International FinancialInstitutions

And their relationship to ILO Standards2012

What are InternationalFinancial Institutions?•Development banks•World Bank Group• IBRD• International Finance Corporation (IFC)

• Inter-American Development Bank (IADB)• Asian Development Bank (AsDB)• African Development Bank (AfDB)• European Bank for Reconstruction and Development

(EBRD)• International Monetary Fund (IMF)

What do IFIs do?

• Lend or donate money for development• One of major (public) sources for development financing• Mostly to governments

• But International Finance Corporation also to businesses (and similar in other Dev Banks)• Different clients depending on project – e.g., NGOs

IFI mandates

•To contribute to economic development•Tend to be staffed by economists•Part of mandate is to avoid political situations –•Which many of them have interpreted over the years to

mean that they were forbidden to consider human rights• Has also kept them on the margins of UN-system human

rights discussions – e.g., on apartheid• But there is evolution in some of them

Rights vs Economics

• World Bank uneasy about committing to apply human rights. • Real conviction among many staff that human rights and economic

development are not compatible, deriving from Charter.• So no commitment in WB (IBRD) to implementing human rights,

including labour rights.

World Bank Charter

• Article IV, Section 10 : “Political Activity Prohibited.• The Bank and its officers shall not interfere in the political affairs of any

member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I.” • Article III, Section 5 (b) restricts political considerations in Bank

financing: The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.

WB FAQ on human rights

• “How does the Bank's work contribute to the realization of human rights?• “Although its policies, programs and projects have never

been explicitly or deliberately aimed towards the realization of human rights, the Bank contributes to the promotion of human rights in different areas, e.g., improving poor people's access to health, education, food and water; promoting the participation of indigenous peoples in decision-making and the accountability of governments to their citizens; supporting justice reforms, fighting corruption and increasing transparency of governments.”

World Bank web site on human rights (2010)

• As background to the internal developments relevant to human rights, mention should also be made to the document issued by the former Senior Vice-President and General Counsel, Roberto Dañino, entitled "Legal Opinion on Human Rights and the Work of the World Bank", dated January 27, 2006. It indicates that human rights may constitute legitimate considerations for the Bank where they have economic ramifications or impacts, and it confirms the facilitative role the Bank may play in supporting its members fulfill their human rights obligations.

WB Social Protection Strategy 2012-2022

• WB has belatedly realized that social protection is indispensable to growth and security.• But in whole strategy paper, the only reference to labour law is that

labour laws are ineffective in many countries and only cover the privileged.

Nordic Trust Fund

• Had originally been intended to insert human rights concerns into WB operations, but no internal agreement could be reached.• Now seen as a WB staff awareness resource”• “to develop a more informed view among Bank staff on how human

rights relates to the Bank’s core work and mission of promoting economic growth and poverty reduction. This internal knowledge and learning program will support activities that:• capture and make available knowledge about how human rights relate

to the Bank’s analytical sector/thematic work,• capture and make available knowledge about how human rights relate

to the Bank’s operational work including strategy, planning and implementation and,• increase awareness among staff and management of how the Bank’s

work and human rights are related and how human rights aspects can be applied to the Bank’s work.”

But progress in International Finance Corporation

• 1998 IFC policy (now outdated):

• Under this policy, IFC will not support projects that use Forced or Harmful Child Labor as defined below. Projects should comply with the national laws of the host countries, including those that protect core labor standards and related treaties ratified by the host countries.

Problems with such texts:

• “Forced or harmful child labour” • What child labour is not harmful?

• “as defined below”• Applying their own definition, and not what is in international standards

• “comply with the national laws”• IFC took no responsibility unless a particular right already guaranteed in national

law

IFC Performance Standards

• Performance Standards first adopted 2006• PS2: Labour standards conditions for loans to private sector• Conditions based on ILO standards on fundamental rights,

termination of employment (retrenchment), safety and health

• IFC review now completed. Findings after 3 years:• IFC considers the framework to be sound and effective. It

does not hinder IFC's business and helps with risk management.• Recent annual client survey results show continued

satisfaction with IFC on environmental and social matters. Clients did not find implementation to be excessively costly.

