Managing Environmental and Social RisksAnis DaniLead Evaluator, IEGCCOctober 10, 2012

E&S frameworks at the World Bank Group World Bank safeguards framework, largely for public

sector. IFC and MIGA performance standards, for the private sector.

Similar objectives but different strengths and weaknesses: Thematic coverage of World Bank’s social safeguards is much

narrower than in IFC Performance Standards World Bank’s safeguards emphasize up front mandatory

requirements, with mitigation measures designed before project approval. But projects suffer from lack of adequate supervision and monitoring of outcomes, especially in the case of medium-risk (category B) projects.

In IFC, supervision and monitoring was more robust but oversight was by private sector partners without third-party verification or adequate disclosure.

World Bank Group Portfolio Trends indicate increasing risk profile

• In the Bank’s portfolio, Category A increased from 6 to 11%, Category B increased from a third to over half of investment projects• In IFC, slight decline in Category A, and FI Projects are 1/3 of portfolio; • In MIGA, FI guarantees increased from 1/3 to over half of portfolio

Source: Business Warehouse

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Percentage of Investment Com

mitm

ents

Perc

enta

ge o

f Pro

ject

s

A - No. of Projects B- No. of Projects C- No. of Projects

FI- No. of Projects A - Commitments

A. WB Lending by Safeguard Category B. Trends in IFC Portfolio

0%

10%

20%

30%

40%

50%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Committment year (FY)A (by volume) B (by volume) FI (by volume) C (by volume)

A (by number) B (by number) FI (by number) C (by number)

FI

C

A

B

Coverage of Safeguards vs Performance Standards

Supervision of safeguards in WB-financed projects by Env. Category

Supervision in IFC projects improved over time

ICR reporting in WB projects

Reporting in ICRs is much weaker on environment than social issues

ICRs for projects with significant E&S risks (Cat. A and B projects) should report on E&S performance

54% 56%

78%77% 81% 78%

47% 48%

78%

0%

20%

40%

60%

80%

100%

Overall E&S Environment Social

Perc

ent o

f Pro

ject

s

All Projects Category A Category B

n=98 n=31 n=62 n=97 n=31 n=61 n=55 n=27 n=27

Source: IEG portfolio review: Completed projects, FY99-08 approvals

Organizational arrangements at the World Bank and IFC

Recommendation - 1

Revise safeguards policy framework: harmonize categorization criteria to assess E&S risks consolidate World Bank policies into one social and one

environmental policy, harmonizing thematic coverage across the World Bank Group

apply IFC’s Performance Standards to financial intermediaries, listed equities, and trade finance

increase MIGA’s capacity to supervise its projects

Recommendations 2-4

Enhance client capacity, responsibility, and ownership Invest more in analytical work, TA/ Advisory Services Assign responsibility for safeguards monitoring to WB clients

Revise guidelines, instruments, and incentives to strengthen supervision arrangements, especially at WB

Strengthen safeguards M&E and completion reporting enhance transparency and third-party monitoring for higher

risk WB projects that use E&S policy frameworks and FI projects at IFC.

incorporate E&S effects as essential dimensions of the PDO, as in the XPSRs in IFC

Recommendation - 5

Seek greater symmetry in the structure of Bank Group accountability For WB create grievance redress mechanism to complement

Inspection Panel investigations For CAO introduce more independent review of audit

reports.

Backup Slides

Supervision of Projects with Policy Frameworks vs Mitigation Plan

Strengths/Weaknesses of Safeguards in WB projects

Strengths Comprehensive coverage of

environmental safeguards Priority to mitigating negative

impacts Preparation (85%) Good identification of high risk

projects (Cat. A): 11% Supervision of Cat. A (>80%)

Compliance ensured through high quality E&S risk assessments

Use of policy frameworks for FI, CDD, etc. allows rapid preparation

Weaknesses Narrow coverage of social

safeguards Less attention to client capacity

building Supervision (61%) Over-categorization of medium

risk projects (Cat. B): about10% of 51%

Weak supervision of Cat. B and FI (50-60%)

Poor M&E and reporting instruments lead to inattention to E&S results

Poor supervision of projects with frameworks increases E&S risks

Strengths/Weaknesses of E&S Management in IFC projects

Strengths Balanced coverage of E&S risks in

2006 PS framework Mitigation integrated with E&S

sustainability Focus on client’s E&S management

system Preparation (85%)

Clearly specified indicators to track E&S performance

Well developed instruments for annual reporting by clients (AMR)

Systematic use of indicators allows more accurate supervision and evaluation

Better oversight of real sector projects and some improvement in FI projects

Weaknesses Weaker staff capacity to address new

social areas Area of influence limited to scope of

project Undercategorization of high risk projects

compared to WB Post-PS supervision improved from 65%

to 75% But too soon to evaluate results

Uneven quality of client E&S reporting, and no disclosure of E&S results

Independent verification of client reports – TPM or community monitoring – needed for higher risk projects

Inadequate coverage & supervision of FI projects, listed equities and trade finance