34955 DISCUSSION SAFEGUARD POLICIES: FRAMEWORK FOR IMPROVING DEVELOPMENT EFFECTIVENESS A DISCUSSION NOTE ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE DEVELOPMENT AND OPERATIONS POLICY AND COUNTRY SERVICES OCTOBER 7, 2002 ABBREVIATIONS AND ACRONYMS BP Bank Procedure CAO Compliance Advisor/Ombudsman CAS Country Assistance Strategy CDD Community-Driven Development CEA Country Environmental Analysis CODE Committee on Development Effectiveness CPIA Country Policy and Institutional Assessment CY Calendar Year EA Environmental Assessment EIA Environmental Impact Assessment ENV Environment Department ESSD Environmentally and Socially Sustainable Development Network ESW Economic and Sector Work FY Fiscal Year IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation LEG Legal Vice Presidency MFI Multilateral Financial Institution MFI-WGE Multilateral Financial Institutions Working Group on Environment MIGA Multilateral Investment Guarantee Agency NGO Nongovernmental Organization OED Operations Evaluation Department OD Operational Directive OP Operational Policy OPC Operational Policy Committee OPCS Operations Policy and Country Services OPN Operational Policy Note PREM Poverty Reduction and Economic Management Network PRSC Poverty Reduction Support Credit QACU Quality Assurance and Compliance Unit QAG Quality Assurance Group SDV Social Development Department SEA Strategic Environmental Assessment SecEA Sectoral Environmental Assessment SAFEGUARD POLICIES: FRAMEWORK FOR IMPROVING DEVELOPMENT EFFECTIVENESS A DISCUSSION NOTE CONTENTS Page Executive Summary..................................................................................................................... iii I. Introduction ...........................................................................................................................1 II. The World Bank Group's Safeguards Framework.............................................................3 III. Emerging Safeguard Issues ..................................................................................................6 A. Policy Issues .......................................................................................................................6 B. Client Priorities, Systems, and Capacities ..........................................................................7 IV. Two-Pronged Modular Approach for the Bank..................................................................9 A. Improving the Clarity and Consistency of Safeguard Policies.........................................10 B. Fostering Borrower Ownership ........................................................................................13 V. Moving Forward...................................................................................................................16 A. Benefits and Risks............................................................................................................16 B. Implementation................................................................................................................ 18 C. Next Steps........................................................................................................................ 20 Boxes Box 1. World Bank Group's Safeguard Policies ............................................................................3 Box 2. Borrower and Bank Responsibilities: An Illustration from Environmental Assessment .........................................................................................................................4 Box 3. The World Bank's Inspection Panel....................................................................................5 Box 4. Client Capacity Building--Representative Examples ........................................................9 Box 5. IFC's Sustainability Initiative ...........................................................................................10 Box 6. Pollution Prevention and Abatement Principles--An Illustrative Example.....................12 Box 7. Innovations in Capacity Building--An Example from Brazil..........................................14 Box 8. Vietnam Pilot on Policy Harmonization ...........................................................................15 Box 9. Elements of the Two-Pronged Modular Approach: Linkages and Responsibilities.................................................................................................................18 Annexes Annex A. World Bank's Safeguard Policies................................................................................ 21 Annex B. Safeguards Work Program and Action Matrix............................................................ 23 SAFEGUARD POLICIES: FRAMEWORK FOR IMPROVING DEVELOPMENT EFFECTIVENESS A DISCUSSION NOTE EXECUTIVE SUMMARY 1. The World Bank has been a leader among development institutions in promoting attention to safeguard issues. It has developed policies, established implementation and over- sight frameworks, and made resource commitments for safeguards that are unequaled among international development institutions. However, in light of recent changes in development approaches and lending instruments, the Executive Directors of the World Bank have requested an opportunity to discuss the future of the Bank's system of safeguard policies, including specific mechanisms for making them more relevant to changing development practices and client needs. 2. Overview of Paper. This note discusses the emerging issues to which the safeguard system of the World Bank Group must respond, touches on current safeguards-related work undertaken by IFC and MIGA, and makes recommendations for the Bank that are intended to maintain and enhance due diligence while permitting innovations that improve development effectiveness. No changes to policies are proposed in the short-term. In fact, the Bank anticipates that both compliance and results will continue to improve because of measures already in place and additional actions proposed such as enhanced supervision and greater emphasis on results. Any changes to policies in the medium- to long-term would be made only after careful and transparent pilots are undertaken and evaluated, and discussions with Executive Directors, borrowers, and external stakeholders are carried out. 3. Short-Term Measures. The paper proposes a number of short-term measures to clarify the intent of safeguard policies and improve their effectiveness: · preparing and disseminating a Management statement on the purpose of safeguards and their role in improving development outcomes; · clarifying the treatment of safeguard issues in different lending contexts, including adjustment lending; · strengthening supervision and increasingly focusing on both results and on the downstream review and learning required to achieve them; · strengthening borrower capacity and creating incentives for improvement appropriate to borrowers with different capacity levels; · making greater use of the existing flexibility to share specific safeguard responsibilities with clients that have proven capacity, and to determine the type and modalities of oversight on the basis of client capacity and track record; iv · introducing transparent and carefully monitored pilots intended to use national systems in countries with proven capacity and to draw lessons from this experience; and · supporting ongoing efforts to harmonize impact assessment principles and procedures with other donors and with borrowers. 4. Medium- to Long-term Measures. Depending on the results of pilots and other actions, the outcome of the work on harmonization, and the conclusion of consultations with Executive Directors, borrowers and other stakeholders, measures to be taken in the medium- to long-term could include preparation of an integrated statement on safeguard objectives and procedures for the Bank; establishment of a safeguard system based on principles that can be more broadly applied in the programs of client countries in pursuit of enhanced development results; and increased reliance on country systems and procedures in countries with proven capacity. 5. IFC and MIGA. The Bank, IFC, and MIGA each administers its own safeguards systems independently, and a formal mechanism for coordination, involving managers and staff, has recently been instituted. IFC is pursuing relevant safeguard issues through its ongoing sustainability initiative and through a review of safeguards by the Compliance Advisor/Ombudsman's office. IFC and MIGA will consider specific actions when this review has been completed and reviewed by IFC and MIGA managements. 6. Benefits and Risks. While significant benefits can be derived from the proposals presented in this note, there are also risks and costs. The benefits include a significant scaling up of the development impact of safeguards when countries own and apply them not only in Bank- assisted operations, but also broadly across their development programs. Among the risks is a possible concern among borrowers that attention to safeguard issues is being broadened, while others may misperceive proposed innovations as a way for the World Bank to dilute its commitment to its safeguard policies. To minimize these risks, Senior Management will continue to closely oversee the implementation and further evolution of safeguard policies. The process will be carried out in a transparent manner with regular reporting to Executive Directors and with broad consultation and consensus building. 7. Next Steps. Bank Management has discussed this note with the Executive Directors in the Bank's Committee on Development Effectiveness and is now posting it on the Web for public comment. A dialogue will also be initiated with borrowers and other stakeholders. Within the Bank, this work will be managed by the Quality Assurance and Compliance Unit within the Environmentally and Socially Sustainable Development Network, in close collaboration with Operations Policy and Country Services. SAFEGUARD POLICIES: FRAMEWORK FOR IMPROVING DEVELOPMENT EFFECTIVENESS A DISCUSSION NOTE I. INTRODUCTION 1. The operational policies of the World Bank Group1 are vital to its efforts to promote poverty reduction and sustainable development. A subset of these policies requires that potentially adverse environmental impacts and selected social impacts of Bank Group investment projects should be identified, avoided or minimized where feasible, and mitigated and monitored. Although the Bank has had environmental and social policies for more than 20 years, Bank Management first articulated the concept of safeguard policies in 1997 to stress the importance of this specific set of operational policies for achieving its environmental and social objectives and for enhancing the quality of its operations. Today, the institutions of the Bank Group share a set of similar safeguard policies, and they have institutional arrangements for implementation and oversight, with modifications as necessary to address their specific lines of business and organizational structures. 