• In terms of the impacts on market practices, the Performance Standards have made a positive contribution to the global convergence of E&S risk management practices. There are now 68

financial institutions that have adopted the Equator Principles. Public development financial institutions such as the OECD Export Credit Agencies and European Development Finance Institutions have also publicly referenced the use of the Performance Standards.

• Review findings: Performance Standard 2 (Labor and Working Conditions) has been broadly applied across regions and sectors, though the requirements have been challenging for some clients, particularly in countries where enforcement of national laws is weak or where such laws do not exist. Requirements on collective bargaining and workers’ organizations, as well as supply chain issues have proved to be challenging. The issue of migrant workers, often hired indirectly through contractors, is another area of challenge for clients. Clarifications on working and living conditions of “nonemployee” workers might be needed. Moreover, in a time of economic crisis and shrinking labor market, the role of PS2 in the context of large-scale retrenchment should be considered.

New IFC Performance Standards come into force 2012

• Performance Standard 2: Labor and Working Conditions • ‘ …recognizes that the pursuit of economic growth through

employment creation and income generation should be accompanied by protection of the fundamental rights of workers. .. through a constructive worker-management relationship, and by treating the workers fairly and providing them with safe and healthy working conditions, clients may create tangible benefits, such as enhancement of the efficiency and productivity of their operations. ‘

•IFC PS 2 based on ILO standards, but does not rely entirely on them.•But it is broadly in compliance

IFC Doing Business Report

• Until 2009 ranked countries according to how “business friendly” they were.• “Employing workers” section had index of “Rigidity of Employment”.• 3 components:

• “difficulty of hiring”• “rigidity of hours”• “difficulty of firing”.

Beginning to change

• ILO pressure on World Bank on Doing Business, and pressure by global trade union federations.• ILO Governing Body Nov. 2008: In September 2008, the World Bank

launched its 2009 edition of Doing Business. The report introduces important changes that were specifically commented on by the ILO in direct exchanges with the World Bank responsible for the report.

• Regarding the narrow focus of the report on the costs of establishing and running enterprises, the 2009 Doing Business report now acknowledges:• Rankings on the ease of doing business do not tell the whole story

about an economy’s business environment. The indicator does not account for all factors important to doing business …

• “Doing Business measures flexibility in the regulation of hiring, working hours and dismissal in a manner consistent with the Conventions of the International Labour Organization (ILO). An economy can have the most flexible labour regulations as measured by Doing Business while ratifying and complying with all Conventions directly relevant to the factors measured by Doing Business and with the ILO core labour standards.”

• 2012 Doing Business report:• More data-laden, less judgemental• “The employing workers indicators are not included in this year’s

aggregate ease of doing business ranking.”• Attempts to measure compliance with only 4 ILO Conventions:

working time, termination of employment

Better Factories approach

• In 2001 Better Factories Cambodia grew out of a trade agreement between the United States and Cambodia. Under the agreement the US promised Cambodia better access to US markets in exchange for improved working conditions in the garment sector.

• In 2007, the IFC and ILO began working together on a more global version: Better Work.•Aims to improve both compliance with labour

standards and competitiveness in global supply chains. •Better Work supports enterprises in implementing

the ILO core international labour standards and national labour law, and focuses on individual enterprises.

Compliance assessment in Better Work

• Two categories of reference:• Core labour standards: The categories of international standards are

those indicated in the ILO Declaration on Fundamental Principles and Rights at Work. • National labour law: Standards set in national legislation:

compensation, contracts and human resources, health and safety at work and working time.

