The world’s most important financial institution, the World Bank, has released an independent report card on its own performance in supporting environmental sustainability in its operations and lending programs. The surprisingly candid report makes no bones about the fact the World Bank Group (WBG), along with the International Financial Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) could be doing a much better job.
In releasing the report 'Environment Sustainability: An evaluation of World Bank Support,' the World Bank’s Independent Evaluation Group (IEG) looked at support provided to public and private sector clients with regard to environmental sustainability during the past decade and a half. It addresses three key questions:
- How effective has the World Bank Group’s advocacy and operational support for the environment been at country and global levels?
- What constraints stand in the way of improving the effectiveness of these actions on the ground?
- What needs to happen to elevate environment sustainability as a country priority and a World Bank Group priority going forward?
The World Bank helps countries address environmental priorities and support policy reforms through analytical, advisory, and lending services. Engagement of IFC and MIGA with the private sector has mostly sought to ensure that investments adhere to environmental standards and that Advisory Services support broader environmental sustainability in the private sector. While IFC and MIGA have fewer direct investment projects designed to improve the environment per se, all of their financing operations, as is also the case for all World Bank investment projects, need to meet environmental due diligence requirements.
Principal Evaluation Findings
The report finds the World Bank Group has been a leader in calling attention to the global importance of environmental sustainability and has made progress in including environmental concerns in its strategies and analytical and lending products since 1990, and has provided support for the environment through a range of financial and non-financial services, private sector investments and guarantees, and regional and global programs and partnerships.
However the operational significance and impact of these efforts have been highly varied over time and across themes, countries, and issues.
Bank financial commitments for the environment and natural resource management have increased since the 2001 Environment Strategy was adopted, as have nonlending activities. However the operational significance and impact of these efforts have been highly varied over time and across themes, countries, and issues, with results being much weaker in lower-income countries, especially in Sub-Saharan Africa. Also, the Bank’s country strategies were found generally to take account national environmental priorities, although insufficient attention was often been given to longer-run sustainability concerns.
Other reviews of the Bank’s performance have been very critical of its efforts with respect to climate change. An analysis issued last month by the World Resources Institute (WRI) notes that despite acknowledging at the 2005 G8 Gleneagles Summit that climate change had been considered in less than 20 percent of the World Bank’s lending for the energy sector, very little has changed. See the GLOBE-Net article The World´s Greatest Market Failure.
Similar concerns were raised with respect to the performance of the International Financial Corporation (IFC). Its project support was found to be moderately satisfactory in meeting due diligence requirements and standards at the project level. But gaps were found in investment projects in Africa and in some industry sectors, and in achieving expected impacts with some environment-oriented Advisory Services. The quality of IFC’s environmental work at project appraisal was found to be good overall, but the quality of environment-related supervision of financial intermediary (FI) projects was found wanting.
The Multilateral Investment Guarantee Agency (MIGA), while not having an explicit business line to support environmentally beneficial projects, was fully capable of contributing to improved environmental quality by helping private sector clients demonstrate best practice and working with investors committed to 'doing good.' A review of MIGA projects suggests the Agency needs to make better progress in several areas: harmonizing assessment and monitoring requirements of projects with those of IFC; including environmental health and safety reporting requirements in its Contracts of Guarantee; requiring investors to set up environmental management systems on a timely basis, as appropriate to a project cycle; and moving beyond safeguard compliance to promote sustainability.
Overall, the assessment concludes there needs to be a shift in the focus of the IFC and MIGA - as part of the World Bank Group’s contributions on sustainability matters - to issues beyond those of individual projects to include the aggregation of environmental impacts in the affected sector or region of a country.
The review notes the WBG works with and through a number of regional and global environmental programs and networks, which has enhanced the effectiveness of support for environmental sustainability at both the country and global levels. However, some donors view the Bank as an insufficiently responsive partner.
Constraints impeding progress within the World Bank Group itself include:
- Competing priorities for the attention of senior managers
- Insufficient staff technical and operational skills
- Suboptimal use of limited administrative budgets.
The report also noted that the WBG often encountered country and firm-level constraints that impeded progress. These include:
- Insufficient commitment to environmental objectives, policies, and interventions;
- Rapid population growth, economic expansion, persisting poverty and market, governance, and institutional failures;
- Political instability and civil unrest;
- Inadequacy of information and understanding of the nature and causes of environmental problems and unclear definition of the domestic environmental agenda and its links to economic growth and poverty reduction; and weak legal, regulatory, financial, technical, human, and institutional capacity.
Why is this report important?
As noted in the foreword to the document, climate change is front page news, but other environmental problems are more immediate and serious in terms of developmental assistance. From local air and water pollution to soil erosion, water scarcity, deforestation, and loss of biodiversity, these problems are especially severe in developing and transition economies and have a particularly adverse impact on the poor.
Simply put, this report is important because the World Bank is the largest single financial entity in the world that is consistently involved in dealing with immediate and pressing environmental concerns.
Total World Bank commitments between fiscal 1990 and 2007 were $401.5 billion in 6,792 projects. The 2,401 projects specifically identified as involving the environment and natural resource management (ENRM) are officially estimated to include relevant commitments on the order of $59 billion.
ENRM commitments in investment projects considered to be at least 80 percent for environmental improvement were $18.2 billion (the remainder of the $59 billion was in projects with smaller shares devoted to the environment). The total includes Bank-administered GEF grants, Montreal Protocol projects, and carbon finance. An important part of this figure was for sanitation infrastructure (for example, wastewater treatment plants in China and elsewhere). Because of the way Bank commitments are identified, it is unclear exactly how much lending has gone directly for environmental improvement, but the priority given to lending for ENRM appears to be modest.
IFC’s engagement with the private sector overall (that is, not dealing specifically with the environment) has grown rapidly in recent years, with annual commitments more than doubling from $3.9 billion to $8.2 billion between 2003 and 2007. From fiscal 1990 through 2007, IFC committed about $56 billion, with environmental support such as GEF projects for about $1 billion and Advisory Services for environment and social sustainability business line projects totaling $208 million by end-2007, representing a quarter of IFC Advisory Services funding.
Recommendations of the Independent Evaluation Group
In view of the increasing importance of environmental sustainability for economic growth, poverty reduction, and human well-being, the Independent Evaluation Group believes the World Bank Group should seek to enhance the effectiveness of its activities in support of environmental sustainability. In particular it must:
- Increase attention to environmental sustainability in the World Bank Group by ensuring that environmental issues enter fully into discussions of its strategic directions and in Regional and country assistance programs.
- Move to more cross-sectoral and spatially oriented approaches to environmental support and strengthen staff skills.
- Improve the Bank Group’s ability to assess its support for the environment and to monitor and evaluate the impacts of its environment-related interventions.
- Improve coordination among the Bank, IFC, and MIGA and between the World Bank Group and external partners (both public and private) in relation to the Bank Group’s environmental mission and ensure consistent and effective implementation at the corporate and country levels.
Given the importance of the World Bank in helping countries to come to grips with their economic, social and environmental problems, and in view of the over-riding impacts that climate change will have on those economies and regions least able to cope, it is crucial that the Bank’s performance in promoting sustainability be greatly improved.
The Report of the Independent Evaluation Group provides the basis for much needed reform of the Bank’s lending policies and in the support provided to help countries to become more sustainable with respect to the management of their environmental progams.