2. Beyond Compliance. In the past few years, the Management and Executive Directors of each of the Bank Group institutions have focused on further strengthening the implementation of their safeguard policies. In recent discussions within the World Bank,2 the Executive Directors reaffirmed the importance of compliance with safeguard policies, but they also requested an opportunity to discuss the future of the Bank's system of safeguard policies, and to consider mechanisms for making safeguards more relevant to changing development practices and changing client needs. In particular, they wanted to know how the Bank Group might do more to promote country ownership and innovation, build country capacity, and avoid excessively risk- averse behavior by staff and clients. 1 In this paper, IBRD and IDA (the World Bank or the Bank), IFC, and MIGA are together referred to as the World Bank Group or Bank Group. The International Center for the Settlement of Investment Disputes is not included. 2 In June 2000, Bank Management circulated to the Board a note entitled Country Focus and Safeguard Policies: Institutional Issues (attached to INSP/R2000-4/1), June 12, 2000, which, among other things, summarized the program to improve the implementation of safeguard policies and began to raise issues about how the safeguard framework should evolve. During further discussions in November 2000, the Committee on Development Effectiveness (CODE) stressed the importance of promoting country ownership and capacity building. This issue surfaced again during the discussion of the Cost of Doing Business: Fiduciary and Safeguard Policies and Compliance (SecM2001-469), July 17, 2001, and in November 2001 when the CODE Subcommittee considered the Operations Evaluation Department's (OED) evaluation of the Vietnam Country Assistance Strategy in which OED recommended actions to strengthen country ownership and countrywide application of safeguard policies; see Vietnam: Country Assistance Evaluation, OED Report No. 23288, November 2001. 2 3. Purpose of this Note. This discussion note responds to the Executive Directors' request. It describes changes inside and outside the Bank Group that make it necessary for the system to continue to adapt and evolve, and touches on current safeguards-related work undertaken by IFC and MIGA.3 It then makes a series of recommendations intended to maintain and enhance the Bank's due diligence in the short term while supporting innovations in meeting safeguard objectives and enhancing development impact. The paper also describes medium- to long-term measures to develop a safeguard system based on principles that can be broadly applied in the programs of client countries, improve the quality of borrower programs, and allow financing institutions to increasingly rely on a country's own systems and procedures. The proposals include provisions for dialogue and consensus building and for Executive Directors' approval, as appropriate. 4. Related Work. In February 2002, the Committee on Development Effectiveness (CODE) received a companion paper discussing recent Bank efforts to strengthen internal controls and management of safeguards. The Bank's broader environmental and social agendas are discussed in the Environment Sector Strategy,4 as well as in ongoing work on the Social Development Strategy and the proposed social analysis policy. In addition, the work on the update of the Bank's operational policy on adjustment lending covers environmental and social aspects of the Bank's work in that context.5 The Office of the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for IFC/MIGA, is reviewing the impact and implementation of IFC's safeguard policies, and will summarize its findings and recommendations in a report that is expected to be finalized by the end of 2002. MIGA will also review its safeguard policy system in light of the CAO report and will report to its Board with recommendations on how it will further develop its framework. 5. Organization of the Note. Following this introduction, Section II of this note briefly describes safeguard implementation arrangements, and Section III describes the changing context of the Bank Group's safeguards system and key issues relevant to the effectiveness of the safeguard policies. Section IV presents proposals for Bank action, including the adoption of an approach that builds on lessons from ongoing efforts in procurement and financial management. Section V summarizes the benefits and risks of these proposals, discusses implementation, and sets out next steps. 3 The Environmentally and Socially Sustainable Development Network and Operations Policy and Country Services gratefully acknowledge the contributions of IFC and MIGA in providing information for this note, and in reviewing and commenting on drafts. 4 Making Sustainable Commitments--An Environment Strategy for the World Bank, ESSD, World Bank, December 2001. 5 From Adjustment Lending to Medium-Term Development Support: Key Issues in the Update of World Bank Policy (CODE2002-0036), May 20, 2002. 3 II. THE WORLD BANK GROUP'S SAFEGUARDS FRAMEWORK 6. Safeguard policies provide a mechanism for integrating environmental and social concerns into development decision making. In addition to providing guidance on measures to improve and sustain operations in specific areas, most safeguard policies provide that (a) potentially adverse environmental impacts affecting the physical environment, ecosystem functions and human health, and physical cultural resources, as well as specific social impacts, should be identified and assessed early in the project cycle; (b) unavoidable adverse impacts should be minimized or mitigated to the extent feasible; and (c) timely information should be provided to stakeholders, who should have the opportunity to comment on both the nature and significance of impacts and the proposed mitigation measures. As indicated earlier, the institutions of the Bank Group share a set of similar safeguard policies and institutional arrangements for implementation and oversight, with modifications necessary to address their specific lines of business and organizational structures6 (see Box 1). Box 1. World Bank Group's Safeguard Policies World Bank (IBRD and IDA) IFC and MIGA OP/BP 4.01 Environmental Assessment · IFC's safeguard policies are similar to the OP/BP 4.04 Natural Habitats Bank's, with modifications to reflect the private OP 4.09 Pest Management sector focus of IFC operations. OP/BP 4.12 Involuntary Resettlement · IFC applies OP 7.60, Projects in Disputed OD 4.20 Indigenous Peoples Areas, through its Legal Department, and, OP 4.36 Forestry because of its business focus, it has a policy OP/BP 4.37 Safety of Dams statement on Harmful Child Labor and Forced OPN 11.03 Cultural Property Labor. OP/BP 7.50 Projects on International Waterways · MIGA follows its environmental and social OP/BP 7.60 Projects in Disputed Areas safeguard policies which are similar to those of IFC. Note: OP/BP is Operational Policy/Bank Procedure; OD, Operational Directive; and OPN, Operational Policy Note. The disclosure of information is an important aspect of the Bank's safeguard system; see BP 17.50, Disclosure of Operational Information, and The World Bank Policy on Disclosure of Information (The World Bank, Washington, D.C., 2002). IFC and MIGA each have individual policies on information disclosure. 7. Implementation Arrangements. The Bank, IFC, and MIGA each administers its safeguards system separately and independently, and each institution is accountable for its own decisions about compliance. When two or more Bank Group institutions are involved in joint projects, they collaborate closely and systematically on the due diligence, decisionmaking, and supervision processes (e.g., through joint missions, back-to-office reports, and clearances), and they exchange informal information and views on environmental and social issues on a regular basis. A formal mechanism for coordination and information exchange, involving staff and senior managers, was recently instituted. 8. Roles and Responsibilities. The borrower is responsible for selecting, preparing, and implementing projects that are assisted by the Bank Group, and for complying with Bank Group 6 IFC adopted a set of safeguard policies like the Bank's, but with modifications necessary to address its client base, project cycle, and organizational structure, in 1998. MIGA adopted IFC's policies in 1999 and, in May 2002, modified its policies to correspond more closely to its business needs. 4 policies. Staff advise and support borrowers in carrying out their responsibilities. Institutional arrangements for oversight are as follows: · Within the Bank, operational staff in the Regions provide information to borrowers and ascertain whether policy requirements have been met7 (see Box 2). The Environmentally and Socially Sustainable Development (ESSD) Network's Quality Assurance and Compliance Unit (QACU), which includes specialists from environmental and social disciplines and the Legal Vice Presidency, provides coordination and oversight support. The Legal Vice Presidency also provides advice on compliance with policy requirements. · In IFC, the Investment Support Group in the Environment and Social Development Department appraises the environmental and social issues arising from projects by reviewing environmental and social documentation prepared by the project sponsor, with levels of due diligence appropriate to the significance and complexity of issues involved. The Investment Support Group is responsible for providing environmental and social clearance for projects to proceed to Board approval, independent of the Investment Departments. · Like IFC, MIGA has a unit that is independent of the operations department and is responsible for environmental and social review and clearance of prospective guarantees. Box 2. Borrower and Bank Responsibilities: An Illustration from Environmental Assessment Borrower Bank Identifies and proposes projects to the Bank. Screens projects and determines environmental assessment (EA) category. Carries out EA in accordance with Bank requirements. Advises borrower on the Bank's EA and other safeguard requirements. Consults project-affected groups and local NGOs. Makes information available to the public through Provides relevant information in a timely manner in a the InfoShop. form and language understandable and accessible to the groups being consulted. Submits draft EA report to Bank before appraisal. Reviews draft EA report and determines whether it provides an adequate basis for processing the project for Bank support. 9. Oversight. The Bank Group institutions also have mechanisms for evaluation and independent assessment. 