The Inter-American Development Bank (IDB) is considering plans to upgrade its environmental standards, incorporate sustainability in the early stages of the lending process, boost civil-society participation in project development and build its expertise in sustainable strategies.

Bank managers have finished drafting proposed reforms that—if approved by the IDB board—would mark the first overhaul of the development bank’s environmental policy since 1979. IDB spokesman Daniel Drosdoff says he expects the new Environmental and Safeguards Compliance Policy to be adopted by the end of the year.

The proposed changes come on the heels of recommendations made earlier this year by a blue-ribbon panel formed by outgoing IDB President Enrique Iglesias and chaired by former U.S. Secretary of the Interior Bruce Babbitt.

In March, the panel gave bank managers 20 recommendations in four areas: “Standards and Harmonization,” “Moving Sustainability Analysis Upstream,” “Civil Society Engagement,” and “Capacity Systems and Resources.”

Though the IDB’s latest environmental-policy draft has not yet been made public, bank management appeared to embrace the blue-ribbon recommendations in an official response it issued in May. The recommendations included calls for the IDB to:

- upgrade its environmental standards so they meet or exceed those of the World Bank and the Equator Principles, a set of voluntary banking-industry guidelines that address environmental and social risks in project financing;

- issue an annual “sustainability report” on the bank’s successes and failures in setting and attaining green objectives;

- devote “adequate resources” to ensure that environmental, social and cultural sustainability standards are incorporated in program lending and country strategies;

- see that sustainability considerations influence “upstream” infrastructure planning;

- develop analytic tools to measure the sustainability of program and project lending;

- create incentives in the bank to encourage “sustainable outcomes” of loans;

- set targets for lending in such areas as biodiversity, renewable energy and water;

- make civil society “increasingly integral to the independent monitoring of project implementation.”

Policy in IDB’s interest

In its recommendations, Babbitt’s panel noted the bank has been accused of funding projects that produce unacceptable environmental and social impacts. Those allegations, it said, could complicate bank efforts to raise capital in financial markets, fuel calls for a boycott of the bank’s bonds and hamper work with private banks that have adopted higher environmental and social standards.

The panel signaled that Peru’s highly controversial Camisea natural-gas project should serve as a “learning experience.” Though the IDB board voted to approve Camisea financing in 2003, its U.S. representative abstained amid criticism of the project by green groups and the U.S. Agency for International Development.

Citing increased demand for infrastructure investment in Latin America and the Caribbean, the blue-ribbon report said IDB environmental-policy changes are urgently needed. “In the absence of a well-developed capacity to achieve this, the IDB will face real threats to its operating capability,” the panel said. The IDB is a prime supporter of regional integration and infrastructure initiatives such as Plan Puebla Panamá (PPP) in Central America and Mexico and the Initiative for the Integration of Infrastructure in South America (IIRSA).

The blue-ribbon panel was put to work after a draft environmental policy issued by the bank last November drew scathing reviews from environmental organizations, human rights groups and other observers.

Elizabeth Bast, an international-policy analyst with Friends of the Earth, welcomes the bank’s acknowledgement in its response to the blue-ribbon report that it needs new structures and resources to provide proper environmental safeguards. She adds that she hopes this view will be reflected in the policy that the bank ultimately adopts.

Critics want specifics

Aaron Goldzimer, a specialist on international financial institutions with the U.S. green group Environmental Defense, agrees that the IDB has moved to address a few of the most basic problems identified in the policy it proposed last November—committing, for instance, to embrace some World Bank safeguards for natural habitats.

But Goldzimer faults the blue-ribbon report and the bank’s responses for being so long on generalities and short on specifics that “[IDB managers] may be able to say they’ve done what was recommended and promised without really doing much at all.” For instance, he terms the recommendations on standards “too vague,” saying the panel should have spelled out specific provisions to be included in the new environmental policy.

Goldzimer says another key—and as-yet unanswered—question is whether the new policy will genuinely improve the IDB’s system of environmental oversight and accountability.

“Currently, a project goes to the Committee on Environmental and Social Impact (CESI) a couple of times for review, but this is really a peer review by staff from other areas of the bank, and not their primary job,” Goldzimer says. “There’s a lack of rigorous oversight of quality and compliance, as well as a potential conflict of interest in reviewing each other’s projects.”

Even in cases in which the bank staff may have made encouraging commitments, Goldzimer and others warn, implementation of those commitments is not assured. The draft environmental policy now must go before the board. It also could draw renewed scrutiny in the bank’s executive suite, where Colombian Luis Alberto Moreno is due to replace Iglesias as IDB president on Oct. 1.

“It’s unclear what the board and new president will do with it,” Goldzimer says. “They could make it even weaker or not approve it at all.”