CIEL and colleagues find that the International Finance Corporation and leading international banks do not have a robust framework for minimizing the social risks posed by their projects

August 7, 2008

A new study finds that international project financiers, including the leading international banks and the International Finance Corporation, do not have a robust framework for minimizing the social risks posed by their projects. The study — “The International Finance Corporation’s Performance Standard and the Equator Principles: Respecting Human Rights and Remedying Violations?” — notes that recently-adopted standards are not likely to reduce potential human rights-related conflicts that may arise in projects.

The Center for International Environmental Law (CIEL) and the Bank Information Center (BIC), with support from World Resources Institute, Oxfam Australia and Banktrack, used the Danish Institute for Human Rights’ Human Rights Compliance Assessment tool (HRCA) to analyze the extent to which the International Finance Corporation’s Performance Standards explicitly or implicitly address human rights concerns. These Standards have been adopted by the “Equator Principle Banks” as the “Equator Principles.” The analysis determined that the Standards and Equator Principles fail to address most critical human rights adequately and fail, even, to ensure that human rights concerns are assessed.

The shortcomings of the Performance Standards and Equator Principles, and the risks these shortcomings pose, are significant given the relevance of human rights concerns in the project finance context and the widespread application of the Standards and Principles.

To assess the relevance of human rights to project finance, the groups reviewed sixty-one projects that have generated complaints from locally-affected communities, and determined that these projects implicated most of the internationally recognized human rights. Among the rights most often implicated were the right to food, right to property, right to life, and right to health.

The Standards and Principles, intended to address social and environmental risks, enjoy extensive application. In 2007, US$52.9 billion of project finance debt in emerging market economies was subject to the Equator Principles, representing over 70 percent of all such financing in emerging markets. In addition, the export credit agencies (ECAs) of the members of the Organization for Economic Co-operation and Development have agreed to adopt the Performance Standards as a common environmental and social benchmark for export credits and loan guarantees.

The groups have submitted this paper to the United Nations Special Representative of the Secretary General on the issue of human rights and transnational corporations and other business enterprises, Professor John Ruggie, requesting his attention to this issue.

Daniel Magraw, President of the Center for International Environmental Law, notes that, in a June 2008 report to the Human Rights Council, Special Representative Ruggie indicates that companies have a “baseline responsibility” to respect all internationally recognized human rights. Steve Herz, an author of the current study, stated “the Performance Standards and Equator Principles must be significantly amended if they are to provide project sponsors with appropriate guidance for meeting their human rights responsibilities and minimizing human rights-related risks.”

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Center for International Environmental Law, a nonprofit organization based in Washington, DC, with an office in Geneva, Switzerland, uses international law and institutions to protect the environment, promote human health, and ensure a just and sustainable society. We provide a wide range of services including legal counsel, policy research, analysis, advocacy, education, training, and capacity building.

Bank Information Center, a nonprofit organization based in Washington, DC, partners with civil society in developing and transition countries to influence the World Bank and other international financial institutions to promote social and economic justice and ecological sustainability.