Extracting Sustainable Advantage?

A review of how sustainability issues have been dealt with

in recent IFC & MIGA extractive industries projects

Final Report, April 2003

Extracting Sustainable Advantage?
A review of how sustainability issues have been dealt with
in recent IFC & MIGA extractive industries projects

Final Report, April 2003

Contents

Executive summary

1. Introduction

1.1 IFC and MIGA’s commitment to sustainability 1

1.2 Sustainability and the extractive industries 1
1.3 Scope of the review 2
1.4 Context of the report: looking to the future 4
1.5 Target audience for the report 4
1.6 Route map to the report 4

2. Analytical Framework and Approach

2.1 Basis for selecting review criteria to be addressed and projects 5

2.2 Development and application of the analytical framework 7
2.3 Ground-truthing the results of desk reviews 8
2.4 Determining sustainability role of safeguard policies and other factors 8
2.5 Basis for project selection and methodological limitations 8

3. Variations between dimensions of sustainability, and between projects

3.1 Variation between different dimensions of sustainability 10

3.2 Variability between projects: were some better than others? 11

4. Environmental dimension

4.1 Hazardous materials and site contamination 14

4.2 Closure and decommissioning 15
4.3 Water and hydrology 16
4.4 Ecological assessment and mitigation 17
4.5 Air quality 17

5. Social development and impact dimension

5.1. Migration and resettlement 18

5.2. Land rights and indigenous peoples 19
5.3. Cultural property 20
5.4. Public involvement and disclosure 20
5.5. Community development programs and projects 21
5.6. Conflict, human rights and labor 22
5.7. Health and safety in the workplace and surrounding community 23
5.8. Nuisance and visual aspects 23

i
6. Economic and governance dimension

6.1. Revenue management 24

6.2. Corruption and political stability 26
6.3. Economic development 27

7. Assurance and innovation

7.1. The chain of environmental and social assurance 29

7.1.1 Environmental and social assessment 29
7.1.2. Client capacity and environmental management systems 30
7.1.3. Compliance monitoring 31
7.1.4. Legal provisions to underpin environmental and social responsibility 31

7.2. Sustainability innovations: origin and incentives 32

7.2.1 Some examples of innovative practices 32
7.2.2. Origins of innovative practices 33
7.2.3. Creating incentives for innovation 33

8. Summary of findings and recommendations 34

Annexes

Annex 1. Relevance and adequacy tests for review criteria 38

Annex 2. Some methodological limitations and their significance 49

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Executive Summary

Introduction review criteria throughout the review, whereas

the wider set of emerging sustainability criteria
This review by the Office of the Compliance are referred to as non-mandatory.
Advisor Ombudsman (CAO) examined to what
extent the International Finance Corporation The scope of the review was restricted to
(IFC) and the Multilateral Guarantee Agency projects that post-date the adoption of IFC’s
(MIGA) currently deal with broader concerns Safeguard Policies (September 1998) and
about sustainability in their extractive MIGA’s environmental assessment policy and
industries projects. The review is a procedures (July 1999). The review looked at
contribution to the Extractive Industries eight projects in detail; four mining projects
Review (EIR), which has the broader mandate and four oil and gas projects.
of drawing out the concerns and views of
stakeholders on the future involvement of the The specific objectives were to consider
World Bank Group in the oil, gas, and mining whether:
sectors.
• The interpretation and application of these
The review focused on whether broader Safeguard Policies and guidelines has
issues influencing the sustainability of enhanced project sustainability.
extractives projects had been considered and • All relevant issues were considered during
adequately dealt with, both prior to Board the appraisal of projects.
approval and during implementation. These
included: It is important to acknowledge that the review
methodology holds all projects to a very high
• Environmental dimensions: hazardous standard. Many of the review criteria are at
materials management and transportation, the leading-edge of the sustainability debate
site contamination, biodiversity protection, for the extractives sectors, and more than half
water and hydrology, air quality, and are not currently mandated by either
specific issues relating to closure. Safeguard Policy or guideline provisions.
• Social development and impact These same provisions impose stringent
dimensions: migration and resettlement, environmental and social requirements on IFC
land rights and indigenous peoples, and MIGA, and the review found that these
conflict and human rights, consultation mandatory requirements are systematically
and community participation, community met.
development, and labor.
The review is therefore forward looking, and
• Economic and governance
asks to what extent IFC and MIGA are starting
dimensions: revenue management,
to consider a wider set of non-mandatory
corruption, political stability, and linkages
sustainability criteria, in addition to the
to local and wider economic development.
provisions of Safeguard Policies and
guidelines. This is an important consideration
Under these three broad categories, 52
in framing the findings, emerging lessons, and
individual review criteria and 16 clusters of
recommendations (in italics throughout the
criteria were identified. These formed the
text of the executive summary), as
basic analytical framework for the review. The
summarized below.
review criteria combined those that are
currently required under IFC and MIGA’s
Safeguard Policies and guidelines, and a
wider set of criteria that are relevant to
sustainable development in the extractives
sectors. The provisions of Safeguard Policies
and guidelines are referred to as mandatory