7 Safeguard considerations are now integrated into Regional and corporate risk reviews. These risk reviews consider, among other things, the risks associated with the client's implementation of safeguard policies as well as substantive and reputational risks if problems arise. They also consider ways to minimize and mitigate such risks during preparation and implementation. 5 · The Bank's Quality Assurance Group (QAG) reviews compliance with Bank safeguard policies in its quality-at-entry and quality-of-supervision reports; and the Operations Evaluation Department (OED), an independent unit within the World Bank, evaluates the Bank's work, the borrower's performance in implementing projects, and the Bank's contribution to the country's long-term development. An Inspection Panel provides a mechanism for independent review of the Bank's compliance with the provisions of its own policies (see Box 3). · For IFC and MIGA, the CAO provides independent audits of compliance and advice to the President of the World Bank Group on environmental and social outcomes, and investigates complaints filed by those affected or likely to be affected by a project they finance. In its two years of operation, the CAO has received 11 formal complaints, of which 9 have led to assessment and action. Guidelines on audits and reviews of policies are to be published shortly by the CAO.8 Box 3. The World Bank's Inspection Panel The World Bank created the Inspection Panel in 1993, to serve as an independent mechanism to ensure accountability in Bank operations. This was an unprecedented step among international financial institutions. The Panel provides an independent forum to review complaints that may be submitted by a community of persons--such as an organization, association, society, or any other group of individuals in a country--who believe their rights or interests have suffered or could suffer serious harm directly from the Bank's failure to follow its operational policies and procedures. The panel is empowered to review compliance with all Bank policies other than those related to procurement. The Panel consists of three members who are appointed by the Executive Directors for a nonrenewable period of five years. It is functionally independent of Bank Management and reports solely to the Executive Directors. Since the Panel was created, the Bank has approved over 2,400 projects. The Inspection Panel has reviewed 26 requests for investigation on these projects and it has proceeded to fully investigate 9 of them. The most frequent complaints involve the policies on Environmental Assessment (OP/BP 4.01), Involuntary Resettlement (OP/BP 4.12), Indigenous Peoples (OD 4.20), Project Supervision (OP/BP 13.05), and the Economic Evaluation of Investment Operations (OP 10.04). The Inspection Panel issues an Annual Report that provides a detailed overview of its activities and includes information on its mandate, staffing, and budget. More information on the creation, mandate, roles, and activities of the Inspection Panel is available at: http://wbln0018.worldbank.org/ipn/ipnweb.nsf. 10. Bank Evaluation Results. QAG studies over the past five years confirm generally good compliance with safeguard policies, with minor variations from year to year in overall environmental performance and sustained improvement on poverty and social indicators. A recent OED evaluation concluded that Bank projects are usually well designed to avoid environmental damage and have good environmental management plans, and that they have contributed to strengthening local capacity to carry out environmental assessments and implement environmental management plans.9 The same study recommended that the Bank strengthen its safeguards oversight system and processes, and in parallel, modernize and adapt the policy framework to take account of changing practices and Bank instruments and to reflect 8 The CAO also provides an ombudsman service with a focus on mediation and problem solving. Information on the Office of the Compliance Advisor/Ombudsman is available at http://www.cao-compliance.org/. 9 See OED Review of the Bank's Performance on the Environment ­ Final Report, March 2001. 6 the lessons of recent experience. It also recommended that the Bank expand safeguard training to ensure that managers and staff fully understand the safeguard policies and standards and this has since been done. 11. Strengthening the System. The Bank Group's safeguard policies, implementation and oversight frameworks and resource commitments are among the most rigorous and substantial of the multilateral financial institutions, and the Bank Group has been a leader in promoting attention to these concerns. Since the safeguards system was established in 1997, Bank Group institutions have improved the effectiveness of their safeguards frameworks by updating policies and adapting policy implementation to reflect business models. The Bank has also taken steps to establish procedures for risk assessment, review, and safeguard sign-off on projects; strengthen staffing, funding, and monitoring and reporting mechanisms; and improve procedures for applying safeguards consistently across Regions and departments. IFC's management systems include an explicit environmental and social procedure for project review, a reference manual and project processing program, and a new environmental and social risk rating system to track the shifting risk profile of projects and prioritize resources in project supervision. III. EMERGING SAFEGUARD ISSUES 12. Building on the progress reported above, the following sections of this paper set out the next steps in the continuing process of improving the Bank Group's safeguards framework. This section examines issues related both to the coherence, consistency, and applicability of the policies themselves, and to the focus and effectiveness of the system in mainstreaming environmental and social concerns in the work of client countries and the private sector. These issues, and the recommendations presented in the next section, are discussed as they relate to the Bank, with references to IFC and MIGA where relevant. A. Policy Issues 13. Recent work to convert World Bank policies from Operational Directives (ODs) to Operational Policies and Bank Procedures (OPs/BPs) has improved the clarity of individual environmental and social safeguard statements. However, these policies address different kinds of impacts and historically were not designed to be part of a tightly integrated and coherent suite of statements, so a number of issues remain on coherence, applicability, and specificity. 14. Coherence across Bank Safeguard Policies. Although the Bank's safeguard policies embody common principles, there are differences among them and within the system as a whole. For example, the environmental assessment policy covers all significant environmental impacts, but the social impacts it covers need to be clarified. Other policies differ in their provisions for public consultation and disclosure of information, in the lending instruments to which they apply, in clarity about exemptions, and in the level of guidance they provide to staff (see Annex A for details). In addition, the mix of safeguard policies is not comprehensive and risks creating policy compartments that inhibit a more holistic view of project impacts. Indeed, some of the policies--such as Forestry (OP 4.36) and Pest Management (OP 4.09)--provide broad advice on operations within a particular sector or sectors that goes beyond narrow "do-no-harm" concerns. 7 15. Applicability across Bank Instruments. The Bank's safeguard policies were developed primarily for traditional investment projects, which typically are narrow in scope, finance specific expenditures, and are geographically circumscribed. As currently conceived and drafted, the safeguard policies are not well suited to adjustment lending, which typically supports broader, economywide policy reforms that often have indirect, lagged, and uncertain effects.10 Similarly, safeguard policies are not readily applicable to sector investment lending operations, and to some variations of investment lending with multiple subprojects, such as social funds and community-driven development (CDD) projects. 16. Front Loading. Bank staff and borrowers give considerable attention to the safeguard policies during preparation and appraisal of projects. However, the policies give less attention to results, and supervision needs to be strengthened. Indeed, with the increasing focus on results in development operations, safeguard approaches are now needed that put more emphasis on monitorable benchmarks for progress, allow more flexibility in how the borrower achieves these benchmarks, and entail more accountability for results. 17. Issues in IFC and MIGA. Bank Group institutions share many of the same concerns. In addition to confirming the issues raised above, IFC has identified some major problems related to the length and prescriptiveness of the safeguard statements, and limitations on the use of professional judgment in safeguards interpretation. IFC has also found that safeguard policies do not provide adequate guidance to the private sector on accountabilities for the actions of third parties, including governments, which are crucial to development outcomes, but over which the private sector does not have direct control. Both IFC and MIGA are engaged in their own efforts to evaluate the effectiveness of their safeguard policies. 18. Differences among Financing Institutions. Most multilateral and bilateral partners have environmental and social policies. However, a recent survey found that even in areas that are broadly agreed--such as the environmental assessment process--there are significant differences in the specific requirements and in how they are applied. While most institutions have policies covering both environmental impacts and selected social impacts, they vary on requirements for the analysis of alternatives, consultation, disclosure, occupational health and safety, and core labor standards. These differences between donors reduce incentives for clients to develop common approaches, and for donors to collaborate on safeguard capacity building. They may also lead borrowers to "shop" for donors whose requirements in a particular area are less stringent. B. Client Priorities, Systems, and Capacities 19. As the development paradigm increasingly emphasizes country ownership and development results, the Bank's safeguards approach needs to be responsive to these changes and evolve in tandem. Some key issues are the fit between these policies and country environmental and social priorities, and countries' varying capacities to apply them. 20. Changing Development Issues. Bank borrowing countries often face different types of issues from those typically addressed in traditional investment loans. For example, economic 10 OP 4.01, Environmental Assessment, applies to sector adjustment loans, and OP 4.09, Pest Management, applies to all adjustment loans. 