Standardized Procurement Guidelines: All IFIs

• Since 2010, under pressure from trade unions in particular, all development banks now apply Procurement Guidelines for major infrastructure projects.• Apply only to large construction works, that cost more than $10

million. • Around 35% of what the WB currently funds, but the figures for

other development banks are not known.

• section 6.21 on Child Labour: • ‘The Contractor shall not employ children in a manner that is

economically exploitative, or is likely to be hazardous, or to interfere with the child’s education, or to be harmful to the child’s health or physical, mental, spiritual, moral, or social development. Where the relevant labour laws of the Country have provisions for employment of minors, the Contractor shall follow those laws applicable to the Contractor. Children below the age of 18 years shall not be employed in dangerous work.’

• section 6.5:

• ‘The Contractor shall comply with all the relevant labour Laws applicable to the Contractor’s Personnel, including Laws relating to their employment, health, safety, welfare, immigration and emigration, and shall allow them all their legal rights. The Contractor shall require his employees to obey all applicable Laws, including those concerning safety at work.’

International Monetary Fund

• No official position on human rights/labour standards• Sometimes has advised countries not to ratify ILO standards for

development reasons• But at least once (Indonesia) made ratification of ILO standards a

condition for help• Current world employment effort together with ILO

Regional Development Banks

Asian Development Bank• Social Protection Strategy 2001• Commits ADB to taking account of fundamental workers’ rights in all

ADB operations• Core Labor Standards Handbook 2006• But no practical implementation

European Bank (EBRD) Environmental Policy 2003:

• “In line with its mandate to promote environmentally sound and sustainable development, the term “environment” is used in this Policy in a broad sense to incorporate not only ecological aspects but also worker protection issues …” • Was revised to “catch up” with IFC and add labour rights.

EBRD Social Policy 2008

• EBRD will seek to support, though its operations, the initiatives of other institutions such as the ILO and the EU to promote the decent work agenda. At a minimum, the client’s human resources policies, procedures and standards shall be designed to:• • Establish and maintain a sound worker-management relationship;• • Promote the fair treatment, non-discrimination and equal opportunity

of workers;• • Promote compliance with any collective agreements to which the

client is a party, national labour and employment laws, and the fundamental principles and key regulatory standards embodied in the ILO conventions that are central to this relationship1;• • Protect and promote the health of workers, especially by promoting

safe and healthy working conditions.

• 7. Projects are required to comply, at a minimum, with:• national labour, social security and occupational health and

safety laws, and the principles and standards embodied in the ILO conventions related to:• a) the abolition of child labour;• b) the elimination of forced labour;• c) the elimination of non-discrimination related to

employment;• d) the freedom of association and collective bargaining.

The Inter-American Development Bank

• In February 2006 the IADB adopted guidelines on “Managing Labor Issues In Infrastructure Projects”, applicable to the private sector, that include extensive references to ILO standards.

Inter-American Investment Corporation

• 26. The Corporation will not invest in projects that use Forced Labor or Harmful Child Labor practices. Projects should comply with national laws of the host countries, including those that protect core labor standards2 and related treaties ratified by said countries.• "Forced Labor" consists of all work or service, not voluntarily

performed, that is extracted from an individual under threat of force or penalty.• "Harmful Child Labor" consists of the employment of

children that is economically exploitive, or is likely to be hazardous to, or interfere with the child’s education, or to be harmful to the child’s health, or physical, mental, spiritual, or social development.

Bilateral finance –Equator Principles

•A financial industry benchmark for private banks to manage social & environmental risk in project financing.•Updated in accordance with IFC principles 2006,

and being updated 2012.

•Study finding: Only 5 EPFIs specifically referenced labour issues, leaving room for doubt about whether they actually are doing much to take workers’ rights into consideration. These finds accord with those of IFC: of the 121 responses to an IFC survey, 72% stated that health and safety of workers was a key risk facing their clients; but there was no mention of any of the other labour issues contained in Performance Standard 2, not even any of the core labour standards.