iii
Findings, emerging lessons and projects subscribe to the standard of do-no
harm (which the Safeguard Policies are
recommendations primarily concerned with), or it takes action
to ensure closer convergence with IFC’s
Variability exists in tackling the three broader sustainability remit.
dimensions of sustainability
In general, the mandatory social and The environmental dimension
environmental review criteria scored highly, Overall the eight projects scored highly
and were systematically applied. The scores against the mandatory environmental review
for the non-mandatory environmental and criteria. However, there is further scope for
social review criteria were markedly lower. improvement, particularly in relation to the
The economic and governance aspects non-mandatory review criteria. In contrast to
scored lowest of the three sustainability the governance dimension (where none of the
dimensions, but none of the review criteria in review criteria were mandatory) and the social
this category were mandatory (section 3.1). dimension (where many review criteria were
Both IFC and MIGA also contend that some of not mandatory), only a few non-mandatory
these issues are routinely factored into project environmental criteria have been considered.
decision-making, but that this is not captured The recommendations cover areas such as
in the project documents. Encouragingly, risk assessment, ecology, and groundwater.
however, some non-mandatory review criteria
were treated fairly comprehensively in each of Hazard and risk assessment
the three dimensions of sustainability, despite
the absence of supportive policies and Overall the mandatory review criteria scored
guidelines. very highly and the non-mandatory criteria
also scored well. However, the World Bank
Some projects performed better than others Group’s internal guidance on hazard and risk
and the variability between projects was high assessment is dated and not directly relevant
(section 3.2). A number of factors appear to to the extractive sectors (section 4.1). In the
have had an influence. The commitment and past decade, more sophisticated and
capacity of clients were important, and pragmatic approaches to environmental risk
sustainability scores were higher where these assessment have been adopted by leading
two were strong. Project categorization was companies in these sectors than the internal
less significant; the range and adequacy of guidance reflects.
consideration of environmental and social
issues was not markedly different for category IFC and MIGA should develop sector specific
A and B projects. guidance on how comprehensive
environmental risk assessments should be
The level of effort by IFC and MIGA staff was undertaken. In addition, IFC should finalize
critical, and a more hands-on approach by and fully implement its draft guidance on
environmental and social staff enhanced cyanide handling.
sustainability scores. Compared to MIGA, the
IFC business model and related Ecological assessment and mitigation
environmental and social review procedures
Despite the existence of the natural habitats
provides for a more in-depth and longer-term
policy, there is a need to strengthen the
relationship between clients and
guidance on ecological assessment and
environmental and social specialists
mitigation. In particular, the attention to
(particularly for category B projects). This
ecological issues was variable, perhaps
increases the prospects for constructive
because not all projects involved significant
engagement and exerting a positive influence.
conversion of critical natural habitats. There
was also a tendency to accept impacts on
MIGA’s management should consider and
rare, protected, threatened, or endangered
take a position on this disparity: either it
species as unavoidable, and not develop
maintains the status quo whereby MIGA
mitigation (section 4.4).