8 reform, privatization, and displacement caused by natural disasters and conflict often involve environmental and social impacts that are very different from those the safeguard policies were originally intended to address. Indeed, the application of specific safeguard provisions may distract attention from other important environmental and social concerns. For example, in a recent Bank-assisted investment project, considerably more Bank staff time was given to 5,000 people who were involuntarily resettled than to the 50,000 people moving to the same area on a voluntary basis, even though the problems they faced on arrival were virtually the same. 21. Application in Client Countries. The development paradigm is moving toward a model of client collaboration that sets objectives and reinforces country-specific, incremental steps toward achieving them. At the same time, however, safeguard policies have become increasingly specialized and prescriptive, and with this their application within the particular legislative frameworks of borrowers has become more difficult. As a result, some countries have two classes of programs from a safeguard policy perspective--one financed by the Bank, and the other by the borrower. In such cases, country ownership is limited and clients may avoid projects or project components with specific safeguard requirements or request support from other donors who have different policies or standards. This is a particularly crucial problem for the policies on resettlement and land acquisition, indigenous peoples, and consultation and disclosure, areas in which country legislation and approaches may differ in important ways from the approaches the Bank Group takes. There are fewer issues in the overall approach to EA, where more similar procedures are in place across countries. 22. Variations in Client Capacity. After more than a decade of environmental and social awareness and capacity building, there is now considerable diversity among countries--and among agencies and enterprises within countries--in their interest, commitment, and capacity to deal with environmental and social impacts and issues.11 But these differences have not been systematically reflected in the Bank's approach to safeguard implementation. In some cases, project-by-project approaches require redundant processes in more capable countries; and in countries that need significant ongoing institutional support, they may focus attention and resources on isolated projects rather than capacity building. To promote internal ownership and commitment to safeguard policies, an approach is required that clearly defines the objectives and principles behind these policies, assesses client capacity to implement them, and invests in developing or strengthening client capacity to put these principles into action. In many regions, such approaches are already being stressed. (See Box 4 for examples of recent Bank-supported capacity-building initiatives). 11 For example, a recent evaluation of 15 of the 27 countries in the Europe and Central Asia Region describes two systems, one based on Western environmental impact assessment models and the other used in many countries of the former Soviet Union. Some countries using Western models and seeking European Union accession have systems that are well advanced (e.g., Poland), while those country systems that are based on the Soviet model are often not fully compatible with Bank procedures. For this reason, capacity building requires an approach that is tailored to each system. See Environmental Impact Assessment (EIA) Systems in Europe and Central Asia Countries (The World Bank, May 2002). 9 Box 4. Client Capacity Building--Representative Examples All Regions and many Bank-supported country programs have capacity-building programs in place. Two notable examples follow: Africa. Drawing on the preferences expressed in a high-level meeting of environment ministers in Nairobi, the Africa Region developed a comprehensive strategy for developing EA capacity in Sub-Saharan Africa. From this initiative, a new Africa-based program emerged. One element is a program called Capacity Development and Linkages for Environmental Impact Assessment in Africa. Based in Ghana, the program's secretariat will serve to strengthen networking, cooperation, and collaboration in EA capacity building in African countries. In addition, a new center of excellence, the Southern African Institute for Environmental Assessment, has been established in Namibia to provide professional EA review, mentoring, and training focused mainly on the southern Africa region. Europe and Central Asia/Middle East and North Africa. In 1998, the Mediterranean Environmental Technical Assistance Program initiated an Environmental Assessment Institutional Strengthening Project through the World Bank's Development Grant Facility to assist cooperating countries in acquiring the necessary technical and policy tools to establish credible and operational EA systems. EA systems in Albania, Croatia, Egypt, Jordan, Tunisia, Turkey, and the West Bank and Gaza were assessed, and the results were used to define specific action plans to improve national EA systems and to increase their coherence with international norms, World Bank guidelines, and European Union directives. A second phase, initiated in 2000, established an EA Center in Tunisia; extended the assessment of EA systems to Algeria, Lebanon, Morocco, Syria, and Yemen; undertook collaborative workshops; and established a network of EA directors that have met several times in the last two years. 23. Oversight and Performance. Safeguard policies require the same level of Bank Group oversight and scrutiny of borrower processes for all clients, regardless of their track record or capacity. Current procedures and approaches do not recognize clients' good performance in addressing safeguard issues, nor do they provide strong incentives for countries to systematically enhance their own policies and institutions, or for private sector enterprises to build their capacity.12 Client consultations have shown that borrowers in the public and private sector generally agree with safeguard principles, but have reservations about the detailed prescriptive requirements that limit their approaches to achieving agreed ends. The challenge for the Bank is to find ways to advance the consensus around safeguard principles that are focused on development results and help borrowers manage the transition toward core principles and good practices, while recognizing and addressing stakeholder concerns about the Bank's own commitment to, and compliance with, those principles. IV. TWO-PRONGED MODULAR APPROACH FOR THE BANK 24. A Bank effort to address each of the two broad groups of issues raised in Section III is warranted in its own right. Greater coherence and clarity would help staff and clients to better understand safeguard policies and their role in enhancing the quality of development outcomes. In addition, stronger ownership of safeguards based on principles accepted across the 12 In recent years, private sector enterprises have faced growing pressures to adopt environmentally and socially sound policies and practices--pressures from regulatory improvements, increased public scrutiny, changing consumer behavior (putting a premium on environmentally and socially sound products), and changing investor behavior (in favor of socially responsible investment). As a result, leading institutions in the private sector can, and in some cases do, play an important role in developing the ground rules for "corporate responsibility" and promoting innovative approaches to implementation. However, the safeguard policies tend to "command and control" and are not formulated in a way to maximize the capacity of the private sector for self improvement using market-oriented approaches. 10 development community could lead countries to apply them more effectively in Bank-assisted operations and in their own development programs, thereby reducing transaction costs and scaling up development impact. However, addressing these two sets of issues in a coordinated way would also allow the proposed solutions on one set of issues to reinforce or facilitate actions on the other. This section presents a two-pronged approach through which the Bank could address both types of concerns. IFC will pursue relevant issues through its ongoing sustainability initiative (see Box 5), and through the CAO's review of safeguards. Box 5. IFC's Sustainability Initiative As IFC continues to rigorously apply its safeguard policies, the external environmental, social, and governance landscape is changing rapidly. In response to new business opportunities and threats to "business as usual" posed by public concern over sustainability, many firms have responded by upgrading their environmental, social, and governance performance. While the aggregate financial returns of "more sustainable" firms compared with those of others remain a topic of debate, the evidence is clear that many individual firms have succeeded in improving their bottom line through strengthened environmental, social, or governance performance (the "business case" for sustainability). Through its sustainability initiative, IFC has adopted a new role to help clients become aware of opportunities to gain from sustainability, beyond what they have to do to comply with the safeguards framework. A. Improving the Clarity and Consistency of Safeguard Policies 25. The following measures are recommended to help the Bank communicate more effectively the importance and relevance of safeguards, and the principles that underpin and unite them. 26. Producing a Management Statement of Due Diligence for the Bank. A brief overarching statement, issued by Management, would set out the Bank's general approach to the management of environmental and social impacts, reinforce the need for broad attention to these issues both in Bank/country dialogues and in projects, and clarify accountabilities between the Bank and the borrower and within the Bank. The development of this statement would allow a discussion about principles and approaches to due diligence, and would support other work on the key issues of coherence, consistency, and applicability. 27. Clarifying Social Coverage within the EA Process. The EA procedures of most multilateral financial institutions (MFIs) routinely consider social impacts that are mediated by the environment (noise and water pollution, for example). They may also consider impacts on directly affected groups (such as displacement or resettlement and adverse impacts on the welfare and livelihoods of local communities or vulnerable groups), and basic working conditions (especially issues of health and safety). Typically, broad social impacts, such as distributional impacts, are evaluated through other forms of economic and social analysis. Work is planned within the Bank to clarify which social impacts would be routinely addressed in the EA process, and which would be identified and addressed through such other mechanisms as country social analysis, social assessments, poverty assessments, or poverty and social impact analyses for countries with a poverty reduction strategy. This work would benefit from and would support related work undertaken in the context of the MFI harmonization effort described below. 