IFC Performance Standards:Lessons Learned

The IFC Performance Standards on Social & Environmental Sustainability have emerged as the de facto benchmark for developing and financing responsible extractive projects in emerging markets. The Canadian government’s March 2009 CSR Strategy for the Canadian International Extractive Sector, Building the Canadian Advantage, also includes the IFC Performance Standards. In this article, I review the genesis, significance and key challenges associated with the IFC Performance Standards, using also input from participants of over 20 workshops and training courses delivered in Canada, China, Panama, Peru, UK and Venezuela since 2006.

Genesis

Responding to continued criticism by NGOs, the World Bank Group (WBG) launched its Extractive Industry Review in 2001. One outcome of this review was a major overhaul of the procedures and standards of the International Finance Corporation (IFC), a member of the WBG focused on private sector developments. IFC’s Performance Standards were published in 2006.

 Significance

The IFC Performance Standards replaced the World Bank’s Safeguard Policies for private sector operations. Also, the Equator Principles  emerged as a derivative of the IFC Performance Standards. To date, the Equator Principles have been adopted by over 60 financial institutions involved in project finance. This includes key Export Credit Agencies, such as Export Development Canada (EDC), which reported a business volume in the extractive sector exceeding CAN$27 billion in 2008 (IFC: US$1.34 billion).

Chapter & Verse

The IFC Performance Standards (PS) are organized in eight chapters (46 pages). Their self-explanatory headings are listed below:

  • PS 1: Social and Environmental Assessment and Management Systems
  • PS 2: Labor and Working Conditions
  • PS 3: Pollution Prevention and Abatement
  • PS 4: Community Health, Safety and Security
  • PS 5: Land Acquisition and Involuntary Resettlement
  • PS 6: Biodiversity Conservation and Sustainable Natural Resource Management
  • PS 7: Indigenous Peoples
  • PS 8: Cultural Heritage

Extractive projects often trigger most if not all of the above listed Performance Standards, requiring comprehensive environmental and social impact assessment (ESIA) studies. The IFC Performance Standards are complemented by additional tools. These include detailed Guidance Notes on the IFC Performance Standards (178 pages, updated in July 2007), generic and sector specific Environmental, Health & Safety (EHS) Guidelines, and a series of valuable Good Practice Documents. Selected topics which typically result in major discussions during my workshops and course are highlighted below.

FPIC & BCS

The IFC Performance Standards require a very participative approach in terms of stakeholder engagement. This approach should ensure Free (of intimidation and coercion), Prior (timely and relevant disclosure), and Informed Consultation (understandable and accessible) – together commonly referred to as FPIC - with project affected communities. Project developers are further expected to secure Broad Community Support (BCS). This can be present and demonstrated even if some individuals or groups object to a project. IFC’s guidelines provide a series of tests to help examine and demonstrate if a project has met FPIC and secured BCS.

Health, Safety & Security

Project developers are expected to evaluate and mitigate the risks to health and safety of affected communities during the design, construction, operation, and decommissioning of a project. Safeguarding of personnel and property should be carried out in a legitimate manner that minimizes risks to the community’s safety and security, and safeguards human rights. Here, the Voluntary Principles on Security and Human Rights provides an internationally accepted framework relevant to the extractive sector. Dealing with these issues in post-conflict states or large-scale artisanal mining context can be particularly challenging.

 Biodiversity & GHG

In view of risks and vulnerability of biodiversity and natural resources, mitigation measures may be required even if project-impacted habitats have been previously disturbed or are not legally protected. Additional requirements include the need to evaluate greenhouse gas (GHG) emissions (threshold: 100,000 tons CO2 equivalent per year). Importantly, the concept of offsets has been introduced. This expands the strategic options available to project developers to address specific issues of concerns (see also Mining Magazine article Biodiversity Offset Mining.com Jan - Mar09).