iv
IFC and MIGA should develop and implement public consultation has had on the design and
improved guidance on ecological assessment implementation of projects. The benefits of
and mitigation. ongoing consultation and engagement
throughout a project’s life cycle should
Closure and decommissioning routinely be articulated to clients, and required
for the period of IFC or MIGA’s involvement.
The requirements for closure in the various
guidelines on mining are inconsistent, while oil
Community development
and gas projects make no financial provision
for closure (section 4.2). There is also no Although none of the community development
mechanism for ensuring that clients continue review criteria were mandatory, these issues
to finance closure once IFC or MIGA no were fairly comprehensively dealt with.
longer have an interest in a project. Community development projects or programs
can be made more sustainable by being
IFC and MIGA should strengthen the available responsive to a participatory diagnosis of a
guidance on closure to apply to all extractives community’s development needs, by actively
projects, and include a requirement to ensure involving beneficiaries in implementation, and
that social considerations are taken into by considering their longer-term sustainability.
account. They should also develop and Yet despite IFC’s detailed guidance on
implement measures to ensure that funds investing in communities, these principles are
allocated to closure during their involvement often not incorporated into the community
with a project are ring-fenced, even after they development programs and projects of many
exit. extractive sector clients (section 5.5).

Social development and impact IFC and MIGA should ensure that all clients
dimensions are familiar with IFC’s Investing in People
Overall the eight projects scored very highly guidance, and understand the importance of
against the mandatory review criteria. direct community participation and explicit
However, there is further scope for consideration of the longer-term sustainability
improvement, particularly in relation to of community investment projects.
sustainability criteria that are not mandated by
policy or guideline provisions. Human rights and labor issues
With the exception of child labor and forced
Public consultation labor, IFC and MIGA have no policy
Pre-approval mandatory public consultation framework pertaining to these issues. Yet
was very well handled for all IFC projects and many leading-edge companies in the
was undertaken to some extent for both MIGA extractives sectors are adopting specific policy
projects (despite there being no mandatory commitments on human rights, for example on
requirement that MIGA clients undertake the use of security forces. It is noteworthy that
public consultation for category B projects). some other multilateral agencies have also
However, it is not always clear from the made more explicit commitments to all four
available documentation what influence (if International Labor Organization (ILO) core
any) consultation had on the projects (section labor standards. Neither IFC nor MIGA
5.4). This is important if consultation is to systematically consider the broader human
retain credibility as a mechanism for proactive rights and labor rights issues associated with
and constructive involvement of those who are extractives project.
potentially affected by projects. There is no
explicit commitment to ongoing consultation Many of these issues were not relevant to all
post-approval of projects, which is very eight extractives projects reviewed, although
important for extractives projects. in some cases, conflict related issues ought to
have been more systematically considered in
IFC and MIGA should more explicitly the light of a project’s context, as part of a
acknowledge and report on the influence that comprehensive risk assessment. Positive