11 28. Clarifying and Adapting the Application of Safeguards. While there is broad agreement that environmental and social impacts should be anticipated and addressed in Bank-financed operations, there is a need to develop or clarify approaches in the following situations. (a) Environmental and social impacts in adjustment operations. Work under way to update OD 8.60, Adjustment Lending Policy and convert it to the OP/BP format will address the environmental and social aspects of adjustment operations,13 including poverty reduction support credits (PRSCs).14 The evolving approach under consideration combines upstream analysis at the level of the Country Assistance Strategy (CAS), which would build on related analytic work where feasible, and treatment of environmental and social aspects at the level of an individual adjustment operation. (b) Safeguard approaches in other lending contexts. Work is also under way to better adapt safeguard approaches to sector investment loans, and to investment loans with multiple subprojects, such as social funds and CDD operations. For sector investment loans, strategic and sectoral assessments and other types of environmental and social analyses would be used to identify critical issues and mitigation options and to lay the groundwork for capacity building in critical sectors and programs. The emerging approach to social funds and CDD operations would involve project-level frameworks for the review of environmental and social safeguard issues.15 (c) Special circumstances. Procedures for addressing safeguard issues in the context of emergency projects and other unusual circumstances are being developed for the use of ESSD/QACU and the Regional safeguards units. (d) Innovation. Guidance will also be prepared on clearance mechanisms for staff, clients, and other stakeholders who want to use innovative approaches in applying, implementing, and monitoring safeguard policies on a pilot basis. Such innovative proposals would be discussed with Senior Management and presented to the Executive Directors for approval when appropriate. (e) Consolidation and updating of good practice. Safeguard policies are available on the Web and on a widely distributed free compact disk, but detailed guidance is yet to be consolidated. This work will be done in two phases, with oversight by ESSD/QACU. In the first phase, existing guidance will be consolidated and made accessible electronically. In the second phase, more will be done to align and integrate guidance, update materials, and translate and disseminate them to borrowers and other stakeholders. The timing of such work will depend, in part, on the availability of resources. 13 See From Adjustment Lending to Development Policy Support Lending: Key Issues in the Update of World Bank Policy, op. cit. 14 Introduced in 2000, PRSCs are a relatively new adjustment lending instrument, and experience in using them is evolving. They are processed according to interim guidelines that cover, among other things, the treatment of environmental and social issues. See Interim Guidelines for Poverty Reduction Support Credits (IDA/SecM2001-0251/2), May 16, 2001. 15 Guidance issued by QACU concerning the application of safeguard policies to social funds and CDD operations is being followed up by training and dissemination of good practice. 12 29. Harmonizing Policies and Procedures. The Bank is collaborating with donor partners to develop a common framework and basic principles of safeguard policy and practice to which donors and clients can subscribe, and around which donor and borrower capacity can be built.16 The Multilateral Financial Institutions Working Group on Environment (MFI-WGE) is drafting a document on important institutional practices, key elements of environmental assessments, and good practices in the environmental and social areas that environmental assessments routinely cover.17 (Box 6 illustrates the type of principle that may be developed.) Besides setting out general principles, the MFI-WGE document would provide links to the policies of individual agencies. When the draft document has been agreed at the technical level (planned for December 2002), it will be discussed within the participating institutions and with borrowers and other clients. Once the document is finalized, each institution will need to decide whether and how the outline of broadly accepted principles would affect their own policies and procedures. Since MFIs have different capacities, mandates, and constituencies, outcomes may differ between agencies. However, if widely adopted, this document could improve consistency and quality across a broad spectrum of financing institutions, and it could improve the quality of borrower programs and reduce their transaction costs. Box 6. Pollution Prevention and Abatement Principles--An Illustrative Example Objective To protect human health and ecosystem functions by eliminating or minimizing the output and impact of air, land, and water pollution. Principles The significance of pollution impacts and options for elimination or mitigation should be identified within an EA framework that incorporates technical knowledge and stakeholder views. Project requirements or standards should be determined with reference to both national law and relevant internationally recognized directives or guidelines.a Normally, the higher of the two is applied. Where national standards are not technically or economically feasible, deviations from these should be fully justified and agreed to by both the client and the funding agency. Any proposed deviations should be fully disclosed in the EA and project documents. In new facilities, state-of-the-art or cleaner technologies (stressing prevention rather than abatement) should be used where technically and economically feasible. ___________________ a Internationally recognized directives and guidelines include European Union Directives (for European Union accession countries), the World Bank's Pollution Prevention and Abatement Handbook, and/or World Health Organization Guidelines. 16 Noting that "aid recipients cite differences in donor operational policies and procedures as the single most important impediment to the effectiveness of external development assistance," a report to the Development Committee in April 2001 called for donors to harmonize their requirements as one way of reducing the transaction costs of development assistance. Priority areas for harmonization included procurement, financial management, and environmental assessment. The Committee encouraged all development partners to rely increasingly on the borrower government's systems, strengthening these systems and processes where needed through common good-practice approaches. See Harmonization of Operational Policies, Procedures, and Practices: Experience to Date (SecM2001-158), March 8, 2001. 17 The MFI exercise covers environmental impacts as well as such social impacts as resettlement and impacts on local communities and vulnerable groups. It recognizes that both environmental and social impacts should be covered in project assessments using qualified technical specialists, and that different institutions may have different mechanisms for doing this. 13 30. Toward a Simple, Unified Policy. In addition to meeting immediate business needs, the work and experience in each area discussed above would potentially become part of the foundation on which the Bank Group could, over the medium term, build a statement of safeguard policy and procedural principles. This statement would describe the intent of safeguard policies and their role in quality enhancement and development results. It could also summarize the general processes to be followed when adverse impacts were expected, and could set out principles in the key areas of coverage. Ideally, such a statement would be amenable to application in a broader spectrum of lending operations and to mainstreaming in client countries. B. Fostering Borrower Ownership 31. Even clear, coherent, and rigorous safeguard policies will produce mixed results unless borrowers see them as relevant to the quality of their development operations and internalize the principles upon which they are based in their own development programs. Moreover, no system, however desirable, will be efficient and effective if it duplicates functions that borrowers must also carry out using their own systems. For these reasons, an important medium-term objective for the Bank is to develop a safeguard system that is based on agreed principles and can be applied broadly in client countries, uses borrower systems that respect these principles, and provides strong incentives for systematic and sustained improvement, as required. 32. Lessons from Recent Fiduciary Work. The proposals in this section draw from recent work on procurement and financial management--areas in which efforts to foster ownership and strengthen recipient capacity have intensified in recent years, and from which early lessons are emerging. These lessons demonstrate the importance of strong country-level analytic work to identify policy and procedural differences among donors, gaps between donor and recipient requirements, and capacity constraints and remedies. When done collaboratively with donors and recipients, such analytic work can help provide the context and build consensus for coordinated action. Lessons from the procurement and financial management experience also highlight the importance of explicitly acknowledging gaps and tensions between the Bank's own requirements and those of recipients, and putting in place mechanisms that offer assurance to Executive Directors, donor partners, and recipients that such tensions will be managed responsibly and transparently. These lessons are reflected in the proposals that follow. 