Involuntary Resettlement (Resettlment Action Plan)

In addition to risks to livelihood of affected communities, resettlement programs can also be associated with significant costs, delays and reputational damage to project developers. Related IFC Performance Standards are complex and triggered by both physical displacement of people and by adverse livelihood impacts (economic displacement). Eligibility for resettlement assistance and compensation may exist even in the absence of lack of legal titles, such as the case with customary land use and communal ownership by Indigenous Peoples. 

Revisions in Progress

In September 2009, the IFC launched a revision process of the IFC Performance Standards. An updated framework is expected to be released by early 2011. Expectations for clarification and changes are contained in the IFC’s Progress Report on Phase I of Consultation, published in January 2010.

In addition to changes related to human rights, Indigenous People, FPIC, climate change and water, I would also expect to see the references to and integration of other important tools and guidelines related to the extractive sector. Those which have also been included in the Canadian Government’s March 2009 CSR Strategy include the Voluntary Principles on Security and Human Rights, the Extractive Industry Transparency Initiative, and the GRI’s Sustainability Reporting Framework (see also related Mining Magazine article Sustainability Reporting using GRI Lessons Learned Nov09).

Readiness Assessment

The introduction of the IFC Performance Standards has been a fairly recent phenomenon. ‘Local EIAs’ (environmental impact assessments), designed primarily to satisfy local permitting requirements, may fall short of being ‘bankable.’ Learning from CFOs, Readiness Assessments are being used as a tool to help identify gaps, improve processes and documentation, and provide training to key staff in order to simplify and shorten the due diligence process applied by lenders and investors. 

Acknowledgement

I would like to thank contributors and co-presenters of my courses on IFC Performance Standards and Equator Principles: Jamila Abassi, John Aronson, Dr. Helena Barton, Dr. Martin Birley, Kevin Bortz, Kevin D’Souza, Art Fitzgerald, Wayne Forman, Dr. William Kennedy, Timothy Murphy, Dr. Don Proebstel – and all the course participants who generously shared their own knowledge and insights.

Note: This article was published in the March 2010 issue of the Mining.com Magazine and can be downloaded here: IFC Performance Standards - Mining Magazine March 2010 (PDF, 120 KB).

About the author: Mehrdad Nazari (MBA, MSc, LEAD Fellow) is a Corporate Responsibility, Sustainability Reporting & ESIA Advisor, and Director of Prizma. He was previously an environmental consultant & project manager with Dames & Moore, Principal Environmental Specialist at the EBRD and CSR Research Director at CoreRatings. Mehrdad is a GRI-approved trainer on GRI's sustainability reporting framework and a licensed AA1000 Assurance Provider.

5 Comments to IFC Performance Standards:Lessons Learned

  1. This blog entry made it to my Top 10 for 2010. Full list posted here

  2. […] a number of questions from the participants. (See also previous blog entries that on FPIC here and […]

  3. […] A few years ago, I had the opportunity to work with John Aronson’s team at AATA International and contribute to the Environmental and Social Impact Assessment (ESIA) of Gold Reserve Inc.’s $750 million Brisas Project in Venezuela. This was during the formative days of the Business and Biodiversity Offset Program (BBOP) and newly emerging IFC Performance Standards (see also IFC Performance Standards:Lessons Learned). […]

  4. […] Examples of ‘going the extra EP mile’ can include a more participatory approach in the ESIA and stakeholder engagement process, or adopting a more advanced approach to dealing with biodiversity. It seems to me that the Equator Principles and IFC Performance Standards do not seek to reposition the financial institutions as regulators. Instead, they seek to encourage the adoption of Good International Industry Practice (GIIP). (For further background on the genesis of EPs and IFC PS, see IFC Performance Standards: Lessons Learned). […]

  5. […] IFC’s newly adopted Performance Standards which came into effect in April 2006 (see here for more background). The changes in EPII included a lowering of the application threshold from US$50 million to US$10 […]

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