v
relations with communities will not always economic rate of return (ERR). However, the
provide sufficient protection against conflicts ERR often cannot capture all social and
(section 5.6). This is not to suggest that wider environmental costs and benefits, and does
human rights concerns in individual countries not include distributional aspects. It also
should serve as a barrier to entry to IFC or assumes that the revenues paid to
MIGA (unless this is the stated policy of the governments will be used for development
World Bank Group). purposes, which is not always the case. The
broader criteria of revenue management,
IFC and MIGA should more systematically corruption, political stability, and potential to
consider potential risks to human rights at the stimulate economic development, have a
project level, take appropriate steps to profound influence on project sustainability,
mitigate them, and provide clearer guidance to and were therefore considered in the review.
clients on both of these aspects. Where
relevant, these aspects should be reported on It is important to acknowledge however, that
at the project level. IFC and MIGA only support projects in
countries that the World Bank has identified
Internal migration, induced development, as having an overall acceptable level of
and wider health concerns governance. It should also be emphasized
that none of the review criteria for this
A number of other non-mandatory social dimension of sustainability are mandated by
review criteria were not systematically Safeguard Policies or guidelines.
assessed and mitigated across all projects.
For example, there was rarely any discussion
Revenue management
about the social implications of internal
migration or induced development (section Macro level and distributional issues relating
5.1.), or of the wider impacts of projects on to revenue management are emerging as a
health (section 5.7.). The loss of access to critical issue for the future involvement of the
environmental resources on customary or World Bank Group in the extractive sectors
state-owned land was often ignored (section (section 6.1), and there is widespread
5.2.), as were measures to deal with appreciation of their importance amongst IFC
unanticipated archaeological finds (section and MIGA staff. IFC staff asserted that these
5.3.). In part, the lack of attention to these factors are routinely considered by project
review criteria may reflect the projects teams in the early stages of project planning,
reviewed – these issues were not relevant in sometimes at length, but the outcome of such
many instances, and have been explicitly deliberations is rarely documented and is not
dealt with in some larger IFC projects outside publicly reported.
of the review sample. But in other cases, it
was difficult to judge whether these issues This may be partially addressed by a draft
were not dealt with by design or by omission. guidance note prepared by IFC’s Operational
Strategy Group (Revenue Distribution and
IFC and MIGA should develop improved Management in IFC projects), but this applies
guidance on how to deal with these issues, only to high-impact projects (where revenues
and integrate it into improved guidance on are substantial in relation to a nation’s GDP)
social assessment, as recommended by the and there is no procedural basis for its
CAO Safeguard Policy Review. implementation. For lower-impact projects,
neither IFC nor MIGA consider that they have
There is significant scope for sufficient leverage to effectively address
improvement in tackling economic and revenue management. IFC and MIGA should
governance dimensions more systematically and transparently factor
IFC and MIGA are concerned with both the these issues into project decision-making.
returns to investors or financial rate of return
(FRR) of projects and the wider societal IFC should consider revisiting the definition of
high-impact projects, which may be too
benefits, some of which are captured by the
restrictive. It is currently based on the relative

vi
contribution of a single project to fiscal political instability, or conflict to result in
incomes, whereas it might be extended to adverse impacts at the project level, or to
include large projects (above a defined increase as a result of the project.
threshold) in countries where the sector as a
whole makes a significant contribution to Economic Development
GDP. For high-impact projects, IFC should
Encouragingly, economic considerations
report on the steps taken to mitigate adverse
(such as maximizing procurement and
impacts and enhance revenue management
employment opportunities) are fairly
and distribution. For low-impact projects, IFC
comprehensively considered in IFC and
and MIGA should report on their rationale for
MIGA’s extractives projects, despite the
supporting such projects, having fully
absence of any mandatory requirements to do
considered the positive and adverse
so (section 6.3). There is further scope to
economic, social and environmental impacts.
maximize economic opportunities, particularly
IFC and MIGA should also continue to
through more proactive approaches to
collaborate with the World Bank on the
procurement, employment, and reinforcement
inclusion of these aspects in Country
of economic infrastructure. This will require
Assistance Strategies (CAS), and engage with
clearer allocation of responsibilities between
the Bank and IMF to seek coordination of
investment and underwriting and
work programs that address public
environmental/social staff.
expenditures management, which are beyond
the mandate of IFC and MIGA.
IFC and MIGA should clarify where the
responsibility lies for ensuring that socio-
Corruption, political instability, and
economic development issues (relating to
conflict
employment, procurement, and economic
Both IFC and MIGA go to some lengths to infrastructure) are dealt with. They should
ensure the soundness and integrity of clients, develop improved guidance, both for internal
and there are practical limits to the extent of use and for clients, on the economic
disclosure on these aspects. However, the development issues that should be considered
significance of public corruption, political and how, the obstacles that often exist to
instability, and conflict are not reported on at maximizing potential opportunities, and how to
the project level (section 6.2). IFC has no overcome such obstacles to extract the
systematic approach to considering the impact maximum advantage from extractives
of these issues on project sustainability, projects.
although IFC staff asserted that they are
routinely discussed in some detail during Sustainability innovations are emerging
project preparation. Neither IFC nor MIGA, – albeit in an ad hoc manner
however, have the leverage to proactively For most projects, proactive initiatives –
address these issues, and their clients have sustainability innovations – were taken that
almost no leverage to mitigate any related moved the project beyond ‘do no harm’. While
impacts. Ideally, these factors are best tackled innovation varied widely between projects and
at the country level. often followed internationally recognized good
practice, all went beyond the basic
IFC and MIGA should collaborate closely with requirements of IFC and MIGA (section 7.2.).
the World Bank to ensure that these issues
are explicitly dealt with in the appropriate Some innovations are client led and triggered
operational instruments (e.g. Public by the potential for adverse local reaction, or
Expenditure Reviews, CAS) of the countries by the recognition of local needs. The
where they are likely to support oil, gas and benefits to the local community (in terms of
mining. In addition, the investment and job creation, community development and
underwriting departments should collaborate involvement of communities) are maximized in
with their environmental and social the interest of maintaining good relations. In
counterparts to more explicitly analyze and other cases, IFC or MIGA specialists identified
report the potential for in-country corruption, potential problems or needs and encouraged