33. Improving Assessment of Country Capacity. In safeguards, as in procurement and financial management, country analysis would provide the basis for tailoring interventions to particular country conditions and capacities. Such analysis would include an assessment of legislative frameworks, institutional arrangements, and track record at the country and sectoral levels, and would provide the basis for developing benchmarks and incentives for improvement. It would build on available upstream tools and analysis, including country environmental analyses (CEAs), strategic environmental assessments (SEAs), and sectoral environmental assessments (SecEAs),18 as well as poverty and social analyses, country or sectoral social analyses, and other studies that identify social opportunities, constraints, and risks. Such analysis 18 Making Sustainable Commitments--An Environment Strategy for the World Bank, op. cit., recommends using CEAs with a strong focus on capacity assessment, and expanding SEAs and SecEAs to identify the priority issues that need to be addressed in sectoral programs and adjustment operations. Parallel work is being done, in the context of the preparation of the Social Development Strategy, to develop mechanisms to move social analyses upstream (e.g., through country social analysis) and focus on systemic issues. 14 would identify priority areas for attention, set out clear goals that countries and agencies/enterprises could work to achieve, and determine monitorable benchmarks to help measure progress. Country-level pilots intended to achieve convergence between the Bank's safeguard policy framework and the domestic legislative and regulatory framework could be considered. 34. Supporting and Encouraging Capacity Building in Client Countries. Over the past decade, the Bank has provided significant support for country capacity building--including the development of policy frameworks, operational procedures, and implementation skills--but with mixed results. To be sustainable, capacity building requires strong borrower commitment and strong incentives for improvement, aspects that could be enhanced through a focus on safeguard principles. To have maximum impact, Regional capacity-building programs could potentially focus on sectors and programs in which a long-term relationship with the Bank is expected. Pilot programs could examine ways to adapt institution-building approaches to countries with widely different levels of commitment and capacity. To help create the incentives for countries to adopt principle-based approaches, donors could focus their capacity-building efforts on safeguard principles; CEA and related instruments could identify core areas for cooperation and develop benchmarks for progress; and the Bank's Country Policy and Institutional Assessments (CPIAs) could incorporate measures of progress. Innovation in capacity building would be encouraged, and lessons learned would be widely disseminated (see Box 7). Box 7. Innovations in Capacity Building--An Example from Brazil The second Bank-supported environmental capacity-building project in Brazil seeks to improve environmental quality in priority areas by increasing the effectiveness of local-, state-, and national-level environmental institutions in managing their natural resources and controlling pollution. The project was prepared as part of an adaptable program loan to provide phased and sustained support over a period of about 10 years. The first phase focuses primarily on strengthening institutions (monitoring, licensing, and coastal zone management) and identifying and prioritizing environmental problems. The second and third phases will provide matching grants for subprojects to protect significant environmental assets (forests, water resources) and enhance environmental management (solid wastes). Since Brazil's states have markedly different environmental management capacities in terms of legislation, monitoring, and enforcement, the program establishes graded eligibility classes to measure performance levels and provide incentives for improvement. As states advance, they become eligible for additional resources. 35. Tailoring Responsibility and Accountability to Borrower Capacity. The Bank cannot delegate its responsibility for due diligence; it must maintain an oversight role at the project appraisal stage and ensure appropriate levels of supervision. But it has the flexibility to assign specific responsibilities to clients and to determine the type and modalities of oversight on the basis of country/agency/enterprise capacity and track record.19 Just as the Bank relies on national systems in procurement where the country has appropriate capacity, it could move toward more reliance on national systems for assessing environmental and social impacts below a specific threshold, when these systems are consistent with internationally recognized good practice. Such an approach would reduce redundancies in review and clearance processes where appropriate, 19 EA review, for example, is already undertaken by others in projects involving financial intermediaries. In such cases, appraisal focuses on the institution's capacity to ensure that appropriate EA procedures are followed, and the Bank reviews a sample of individual projects (other than projects classified as A in environmental screening, for which it reviews all projects). 15 promote mainstreaming in client country systems, and reduce transaction costs for both the borrower and the Bank. 36. Piloting Innovations. The feasibility of these approaches will be tested through a series of carefully monitored pilots. Assigning specific responsibilities for review and clearance, for example, could be done initially on a pilot basis in countries with strong environmental assessment systems and beginning with selected low-risk projects in environmental assessment screening category B and safeguards screening category S2.20 Regions have already discussed the feasibility of pilots, and a variety of innovative approaches have been proposed that focus on specific countries, states, provinces, or line agencies, and involve a variety of responsibilities. One example is described in Box 8. In most cases, innovations will be proposed in development programs that are expected to have long-term Bank input and sustained partnerships (energy, water, transport). Depending on experience with this initiative, pilots could be expanded to cover a variety of innovations and approaches to safeguard mainstreaming involving, for example, country assessment, policy alignment, and the like. Pilots would be agreed in advance by the Executive Directors, and would be carefully monitored and evaluated. Lessons learned would be widely disseminated. Box 8. Vietnam Pilot on Policy Harmonization The Government of Vietnam receives the bulk of its external development assistance from the Japan Bank for International Cooperation, the World Bank, and the Asian Development Bank. In larger projects or programs, each of these banks may provide partial financing for the same project. Recognizing the importance of simplifying and reducing differences among procedures in such circumstances, these agencies have begun harmonizing their requirements in areas such as financial and portfolio management, procurement, and environment; and there is now a broad level of agreement between them on the requirements for EA. The first task of the proposed EA pilot in Vietnam will be to review the implementation of existing Vietnamese EA legislation with the Government and to develop guidance on the scope and preparation of EA documents that would satisfy the basic requirements of the government and donors. This guidance document will be discussed with a range of Government and other institutions, local practitioners, and other development partners. Since Vietnam has limited capacity and a shortage of environmental and social specialists, the second step will be to help to build EA capacity in high priority areas where implementation of harmonized procedures (such as EA scoping, terms of reference, and EA review) has the greatest potential benefits. Capacity building will include clarifying some parts of the evolving legal and regulatory framework, supporting responsible staff in key Government institutions and agencies, and improving the technical capacity of local experts. Insights from this experience will help to shed light on how EA and related processes can be more fully adopted across development activities within Vietnam. 37. Exploring Options for Third-Party Verification of Capacity. While these initiatives are under way, the Bank intends to begin exploring options for third-party verification of the capacity of agencies, enterprises, and possibly country systems with proven track records. A consultant report to identify possible models already in use in other fields has been prepared, and further discussion of modalities and risks is proposed for FY03. Verification by a recognized and credible third party might possibly be associated with financial advantages to borrowers and 20 The Bank screens each proposed project to determine the extent and type of environmental assessment and categorizes as A, B, C, or FI. It also reviews projects for overall safeguard impacts which are classified S1, S2, S3 or SF. A proposed project is classified as category B if its potentially adverse impacts are site-specific, few if any of them are irreversible, and in most cases mitigation measures can be readily designed. The safeguards screening category S2 is used for proposed projects that present safeguard issues that are limited in their scope and impact and can be dealt with through established mitigation and monitoring measures. 16 private sector clients (such as preferred rates in capital markets), and could provide powerful incentives for improvement. Strict guidelines would be required to avoid potential conflicts of interest. 38. Expanding the Role of Field-Based Bank Staff. To support the proposals described above, QACU and the Regions are developing procedures that will allow field-based staff, whether hired internationally or locally, to take on an expanded role in oversight of safeguard policies at all stages of the project cycle and in supporting client capacity building. This role would include new functions for reviewing and approving some types of safeguard studies under guidance from the Regional Safeguards Coordinator. The process would include intensive training of field-based staff combined with mentoring by senior staff in the Bankwide network of safeguard specialists. 