Friends of the Earth does not oppose investing in the private sector so long as IFC can meet this basic test: that the investments are environmentally and socially sound, demonstrate a positive developmental impact beyond just economic growth and help to alleviate poverty. For that to be realized, IFC must seize on its role and leverage in the global economy. As a financier, capital mobilizer and partial owner of some projects, IFC can make a difference in development. The question is how willing is IFC to use this leverage and how quickly will they use it?

Friends of the Earth makes the following recommendations to IFC to improve its overall developmental impact and general operations as a publicly owned institution.

Policy Recommendations

• Maximize Positive Development Impact by Adopting Development Screen. IFC should adopt a development screen that establishes clear development objectives to evaluate whether or not projects will contribute positively to development. Based on the experience of the socially responsible investment community, a development screen would provide more clarity for staff and clients on the types of projects that meet the World Bank Group's development goals. A screen would clarify the kinds of results IFC aims to achieve from their investments, elaborate for staff and clients how it measures development impact and reduce the time and resources spent on projects that do not match the organization's priorities for development results on the ground. A development screen would enable IFC to be more selective in the projects it supports. The development, or investment, criteria should be developed through a consultative and participatory process that seeks input from a variety of stakeholders and civil society. The objectives could include, for example, that a project should generate long-term local employment, support women entrepreneurs, facilitate the transfer of environmental technology, or promote investment in environmentally sound businesses. Adoption of a development screen approach would respond to the criticism lodged by stakeholders, including some of the shareholders, and avoid projects that have no real development benefit.
• Evaluate and Measure Development Risk. IFC evaluates the financial risk associated with projects, but not development risk. Development risk may include political freedoms in a given country, the human rights situation, or the presence of corruption. Many factors determine the success of a project, and often these factors are not related to the financial viability of a project. IFC should develop analyses of the development risks associated with a project and whether or not the conditions exist for a project to contribute to positive development impact. Each project should be evaluated for its development risk as well as its financial risk when deciding whether or not to support a project.
• Invest in Environmentally and Socially Sustainable Investments. IFC should use its leverage to change development paths, not simply development impacts. As a facilitator of private investment in the developing world, IFC has the ability to influence the kind of private enterprise that is supported in these countries. IFC should help to set a more sustainable development path that is environmentally and socially beneficial. These investments could include the development of renewable energy and organic agriculture, and the conservation of important natural resources. It would require IFC to think outside the box, reach out to innovative business developers, be more pro-active rather than reacting to the private sector's priorities, and set internal goals to identify the kinds of projects and sectors that deserve support. Such a strategy may also help diversify the companies IFC assists.
• Screen Companies for Their Environmental and Social Record. Companies with currently poor records of behavior, which could include environmental violations and allegations of human rights abuses, corruption and problems working with local communities, should not benefit from IFC financial support. In the due diligence process IFC should review prospective clients' records of corporate behavior before too much time and resources are invested in the project. If a company has a continual record of problems, then IFC should not financially support this company, but may opt to work with the company to modify its corporate behavior. This assistance could include training for smaller companies that may not have the ability to develop standards on their own or may not understand how to apply them. By doing this, IFC would use its leverage to challenge companies to operate by higher standards and take corporate responsibility seriously.
• Reduce Environmentally Harmful Lending by Expanding Exclusionary Lending List. IFC currently maintains a list of projects that are excluded from financial backing because of their environmental and social impact. This list currently includes, for example, production or trade in weapons, tobacco, and gambling enterprises, and trade in endangered wildlife, ozone-depleting chemicals and radioactive materials. IFC should update and revise this list to exclude:
  1. Projects in or impacting World Heritage Sites, UN List of National Parks and Protected Areas and other intact ecosystems of global importance;
  2. Infrastructure or extractive projects in frontier or primary tropical, temperate or boreal forests;
  3. Oil, gas and mining investments, with an immediate ban in pristine and ecologically important areas;58
  4. Projects involving the production or use of persistent organic pollutants;
  5. Large dams with significant environmental/social impacts or large scale resettlement;
  6. Aquaculture located in mangrove areas; and
  7. Large-scale livestock facilities.
  
• Strengthen Environmental and Social Standards. IFC should apply "best practice" as required practice. IFC's policy framework should be expanded to include best practice standards from information disclosure to standards for the mining industry to consultation with local communities (including making the good practice consultation requirements mandatory for Category A Projects). IFC's policies do not fully address social and environment-related issues. Many issues, such as corruption and corporate bribes, the relationship between companies and security forces, interactions with local communities, child labor, and worker and human rights issues are currently not addressed. Rather than ignore or address these issues in an inadequate or inconsistent manner, IFC should identify what is best practice in each of these areas and adopt best practice as the required standard. This is particularly important if IFC wants to be in a position to challenge and lead the private sector to operate more responsibly.
• Use Leverage to Establish Environmental and Social Standards at Export Credit Agencies and Private Financial Institutions. Assist the Export Credit Agencies, commercial banks and private insurers in establishing environmental and social review standards and management systems for their investments. IFC should contribute to an overall effort to improve international standards applied by the financial community.
• Improve Information Disclosure. IFC's information disclosure policy should be strengthened by clarifying the definition of business confidential information and allowing the public release of all project-related information that is not business confidential, including information about projects that are financed through financial intermediaries. This should include the public release of independent third-party audits of environmentally and socially sensitive projects, emergency response plans, and oil spill response plans, for example. Furthermore, IFC should release environmental assessments (EAs) no later than 120 days before a project decision, and it should release the Summary of Project Information for Category A projects at the same time EAs are released. IFC practice should favor more disclosure and transparency so long as that practice does not compromise the private sector's financially sensitive information.