vii
clients to go beyond compliance. In general, concerns. A number of gaps have been
higher anticipated levels of environmental and highlighted in the review and referred to
social impact are a stimulus to greater above, which need to be filled to make project
innovation. outcomes more sustainable.

One possible obstacle to sustainability IFC and MIGA should reinforce their existing
innovations is receptiveness of the client. guidance to more clearly encompass a wider
Another is the absence of prior experience or set of sustainability concerns. As the
knowledge by IFC or MIGA specialists of sustainability agenda is evolving, a flexible
specific innovations that might be applicable. approach to introducing revisions should be
adopted. This should enable both
Although informal sharing of ideas between organizations to update internal guidance
specialists takes place, IFC and MIGA should efficiently and systematically in response to
explore more formal mechanisms to record emerging best practice, in support of
and share experiences. continuous improvement. Where
appropriate, the guidance should clearly
If the business case for sustainability is to be identify mandatory requirements.
made persuasively, the concept that
sustainability innovations have a return on Commitment is also very important, both on
investment should be demonstrated, building the part of clients and IFC or MIGA staff. In
upon the body of experience highlighted in some cases, IFC environment and social staff
‘Developing value: The business case for worked extensively with project sponsors to
sustainability in emerging markets’ (section develop innovative programs or projects.
7.2.3.). MIGA’s ability to have such interactions with
clients is limited by the ‘do no harm’ focus of
IFC and MIGA should develop mechanisms its procedures, and the relatively shorter
to buy-down or reduce the perceived processing times of its projects (section
incremental costs of higher risk 7.2.2.).
sustainability innovations where the returns
on investment are not readily demonstrable. MIGA should consider whether the broader
Such mechanisms should avoid the advisory services capacity on sustainability
provision of any subsidy to the project, while within the Bank Group could be harnessed
supporting innovation. and applied, where its clients express an
interest, as an extension of its advisory
Policies and guidelines help to underpin services. MIGA should also more
sustainability – but commitment is also systematically assess clients’ capacity for
important social and environmental management.
Less than half of the 52 review criteria were
mandated by Safeguard Policy or guideline
provisions. For the environmental and social
dimensions of sustainability, the sustainability
ratings for policy or guideline mandated
review criteria was better than for all the
review criteria combined. There were few
instances where all applicable policies and
guidelines had not been considered, and most
omissions were thought to be of fairly minor
significance in terms of sustainability
outcomes.

If extractives projects are to be made more

sustainable, this implies a need for greater
clarity on a wider set of sustainability

viii
 1 Introduction

T he World Bank has recently initiated an in-depth independent review of its future role in the
extractive industries (oil, gas and mining) with concerned stakeholders (www.eireview.org).
The Extractive Industries Review (EIR) aims to produce a series of recommendations that will
guide the future involvement of the World Bank Group in the oil, gas and mining sectors, and
will be informed by wide-ranging consultations with stakeholders. The EIR is taking place in the
context of the Group’s overall mission: to reduce poverty and to promote sustainable
development.

In response to a request from IFC’s Senior Management, the Office of the Compliance Adviser
Ombudsman (CAO) 1 committed to making a contribution to the Extractive Industries Review,
consistent with its advisory mandate 2 . The overall objective was to explore the extent to which
broader sustainability concerns relevant to the oil gas and mining sectors had been dealt with in
recent IFC and MIGA projects.