39. Implications for the Bank. In addition to increasing overall development effectiveness, greater client ownership and application of safeguard principles would free resources for the Bank to undertake the upstream analytic work needed to support adjustment and sector investment lending, and to strengthen supervision, support pilots, disseminate lessons learned, and further upgrade country capacity-building efforts. V. MOVING FORWARD 40. Although the measures noted in Section IV could be implemented separately, together they form a package intended to maintain due diligence, support innovation, and allow the development of safeguards that are more readily assimilated into borrower perspectives and programs. Actions would be sequenced to meet immediate business needs while facilitating a dialogue with borrowers and other stakeholders on objectives and options, and permitting the build-up of country analytic work and the careful pursuit of pilot activities. Proposed activities would allow immediate progress in countries where the enabling conditions are already in place and would support measures to build capacity and monitor progress in countries where this is needed. The overall program would involve appropriate Senior Management oversight, with timely and regular reporting to Executive Directors and approval as required. It would also support long-term learning and dialogue with stakeholders. This section examines the benefits and risks of the program, discusses its implementation, and describes the immediate next steps. A. Benefits and Risks 41. The primary benefit of a system that is focused on principles and broadly applied in client countries would be to enhance the environmental and social aspects of borrower programs, as well as those of programs financed by the Bank. Focusing on the objectives and principles while delegating to clients the decision on how to achieve them would place a premium on results rather than planning requirements, encourage innovation, and facilitate adaptation to realities on the ground. In addition, a common vision and stronger partnerships between clients and donors would help improve ownership, accelerate capacity building, and reduce transaction costs. The proposed measures, which encourage clients with proven capacity to assume greater responsibility for safeguard implementation, would also allow the Bank to tailor its approach to clients and to shift more resources to those countries that need greater support, and to the upstream analysis needed to support adjustment and program lending. Building greater client 17 ownership and capacity around safeguard principles, and clarifying Bank due diligence, could also reduce risk aversion on the part of clients and staff. The proposed dialogue with borrowers and other stakeholders could help build a common understanding of opportunities and constraints. 42. Risks. As in most proposals for change, there are not only benefits but also important risks, in terms of both perceptions and results. Chief among these are the following: (a) Some shareholders and other stakeholders may be concerned that this exercise will reduce the Bank's commitment to its safeguard policies. (b) Clients may perceive that the Bank is imposing more requirements on a broader spectrum of programs, rather than supporting their efforts to enhance their capacity and develop systems appropriate to their circumstances. (c) A client, even one with a strong track record, could have problems with implementation or fail to carry out specific responsibilities, thus undermining the argument for increasing reliance on country system and country accountability. (d) Donors may fail to agree on a common approach. 43. Risk Management. The recommendations in Section IV incorporate a number of measures to avoid or minimize these risks. (a) The overall approach is modular, and incremental. It builds on a series of ongoing or planned activities. Without changing current policy, it allows work to progress in areas of immediate business need and in those in which there is already a consensus for actions, while supporting learning and dialogue on changes that may be desirable in the medium term. (b) The proposals allow time for consensus building. Following the discussions that have now been held with management and CODE, this paper is being posted on the Web, and the ongoing dialogue on safeguards will be expanded to include discussions of current issues and possible changes envisioned in the medium term. Tasks will be undertaken in a transparent manner under the guidance of Senior Management, with timely monitoring, evaluation, learning, and reporting to the Executive Directors. Important pilot activities will be flagged in the Monthly Operational Summary, and overall progress will be discussed in regular reports on safeguard implementation. (c) To build ownership, borrowers will be closely involved in the selection of pilots and in consensus-building activities. Pilots would be initiated where sound analytical work has already been done and capacity building has occurred. Enhanced supervision and timely monitoring and evaluation of results would help to ensure that implementation problems are quickly identified and addressed. (d) Harmonization efforts will continue even if specific problems arise. While the Bank cannot ensure that other MFIs will agree, there is a core group of 18 cooperating institutions that is likely to support this initiative; and even if the MFI-WGE effort slowed, harmonization based on principles could be pursued within the Bank Group. B. Implementation 44. Many activities proposed in this paper are already under way (see Annex B). For example, ongoing work on the preparation of OP/BP 8.60 is addressing the treatment of the environmental and social aspects of adjustment lending, including PRSCs. Work is also under way to define the content and modalities of such upstream work as CEAs, SEAs, and SecEAs, and plans have been made to use these instruments in selected countries. Programs to strengthen borrower and staff capacity are under consideration, and Regions are discussing possible pilot operations in selected countries. A paper on certification options is being prepared. Piloting such measures and deriving early lessons are expected to take two to three years. Box 9. Elements of the Two-Pronged Modular Approach: Linkages and Responsibilities Improving clarity, coherence, and Fostering Selected deliverables/ consistency ownership progress indicators I. Vision Short-term Clarify EA coverage, adapt Safeguard system with increased focus See Annex B. objectives safeguards to new lending on client capacity to deliver results, instruments, improve tools for and with closely monitored pilots to upstream work, strengthen and learn from innovations. clarify due diligence. Medium-term Simple, unified statement of Policy and system based on See Annex B. objective safeguard policy, emphasizing internationally accepted principles, principles and results. capable of being broadly applied in client countries, and complemented by strong and systematic incentives for results. II. Responsibilities and Deliverables Executive Endorse and guide overall vision and implementation plan. Pilots successfully undertaken. Directors Review annual report on progress and implementation issues. Review the Management Statement Review and approve (as necessary), Common safeguard policy on Safeguard policies and safeguard pilots and innovation in principles agreed. practice. specific operations. Review good practice principles that Consider pros and cons of proposals on Simplified and unified emerge from the MFI-WGE third-party certification. statement adopted. harmonization exercise, and provide feedback on their Common safeguard principles appropriateness as a basis for broadly accepted and client capacity building. applied, particularly in pilot Management Agree on the overall vision, specific proposals for pilot activities, countries. and OPC accountabilities for implementation, and risk management strategy for the safeguard program. Review implementation progress, validate emerging cross-cutting lessons of experience. 19 Box 9. Elements of the Two-Pronged Modular Approach: Linkages and Responsibilities Improving clarity, coherence, and Fostering Selected deliverables/ consistency ownership progress indicators Regions Implement existing policies. Undertake CEAs, SEAs, SecEAs, and Provide feedback on proposed related upstream social studies in Capacity across borrowing policy updates, and eventually on selected countries. countries increased to take Management statement and Support safeguard capacity building environmental and social unified policy statement. for a broad spectrum of borrowers. impacts into account. Develop and implement enhanced Undertake selected pilot activities, capacity building plans. including delegation of specific Comment on the principles responsibilities. emerging from the MFI-WGE Carry out this work in coordination work. with and with support from QACU. ESSD/QACU Lead policy modernization process, Develop methodologies for CEAs, Annual reports on safeguards including the development of the SEAs, and SecEAs. covering implementation of Management statement and Provide technical support to Regions, existing policy and progress unified policy statement. monitor pilots. toward the vision. Continue to support OPCS work on Provide support to Regions for adjustment lending. capacity building for staff and Continue to work with MFI-WGE borrowers, identify and disseminate on harmonization and unified good practice. policy statement. Coordinate application of MFI work. Continue to support dialogue on Develop system of outcome and safeguards with borrowers and input indicators. other stakeholders. OPCS Continue to promote overall Facilitate Senior Management decision Collaboration with ESSD in harmonization process and to on pilots, including their fit with the preparing the annual report prepare biannual reports for the CAS. covering implementation of Board and Development existing safeguard policies, Committee and progress toward the OPCS/LEG Facilitate policy updates and vision. preparation of Management statement and unified policy statement. OPCS/PREM/ Continue work on the treatment of ESSD environmental and social aspects in adjustment lending. OED Continue relevant country, thematic, and project evaluations. Evaluation reports. QAG Continue to include safeguards in assessments of quality at entry and quality of Annual reports on quality at supervision. entry and quality of supervision, with coverage of the safeguards. World Bank Advise and support Regions in client training and capacity building. Evaluation reports. Institute Overall Completion of policy updates. Recipient countries' adoption and Data developed from use of progress implementation of international safeguard outcome and impact indicators principles for development expenditures. indicators. 