Will the World Bank's New Policy Reduce the Environmental and Social Harms of Clean Energy?

This article about the World Bank’s Approach to Responsible Exit policy is part of our series on responsible mining solutions. The push for clean energy is fueled by a growing demand for minerals, but conventional mining has a track record of harmful social and environmental impacts. Here is another potential solution to that problem.

The World Bank recently released its Approach to Responsible Exit, which includes five principles to ensure that risks to communities are managed responsibly when the development bank decides to exit a project investment.

The lending arm of the World Bank, the International Finance Corporation (IFC), was criticized in the past for leaving projects abruptly and putting communities in harm’s way.

Development finance institutions, like the World Bank, “have this development mandate to support countries to eliminate poverty, but in many cases, they act just like any other bank,” said Carla García Zendejas, director of the People, Land and Resources program at the Center for International Environmental Law.

Development banks engage in a wide range of infrastructure, energy, development and mining projects. Unfortunately, many communities are negatively impacted by those projects. Particularly with mining projects, large multinational companies take control of the land and may either directly, or consequentially, inflict serious environmental and social harm to the area. 

This happens around the world, with or without the investment backing of development banks. At least when a development bank is involved in a project, there are established mechanisms where communities can make complaints and seek remediation.

When the bank leaves, so do those mechanisms. That’s when the responsible exit principles are supposed to come into play.

What are the responsible exit principles?

On October 4, the World Bank and IFC released their long-awaited responsible exit principles. They include things like addressing environmental and social issues, evaluating different impacts, and considering institutional constraints and precedential implications. 

The document provides a brief explanation of each principle but does not go into explicit detail on what a satisfactory application would look like or the steps to achieve it. Having the principles in writing, however, is a good sign for communities.

“It’s taken thirty years for this,” Zendejas said. “It is significant that the IFC and the World Bank are putting this out because there was no policy before that said, ‘Wait, you should see if there are environmental or social issues before you leave a project.’”

Principle Two, for example, states that the IFC should, “Take into consideration whether IFC’s exit would increase or exacerbate existing significant environmental and social issues, and if so, evaluate options available, if any.”

Why are the principles needed?

“This is about finally addressing the harms, human rights violations and reprisals,” Zendejas said. “Unfortunately, bad projects on every continent have left communities in horrible situations.”

In a previous article, we highlighted a community in Colombia that was fighting to keep an IFC-funded mining project off their land. Other examples include schoolchildren abuse in Kenya, reprisals in Nicaragua and disregarding Indigenous rights in Panama.

The development of the principles is already affecting IFC-funded projects.

“In one of our cases in Panama, the new policy applied, and we have had more engagement with the IFC,” Zendejas said. “Before, they weren’t as open as they are now to hearing about how Indigenous communities are being ignored by the state of Panama and how their right to free, prior and informed consent still hasn’t happened.”

Will the new principles solve all problems?

It remains to be seen how the responsible exit principles will help communities affected by development projects funded by the IFC — projects that, by IFC mandate, are supposed to help those communities.

Along with the lack of clarity and definition around what each principle entails, there is a lack of transparency.

“Unfortunately, when the IFC actually uses these principles we won’t be able to read any document to see their reason for leaving or not leaving,” Zendejas said. 

The lack of transparency could lead to a lack of accountability, and there is no defined process for what happens if the IFC does not follow its principles. But the organization-wide mandate itself should hold the bank accountable.

“The principles apply to everyone at the IFC. It’s not just the environment and social team, not just the responsibility of those who design or monitor — it’s everyone,” Zendejas said. “Ideally because it is everyone’s responsibility, we should be able to see in the future if it was done properly or not.”

What’s the next step for protecting affected communities?

There are development finance institutions all around the world. One of the hopes is that these responsible exit principles will encourage other regional development banks, like the Inter-American Development Bank and the European Bank for Reconstruction and Development, to develop and release similar policies.

The IFC is also developing a remediation framework, which will hopefully bring some clarity to the process of providing remedies to communities, and the exact role that the IFC and its client partners play in providing remedies.

“Clients of the IFC are not against providing remedy,” Zendejas said. “More than anything, they want to find out how it will be done, how the IFC is going to roll this out.”

There is no timeline for the remediation framework’s release.

Development banks need to follow their mandates

While the release of the responsible exit principles is an important step, there are still major frustrations from communities and the organizations that represent them about the unremedied, repeated harm communities continue to experience at the hands of IFC-funded projects.

“What is the point of having an environmental and social sustainability policy, Indigenous peoples’ rights that you say you’re going to respect, stakeholder engagement that you say you’re going to do, consultation that you say you’re going to ensure, if you don’t do it?” Zendejas said. “If that’s going to be the case, take away your label as a development institution meant to benefit those who are most in need. Just be a private bank and stop saying that you are something else.”

Aaron Pedrosa of the Philippine Movement for Climate Justice became emotional saying he feels like a fixture at the World Bank meetings in October while speaking alongside Zendejas. He is still fighting for justice for 19 communities in the Philippines that were harmed by IFC-funded coal projects. He presented the formal complaint seven years ago.