1.1. IFC and MIGA’s commitment to sustainability

To varying degrees, both IFC and MIGA have committed to pursuing sustainable development
in their investment, underwriting, and advisory services. IFC’s mission explicitly refers to
promoting sustainable private sector investment. In the Strategic Directions paper approved by
IFC’s Board in May 2001, reference is made to the concept of sustainability and a move towards
a sustainability approach to measuring performance (economic prosperity, environmental
quality, and social equity). More recently, IFC articulated a view of sustainability that also
includes corporate governance. These four aspects of sustainability have been integrated into
IFC’s Sustainability Framework, which has been designed to assess the added value of IFC
projects and support IFC’s efforts to promote the business benefits of sustainability to clients.

There is no specific mention of sustainability in MIGA’s mission, which is to promote foreign

direct investment in order to improve people's lives and reduce poverty. However, it is MIGA's
view that acceptable environmental performance, sustainability with respect to natural resource
management, and social soundness are critical factors in the "...economic soundness of the
investment and its contribution to the development of the host country" (as mandated by MIGA’s
Convention). MIGA evaluates projects in terms of its own environmental policies and guidelines,
and its review procedures refer to the need to “ensure that projects meet MIGA's commitment to
environmentally sustainable and socially responsible projects”. MIGA therefore has a project
level commitment to sustainable development, and its review procedures are primarily aimed at
the avoidance of environmental or social harm. MIGA’s view is that its activities supplement
those of the rest of the World Bank Group and are one element in a wide range of initiatives that
promote sustainable development and reduce poverty.

1.2. Sustainability and the extractive industries

There is a growing awareness and emerging consensus on some of the factors that influence
the sustainability of oil, gas and mining projects. These have been incorporated into the
1
The CAO is an independent office that reports to the President of the World Bank Group. Its mandate is to help IFC
and MIGA address complaints made by people who are or may become directly affected by projects in which IFC or
MIGA play a role, and to enhance social and environmental outcomes (www.cao-ombudsman.org).
2
The CAO has three distinct roles: the Ombudsman, Compliance, and Advisory roles. The third of these is to be a
source of independent advice to the President.

1
analytical framework for this review. This comprised issues that are currently required under IFC
and MIGA’s Safeguard Policies and guidelines, and issues that, while not required, are
nonetheless relevant to sustainable development in the extractives sectors. These are
distinguished throughout the review by references to mandatory and non-mandatory review
criteria (see Box 1). It should also be noted that some people consider extractive industries to
be inherently unsustainable.

The emphasis has been on reviewing whether the broader issues (mandatory and non-
mandatory) influencing the sustainability of extractives projects have been considered and
adequately dealt with prior to Board approval and during implementation. This has included the
following three broad categories:

• Environmental dimensions: including issues relating to hazardous materials management

and transportation, site contamination, biodiversity protection, water and hydrology, air
quality and specific issues relating to closure.
• Social development and impact dimensions: including issues relating to migration and
resettlement, land rights and indigenous peoples, conflict and human rights, consultation
and community participation, community development and labor.
• Economic and governance dimensions: including issues relating to revenue
management, corruption, political stability, linkages to the local economy and wider
economic development.

Under the umbrella of these three broad categories, 52 individual review criteria and 16 clusters
of criteria were identified that formed the basic analytical framework for the review, which is
described in chapter 2.

1.3. Scope of the review

The scope of the review was restricted to IFC and MIGA’s experience with extractive industries
projects that have received Board approval subsequent to IFC adopting its safeguard policies
(September, 1998), and the adoption of MIGA’s environmental assessment policy and
procedures (July, 1999). The review looked at eight projects in detail; four mining, and four oil
and gas.

With the overarching objective of exploring the extent to which broader sustainability concerns
relevant to the oil gas and mining sectors had been addressed in recent IFC and MIGA projects,
the CAO considered whether:

• The interpretation and application of IFC and MIGA’s Safeguard Policies and guidelines has
enhanced the sustainability of recent extractive industry projects;
• All relevant issues were considered during the appraisal of recent extractive projects.