45. Cost Implications. Many of the activities to improve the development effectiveness of safeguards are ongoing or are gradual extensions of existing work program activities. Broadly speaking, however, the work program will have two main cost drivers. The first is the investment required in upstream analytic work in the form of CEAs, SEAs and SecEAs, and targeted economic and sector work (ESW) covering social issues, both of which are needed to support adjustment lending, sector lending and pilot operations. Additional ESW is already programmed in some countries, and a methodology for CEAs is being developed as part of the implementation of the Environment Strategy. The Poverty Reduction and Economic Management (PREM) Network and ESSD also have a work program on poverty and social impacts, including the preparation of guidelines to staff. Additional ESW to underpin Bank 20 lending, including adjustment lending, will need to be fully budgeted. But building Bank capacity to do upstream analytic work and engaging in productive dialogue with borrowers and other stakeholders will also require new skills and resources, and these will be ascertained once the proposals and other relevant papers are fully integrated. A second cost driver will be Bank oversight of pilots and innovation, and capacity building for environmental and social safeguard work within borrowing countries. In particular, there is a need to strengthen the ability of field- based staff, both internationally and locally hired, to oversee innovative project preparation, review, and supervision; lead technical and training activities related to the safeguard policies; help develop and oversee capacity-building initiatives; and monitor pilot programs. The exact scale of the associated incremental cost increases will be ascertained once the specific pilot activities and country-specific capacity-building initiatives are identified. C. Next Steps 46. Bank. This note has been discussed with Management and CODE and has been revised to reflect the discussions. It is now being posted on the Web for public comment, and discussions will be held with clients and other stakeholders in coordination with other related activities. Work on the MFI-WGE harmonization paper will be further discussed among cooperating institutions and later with representative clients. This process is expected to culminate in a technical-level agreement among the participating international financial institutions by December 2002. Within the Bank, most policy-related initiatives will be managed by QACU for ESSD, in collaboration with Operations Policy and Country Services (OPCS). Regions will take the lead in implementing pilots and capacity building. Concrete actions and responsibilities for follow-up are summarized in Annex B. 47. IFC and MIGA. Successful outcomes from the initiatives discussed in this note, and particularly from capacity building in the public sector, can yield important benefits for the private sector. For example, improvements in countries' regulatory frameworks, enforcement mechanisms, and investment climates will increase the sustainability of private sector investments--including the private sector investments financed by IFC or insured by MIGA. For these reasons, IFC and MIGA will follow the short- and medium-term developments closely. IFC will continue to be involved in harmonization efforts with other development partners. ANNEX A WORLD BANK'S SAFEGUARD POLICIES Summary of Explicit provision for Policy core Applicability Public exceptions requirements to lending instrumensta consultation OP/BP 4.01, Screen early for potential impacts All investment projects. Consult affected groups Yes. For emergency Environmental and select appropriate instrument to Applicable to sector and NGOs as early as recovery operations Assessment assess, minimize, and mitigate adjustment loans. possible (for Category with approval of the potentially adverse impacts. A and B projects). Regional VP, ENV Chair, and LEG. OP/BP 4.04, Do not finance projects that All investment projects. Consult local people in No Natural Habitats degrade or convert critical habitats. planning, designing, Support projects that affect and monitoring noncritical habitats only if no projects. alternatives are available and if acceptable mitigation measures are in place. OP 4.09, Pest Support integrated approaches to All investment projects Consult local people in No Management pest management. Identify and adjustment planning, designing, pesticides that may be financed operations. and monitoring under the project and develop projects. appropriate pest management plan to address risks. OP/BP 4.12, Assist displaced persons in their All investment projects. Consult resettlers and Yes. In unusual Involuntary efforts to improve or at least restore host community; circumstances such as Resettlement their standards of living. incorporate expressed emergency recovery views in resettlement operations, subject to plans; list choices made the approval of the by resettlers. Resettlement Committee. OD 4.20, Identify adverse impacts and All investment projects. Consult indigenous No Indigenous develop a plan to address them. people throughout the Peoples Design benefits to reflect the project cycle. cultural preferences of indigenous peoples. OP 4.36, Support sustainable and All investment projects. Consult local people, No Forestry conservation- oriented forestry. Do the private sector, and not support commercial logging in interest groups in forest primary moist tropical forests. area. OP/BP 4.37, For large dams, carry out technical All investment projects. No public consultation. No Safety of Dams review and periodic safety inspections by independent dam safety professionals. OPN 11.03, Investigate and inventory cultural All investment projects. Consult appropriate No Cultural resources potentially affected. agencies, NGOs, and Property Include mitigation measures when university departments. there are adverse impacts on physical cultural resources. OP/BP 7.50, Ascertain whether riparian All investment projects. No public No Projects in agreements are in place, and ensure consultations. Riparian International that riparian states are informed of notification required. Waterways and do not object to project interventions. OP/BP 7.60, Ensure that claimants to disputed All investment projects. No public No Projects in areas have no objection to proposed consultations. Disputed Areas project. Claimants informed. a OD 8.60 provides guidance on the management of environmental and social issues in adjustment lending The Bank's approach to adjustment lending is being clarified as OD 8.60 is revised and converted to the OP/BP format. ANNEX B SAFEGUARDS WORK PROGRAM AND ACTION MATRIX Action area Objectives and actions Business sponsor and Comments timeline I. Improving clarity, A. Produce a brief OPCS/QACU/LEG; Draft Draft statement currently coherence, and management statement draft by November under preparation. consistency of policies setting out safeguard 2002. To CODE in objectives and principles. 2003 B. Clarify coverage of EA ESSD with OPCS and Will determine which social process with regard to LEG, by December impacts would be routinely adverse social impacts. 2002. covered in EA and which through other instruments. C. Clarify application of OPCS/ESSD with safeguards principles PREM and LEG. across lending instruments. · Improve content and ENV/SDV/QACU/ As appropriate, incorporate into modalities of upstream OPCS; complete by work on the OP/BP on work, develop systems June 2003. adjustment lending, coordinate for application of CEA, with work on "analysis suite" of SEA, SecEA, and OPs (economic, institutional, broader country social and social analysis). analysis. · Adjustment lending. OPCS, with ESSD, Approaches to treating PREM and LEG; issues environmental and social aspects paper discussed by in policy based lending being CODE in May 2002. addressed as part of the update External discussion to of OD 8.60 in the OP/BP be held July-December format. 2002. · Projects with multiple QACU, December Preliminary guidance already subprojects (CDD/social 2002. issued. funds). D. Clarify rules for QACU, with OPCS and Would be used to reduce special circumstances and LEG; by December differences between policies innovations. 2002. (e.g., for emergency operations) and clarify procedures for innovation. E. Consolidate and update QACU with LEG; Work plan would identify best practice guidance for work plan by March priority actions for updating both staff and clients. 2003. existing materials and translating and disseminating guidance. It would include information on good practices for sectorwide safeguard assessments. F. Promote donor QACU/MFI-WGE; Process already initiated by harmonization around draft under review by multilateral financial processes and principles cooperating institutions. Technical paper to for EAs. institutions; MFI-WGE be discussed in Luxembourg technical agreement (December 2002). proposed byDecember Consideration by Executive 2002. Directors (2003). Action area Objectives and actions Business sponsor and Comments timeline II. Fostering country A. Define content and ENV/QACU working CEA, including capacity ownership modalities of country draft by March 2003. assessment, agreed in 2001 capacity assessment. Environment Strategy Report. B. Strengthen borrower Regions to formalize Enhance borrower capacity by capacity as required. capacity-building strengthening policies and programs by March technical capacity for safeguard 2003. issues. C. Safeguard Pilots · Confirm country ESSD/Regions; New approaches would be pilot- willingness to complete January tested with selected countries/ participate. 2003. agencies agreed by the Board, beginning with selected · Discuss pilot work OPCS/ESSD/Regions; safeguards category S2 and EA program with CODE. by March 2003. Category B investment projects. · Initiate pilots and OPCS/ESSD/Regions; Bank would continue to exercise report on regular basis. pilots to begin during fiduciary responsibility at FY04. Implement and appraisal and during identify lessons over supervision. the short and medium term. D. Explore options for Draft report available Initial reconnaissance of models future certification of by March 2003. under way. To provide agencies and enterprises. incentives for improving application of safeguard polices at the country/agency/enterprise level. E. Adapt innovative IFC paper on Bank will examine new models approaches to safeguards- sustainability under being used by the private sector related reporting that are preparation; in Bank, for setting sustainability being used by the private ENV/QACU are objectives, safeguards-related sector. reviewing these reporting, and use of third-party approaches. oversight. III. Complementary A. Strengthen capacity of Regions to prepare Would support the expanded use activities field-based staff to play a work plans by March of field-based staff, both greater role in safeguard 2003. internationally and locally hired, technical and training in all aspects of safeguard work. activities. B. Strengthen supervision Regions to prepare Would support increased of environmental work plans by March emphasis on implementation and management plans, 2003. Implement and monitoring of key safeguards resettlement plans, identify lessons over actions. indigenous peoples plans, the short and medium etc. term. C. Initiate dialogue with QACU and OPSC to Initial discussions on a strategy stakeholders including post relevant for dialogue will be held by borrowers and NGOs on documents on website, December 2002, Ongoing evolving bank strategies and hold discussions in discussions will be carried out in and practices, safeguard 2002-2003. 2003 and beyond.. implementation, and future directions.