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November 1, 2005

The Honourable Ralph Goodale
Minister of Finance
House of Commons
Ottawa, Ontario
K1A 0A2

Dear Minister Goodale,

As IFC nears the final stages of its safeguard policy revision process, it is essential that Governments and Board members actively encourage International Finance Corporation (IFC) to make further improvements to its Sustainability Policy and Performance Standards during the public comment period, which ends November 25th.

The new system is a radical shift from current policies and approaches. IFC has proposed a system based on more flexibility and discretion than the past, placing more responsibility on their clients to meet the aims of the policies and giving IFC staff broad discretion in deciding what is minimally required in each project. In exchange for more discretion, the system should offer increased assurances that IFC will improve its oversight and compliance approach, increase its own accountability, and guarantee that the information it receives and on which it bases decisions is independently verified.

The fundamental problem with the latest draft set of policies is that while IFC is asking for more latitude to operate flexibly, they have not provided, in turn, parallel requirements to improve their own accountability or committed to a system of monitoring and oversight to ensure that the quality of their portfolio will improve, not decline.

While civil society organizations continue to have many concerns and technical comments addressing each Performance Standard (PS), we have prioritized and highlighted the following critical issues, which we believe require correcting before the Board adopts the final policy framework.

1. Dilution of Existing Standards

In spite of IFC Management's commitment otherwise, the Performance Standards include several examples where existing policy requirements are weakened or are less clear. IFC argues that they have only made these changes to address the fact that their borrowers are from the private sector, yet this explanation is not consistent with all of the changes. What follows are four of the most egregious changes to current policy, which should be corrected:

• Independent Assessments: IFC's draft PS 1 no longer requires third-party, independent assessments. This change neglects one of the points IFC's Ombudsman observed in its original evaluation that IFC needs to improve the quality and oversight of assessments. Objective information, independent of the client, is an essential requirement for an effective assessment system. The new levels of discretion being built into the IFC system require corresponding independent assessments to maintain credibility, objectivity and quality.
• Resettlement: IFC's draft PS 5 on involuntary resettlement unacceptably narrows the scope of and weakens existing WBG policy, posing clear risks of impoverishment and externalization of costs. Among other things, IFC's proposed PS 5 reverses policy protections and instead discriminates against people without title to their land.. It also eliminates fundamental requirements such as baseline socio-economic surveys and land-based resettlement strategies for people whose livelihoods are land-based.
• Indigenous Peoples: In the current policy (OP 4.10) on indigenous peoples, broad community support must be obtained for any project affecting indigenous peoples' traditional lands, territories and resources. In draft PS 7, broad community support is only required for large projects with significant impacts. This does not provide adequate safeguards for the rights of indigenous people, and exposes clients to both financial and reputational risks associated with community rejection of and resistance of projects.
• Exclusion List: This has yet to be released but should include things like no projects in primary forests. This must be released before the close of the public comment period to allow for input.

2. Community Participation and Engagement

Specifying how and when the affected community will be engaged in the project development process is essential. The current policy language is either vague or incomplete in this area.

• Role of Affected Community and Action Plans: The development of the Action Plan is one of the most critical stages for project development and acceptance, and the crux of IFC's proposed system. The client's interpretation of its obligations, as well as the community's needs and benefits should be reflected fully in the Action Plan. In IFC's draft PS 1, the community is not consulted on the Action Plan, nor will they have a right to review a draft Action Plan. The draft Action Plan should be publicly released to the local community and should be the basis for informed consultation between the client and the community. Furthermore, the language requiring public release of a final Action Plan should also be re-inserted into the Disclosure Policy. Similar points have been made by the CAO regarding the Action Plan.
• Clarity on Minimum Consultation Requirements: Contrary to existing requirements, draft PS 1 does not set any minimum requirements or benchmarks for consultation with local communities. PS 1 should restore the requirements of the existing policy (OP 4.01 para. 12) which requires that for Category A projects, the project sponsor consults "project-affected and local nongovernmental organizations at least twice during the EA process: (a) shortly after environmental screening and before the terms of reference for the EA are finalized [i.e. during scoping], and (b) once a draft EA report is prepared."