Given the recent nature of the projects under consideration (i.e. FY2000-2002), the review did
not include any in-depth consideration of financial sustainability or the broader development
impact of the projects; this is the primary focus of a separate OED/OEG joint evaluation 3 . The
3
This focus on current practice within IFC and MIGA is complementary to a joint evaluation of World Bank Group
activities in extractives industries by the Operations Evaluation Department (OED) of the World Bank, the Operations
Evaluation Group (OEG) of IFC, and Operations Evaluation Unit (OEU) of MIGA. Their evaluation will mainly consider
projects that have been approved for at least 5 years and focus on how effective the World Bank Group has been in
maximizing the sector’s sustainable development potential (see www.eireview.org/eirhome.nsf/(doclibrary)/ for an
approach paper).

2
broader question of whether individual projects would have (on balance) a positive development
impact was therefore not considered. Additionally, the lack of maturity of the projects restricted
an assessment of the implementation stage of the project cycle, particularly in relation to areas
such as local community development. The focus was therefore on how the preparation of
projects paved the way for more sustainable project outcomes.

Box 1. What distinguishes mandatory from non-mandatory review criteria?

During the appraisal of a project, IFC and MIGA identify the Safeguard Policies and guidelines that are
applicable*. If they proceed to invest in (IFC) or provide a guarantee to (MIGA) the project, its
performance is monitored against the applicable standards. Projects are expected to comply with all
applicable Safeguard Policies and guidelines, as well as applicable local, national, and international
laws. Hence for the purposes of this review, the provisions of Safeguard Policies and guidelines are
referred to as mandatory review criteria. This includes the following policies:
• OP4.01 Environmental Assessment (October 1998)
• OP4.04 Natural Habitats (November 1998)
• OP4.36 Forestry (November 1998)
• OP4.37 Safety of Dams (September 1996)
• OP7.50 International Waterways (November 1998)
• OD4.20 Indigenous Peoples (September 1991)
• OD4.30 Involuntary Resettlement (June 1990)
• OPN11.03 Cultural Property (September 1986)
• Policy Statement on Child and Forced Labor (March 1998)

The following guidelines of relevance to extractives were also considered mandatory:

• Oil and Gas Development (Onshore) (July 1998)
• Oil and Gas Development (Offshore) (December 2002)
• Mining and Milling (Underground) (August 1995)
• Mining and Milling (Open pit) (August 1995)
• Base Metal and Iron Ore Mining (July 1998)
• General Health and Safety guidelines (July 1998)
• Hazardous Materials Management Guidelines (December 2001)

In addition, a wider set of emerging issues, which are not currently addressed by any of the above
polices or guidelines, have an influence on the sustainability of oil, gas and mining projects. These
have been incorporated into the analytical framework for the review, but are referred to throughout the
report as non-mandatory review criteria. Just over half of the 52 individual review criteria fall into this
category.

*Note: With the exception of an Environmental Assessment policy, MIGA has not yet adopted its own
set of issue specific Safeguard Policies. However, it is MIGA’s policy that the projects it insures are
consonant with the IFC’s policies, and the guidelines are common to both MIGA and IFC.

The review did not assess whether individual projects evaluated as part of the review are in
compliance with relevant Safeguard Policies. The intent of the review has been to learn from the
range of experiences across a number of projects, rather than to comparatively evaluate

3
individual projects against one another. This is consistent with the CAO’s mandate of enhancing
outcomes.

1.4. Context of the review: looking to the future

It is important to acknowledge that the review methodology holds all projects to a very high
standard. Many of the review criteria are at the leading edge of the sustainability debate for the
extractives sectors, and more than half are not currently anchored in either Safeguard Policy or
guideline provisions. These same provisions impose more stringent environmental and social
requirements on IFC and MIGA than perhaps any other international financial institution, and the
review found evidence that these mandatory requirements are being systematically met.

The review is therefore forward looking, and considers to what extent IFC and MIGA are starting
to consider this wider set of sustainability criteria, in addition to the provisions of Safeguard
Policies and guidelines. In this respect, it goes far beyond many of the social and environmental
requirements that IFC and MIGA currently subscribe to, and which are embodied in their
Safeguard Policy and guideline commitments. This is an important consideration in framing the
findings, emerging lessons, and recommendations.

1.5. Target audience for the report

This report is first and foremost intended as a contribution to the EIR process, to help inform the
participants and other interested parties of the most recent practices within IFC and MIGA for a
range of projects, examined through the application of a set of sustainability ‘filters’. Secondly,
the report should be of interest to IFC and MIGA who are a key stakeholder in the EIR process,
and who have a vested interest in its outcome. It may also be of interest to a wider set of
stakeholders who have an interest in the EIR process, including Non-Governmental
Organizations (NGOs) and extractive sector companies.

