Updated IFC Performance Standards and Changes to Equator Principles

The revised IFC Performance Standards have been approved by IFC’s board on May 12th. The Secretariat of the Equator Principles published the Strategic Review Consultant Report Summary proposing major changes.  As I have blogged before, the IFC Performance Standards have become a global benchmark for environmental and social performance for project finance in emerging markets. As noted in a recent IFC press release, IFC’s board has approved the updated Performance Standards. Changes revolve around resource efficiency, greenhouse-gas, adopting ‘Free, Prior, and Informed Consent’, and broader disclosure requirements.

The new standards also dive into the complexities of supply chain management, an issue which was recently at the center of complaints lodged with IFC’s Compliance/Advisor Ombudsman office about palm oil related investments in Indonesia. This case involved the Wilmar Group,  an agribusiness conglomerate, and prompted the launch of the World Bank Group Framework and IFC Strategy for Engagement in the Palm Oil Sector.

The IFC Performance Standards are also the basis for the Equator Principles. These provide a voluntary environmental and social risk-management framework used by some 70 financial institutions worldwide, 15 European Development Financial Institutions, and 32 export credit agencies from the OECD. It is this context that makes the recent publication of the Equator Principles Strategic Review Consultant Report Summary – a mixture of overlapping strategic, operational and administrative recommendations  - and the EP Association Summary Response an interesting read (and provides lots of materials to blog about in due course).

The IFC will be implementing its updated Sustainability Framework, which includes the newly revised Performance Standards, from 1 January 2012 and the EP Association Steering Committee has agreed that the newly revised IFC Performance Standards will also take effect for EP Association Members on 1 January 2012. Accordingly, Exhibit III of the EPs (which refers to the 2006 IFC Performance Standards) will be updated on 1 January 2012 to reflect their implementation by EP Association members under the current EP framework. For the full statement and guidance on implementation issued to EP Association Members go here

The nature and timeline of many – particularly large scale - projects suggest that it may be prudent to address/incorporate the emerging changes to provide for a smoother review by Independent Engineers who will eventually be asked to provide a ‘fit for purpose’ determination of ‘bankable’ studies, such as environmental and social impact assessments (ESIAs).

Currently serving as an expert witness on ESIA, IFC Performance Standards and Equator Principles on a case before the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC, I can also see additional benefits of adopting emerging best practices: mitigating risk of 'creeping nationalization' based on environmental and social dimensions of projects.

What are your thoughts on the updated IFC Performance Standards? Do you expect that it will significantly change your approach as a project developer or an advisor assisting with bankable ESIAs?

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 with Dames & Moore, Principal Environmental Specialist at the EBRD and CSR Research Director at CoreRatings. Mehrdad is also a GRI-approved trainer on GRI's sustainability reporting framework and a licensed AA1000 Assurance Provider.