&S management system
Preparation (85%)
Clearly specified indicators to track E&S performance
Well developed instruments for annual reporting by clients (AMR)
Systematic use of indicators allows more accurate supervision and evaluation
Better oversight of real sector projects and some improvement in FI projects
Weaknesses
Weaker staff capacity to address new social areas
Area of influence limited to scope of project
Undercategorization of high risk projects compared to WB
Post-PS supervision improved from 65% to 75%
But too soon to evaluate results
Uneven quality of client E&S reporting, and no disclosure of E&S results
Independent verification of client reports – TPM or community monitoring – needed for higher risk projects
Inadequate coverage & supervision of FI projects, listed equities and trade finance