World Rainforest Movement

The International Finance Corporation (IFC): Luring Increased Private Sector Investment into Forestry and other Sectors Affecting Forests At Any Price?

The International Finance Corporation is the member of the World Bank Group which lends directly to the private sector or purchases equity stakes in private sector companies that do business in developing countries. But the IFC’s stated role goes beyond helping to generate profits for the private sector companies and their shareholders. According to its mission statement, the IFC exists to reduce poverty and improve people’s lives through sustainable private sector development.

Working in tandem with the IFC is MIGA (Multilateral Investment Guarantee Agency) which provides insurance against political and commercial risks to corporations operating in developing countries, economies in transition or emerging markets – whichever euphemism we may choose.

At present the IFC has a committed portfolio of close to US $ 18 billion, but its role in syndicating loans from private banks for infra-structure, oil development and other sectors increases its influence far beyond its own investments.

The World Bank’s 2002 Operational Policy on Forests (OP 4.36) only applies to the Bank’s public sector operations which is when the Bank lends to governments. It does not apply to the IFC and MIGA. But OP 4.36, a brief document laying out mandatory guidelines, is accompanied by a Forest Strategy document which is all encompassing and entirely voluntary. This Strategy document which was also adopted by the IFC calls for vastly increased private sector investment in the forest sector to be mobilized by IFC and MIGA.According to the Forest Strategy, MIGA would have a larger role in forests through its ability to insure private investors against political and catastrophic risk. This naturally begs the question of how the Bank’s central goal of poverty reduction through sustainable forest management can ever be reconciled with support for this type of high risk forestry investment, where private sector risk is cushioned by the public purse while forest-dependent peoples and ecosystems are bearing the cost for ill-conceived schemes.

What does apply to the IFC is a 1998 Operational Policy on Forestry (OP 4.36 – which is analogous to the World Bank’s previous policy of 1993) which in theory is mandatory. Among the provisions of the policy are: a ban on direct financing of logging operations or the purchase of logging equipment for use in primary moist tropical forest;the promotion of the active involvement of local people in long-term sustainable management of forests; and the requirement to undertake environmental and social assessments of forests being considered for commercial use. If fully implemented, this policy would help address concerns about ecological sustainability and respect for the rights of indigenous peoples and forest-dependent communities more broadly.

But a listing of current projects under preparation by the IFC appears to indicate that it is operating in a policy vacuum despite the – theoretically – mandatory nature of the safeguard policies, which include Operational Policy 4.36 on Forestry. None of the forestry-related projects in the list requires a full environmental assessment. All are listed as Category B projects for which a simple desk review is usually deemed sufficient:

India – AP Paper Mills $ 35 million loan + $ 5 million in equity (approved July 6, 2004)
China – Chenming Corporation Pulp & Paper – $ 75 milion
China – Krono Beijing- Wood Panels $ 21.69 million
Brazil – Aracuz Celulose- $ 50 million
Chile – Sociedad Inversora Forestal S.A. – $6.5 million
Uruguay – Pulp and Paper Metsa Botnia –$ 100 million
Russian Federation – Kronospan Wood Panels –$ 70 million
This brief list of projects currently in the pipeline barely scratches the surface. It tells us nothing about investments in the hundreds of millions of US dollars in forestry currently being implemented. In addition to forestry, IFC investments in extractive industries, large-scale infra-structure, agribusiness, etc. are in many cases likely to have significant impacts on forests and forest-dependent people.The latest IFC listing includes investments in hydropower in India, gas in Bolivia and coal-fired power plants in the Philippines. None of which are listed as category A projects and therefore will not require a full environmental assessment.Furthermore, one third of IFC funding supports banks and other financial intermediaries. An example of the IFC’s latest listing is a US $ 40 million loan for Banco Agro Industrial de Exportaciones (Banex) of Costa Rica to expand export-oriented agribusiness. Again, there is little transparency on how the environmental and social impacts of these types of loans are accounted for, prevented or mitigated.

The IFC is currently in the process of revising its environmental and social policies as well as its disclosure of information policy. As described by the IFC, the revision is part of its efforts to fully integrate sustainability in all its business activities. NGOs fear that the IFC plans on replacing mandatory safeguard policies –for which it can be held accountable– by almost voluntary performance standards.NGOs across the world are calling for clear and enforceable rules for IFC lending and the institutional reforms necessary to ensure their implementation. IFC investments in forestry and extractive industries are a stark reminder of the need for transparent monitoring and evaluation of the companies benefiting from IFC support and for effective accountability to affected communities and the public at large.

By Korinna Horta, Environmental Defense, e-mail: khorta@environmentaldefense.org, http://www.environmentaldefense.org

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