3. Monitoring and Reporting Issues

• Reporting on the Development Impact at the Project Level: In proposing this system, IFC argues that it will deliver better development results. At the same time, IFC is unwilling to commit to reporting on those results at the project level, insisting instead on aggregate level reporting. Identifying expected development benefits is only beneficial if results are measured, and lessons are incorporated into future operations. IFC's unwillingness to commit to project-level development impact reporting raises serious questions about its commitment to accountability.
• Requiring Independent Monitoring Reports: One of the Board approved Extractive Industries Review (EIR) commitments was to require independent monitoring reports for all large projects, a commitment that is absent from the Performance Standards. IFC should adhere to this commitment, and follow the ADB by requiring public disclosure of these reports.

4. Addressing Pollution Related Health Impacts

One issue the Performance Standards does not address is pollution related health impacts. While IFC describes this as an issue that will be addressed in PS 3, in fact there is no provision for addressing health impacts resulting from pollution generated directly from project operations. Whether addressed in PS 3 on Pollution, or PS 4 on Community Health and Safety, clients should be required to assess and anticipate pollution related health impacts on communities, including the establishment of baseline data, and include provisions for ongoing monitoring, assessment and response to health impacts caused directly by projects.

5. Human Rights

Human Rights language: The human rights language proposed in the introduction to the PS states the following: "IFC also recognizes that the roles and responsibilities of the private sector in respecting human rights are emerging as an important aspect of corporate social responsibility. The Performance Standards, developed by IFC to help private sector clients address environmental and social risks and opportunities, are consistent with these emerging roles and responsibilities." This language runs the risk of enforcing the erroneous notion that human rights obligations are evolving, ambiguous and unclear, and private actors can choose to respect them or not.

OP 4.01 states in reference to international environmental law that IFC will not finance projects that undermines country's obligations. The language should be clear that IFC expects its private sector clients to respect international environmental and human rights laws.

To assist in implementing this, the Category definitions should be changed to read environmental, social and human rights impacts. Identifying human rights impacts is not onerous on companies as they are familiar with the human rights situation through their political risk analysis. However, changing the definition to include human rights would then require companies to do a "reverse flow analysis" to understand the inter-play between the investment and the human rights situation.

Free Prior and Informed Consent (FPIC): A meaningful consultation means that the outcome is not pre-disposed. By avoiding the legal term Free, Prior, Informed Consent in regards to indigenous people, IFC is failing to provide the leadership necessary as a development organization to ensure that affected indigenous communities are partners in development. By avoiding the requirement of consent by affected communities an element of coercion remains. This history of coercion is what has plagued IFC and will only be stopped if FPIConsent is realized.

Lastly, I would like to remind you that the WBG Management proposed and the Board approved several commitments in response to the EIR that have not been incorporated into the Performance Standards, despite repeated references in the Management Response that these issues would be addressed in the upcoming Safeguard Review. Some examples include:

• Requiring independent monitoring for large projects (note: not explicitly EI projects), including using community based monitoring systems (page v, Management Response);
• Commitment to address performance bond and resettlement insurance compensation issues as part of the IFC safeguard review and ensure that the Resettlement Action Plans have an adequate budget (page 31, Management Response);
• Recognizing the "principle that due to the high value of some biodiversity resources, there are effectively 'no go zones' in the world for extractive industries" (page v, Management Response)

We also suggest that you discuss the Compliance Advisor/Ombudsman (CAO)'s review of the latest version with her directly.

We look forward to seeing the impact of Canadian leadership on these issues and request that Canada ensures it inputs to the public consultation are made publicly available.

Sincerely,

Graham Saul
International Program Director
Friends of the Earth Canada
Co-Chair of the Halifax Initiative Coalition

On behalf of its members:

Canadian Catholic Organization for Development and Peace
Canadian Conference of Catholic Bishops, Social Affairs Office
Canadian Council for International Co-operation (CCIC)
Canadian Friends of Burma
Canadian Labour Congress (CLC)
Canadian Lawyers for International Human Rights (CLAIHR)
CAW - Canada
CoDevelopment Canada
C U S O
Democracy Watch
Falls Brook Centre
KAIROS: Canadian Ecumenical Justice Initiatives
MiningWatch Canada
North-South Institute
Oxfam Canada
RESULTS Canada
Rights & Democracy
Sierra Club of Canada Nuclear Campaign
Social Justice Committee
Steelworkers Humanity Fund
Toronto Environmental Alliance
World Interaction Mondiale

cc. Marcel Massé, Canadian Executive Director at the World Bank