1.6. Route map to the report

This introductory chapter is followed in chapter 2 by a detailed description of the analytical
framework applied to the review, some basic details on the individual projects that were
considered in the review, and a discussion of methodology. Chapter 2 also describes some of
the limitations associated with the framework and methods, and the significance of these
limitations.

The next five chapters explore the extent to which the review criteria were met in the projects
which were reviewed. They adopt an issue-based rather than a project-based focus, and
discuss how well the projects performed when rated against mandatory as well as non-
mandatory review criteria. Of particular interest was the variation in scores:

• Between the different dimensions of sustainability.

• Across the range of projects.
• Across the clusters of review criteria within each of the three dimensions of sustainability.

Chapter 3 begins with a comparison of the performance 4 of IFC and MIGA for each of the three
broad dimensions of sustainability (section 3.1), followed by a discussion of the variability in
performance between individual projects (section 3.2).

4
Performance in this context refers to how the projects scored against the review criteria on a scale of 0-
3, as opposed to financial or economic performance.

4
The next three chapters assess the performance of the eight projects against the sustainability
review criteria under three headings: environmental dimensions (chapter 4); social development
and impact dimensions (chapter 5); and economic and governance dimensions (chapter 6).

Chapter 7 discusses assurance mechanisms and sustainability innovations. Finally, the

recommendations for IFC and MIGA emerging from the review are summarized separately in
chapter 8.

5
2 Analytical framework and approach

T his chapter describes the analytical framework and approach to the review. The stages in
the review were as follows:

• Identify the sustainability review criteria relevant to the extractive sectors and subject these
to peer review and comment.
• Develop an analytical framework to consider the applicability of the review criteria to
individual projects, and the extent to which relevant review criteria were adequately dealt
with.
• Identify criteria for selecting a sample of extractives projects from the portfolio, and select
eight projects.
• Apply the analytical framework to the eight projects, based on a combination of desk-
reviews, interviews, and field visits.
• Determine the extent to which IFC and MIGA policies, guidelines, and procedures provided
a basis for addressing broader sustainability review criteria, the relevance of other factors,
and the significance of any gaps or deficiencies.

Some of the key stages are discussed in greater detail below, or in associated Annexes.

2.1. Basis for selecting review criteria to be addressed and projects

An initial list of review criteria was produced, based on a review of the literature, consideration
of the provisions of the safeguard policies and guidelines, and the perspectives of the review
team. This was refined with the input of an internal steering group 5 to 52 individual review
criteria, which were grouped into 16 clusters of criteria. These were in turn grouped under the
three broad headings of: (i) environmental dimensions; (ii) social development and impact
dimensions; and (iii) economic and governance dimensions. The full list of review criteria is
included in Annex 1.

These review criteria include, but are not limited to, the provisions contained within IFC and
MIGA’s policies and guidelines. Whereas the Safeguard Policies and guidelines aim to ensure
IFC and MIGA’s projects ‘do no harm’ 6 , the wider remit of this review required a broader set of
issues and concerns to be addressed (for example, revenue management, conflict, human
rights, and community development). The Terms of Reference for the review (which listed the
review criteria to be considered) was also submitted to the CAO Reference Group 7 for
comment.

5
This included staff from CES (IFC’s Environment and Social Development Department), OEG (IFC’s Operations
Evaluation Group), COC (the World Bank/IFC Oil, Gas, Chemicals and Mining Department) and MIGEV (MIGA’s
Policy and Environment Department). The steering group provided guidance to the review based on in-depth sector-
specific experience.
6
The term ‘do no harm’ is somewhat misleading, as Safeguard Policies and guidelines set limits on the magnitude
and extent of harm that is permissible. Furthermore, some Safeguard Policies intend to ‘do good’ as well.
7
The Reference Group includes a number of includes a number of individuals from all stakeholder groups that
interact with the CAO including NGOs, participants from industry, and staff of the World Bank Group (see
http://www.cao-ombudsman.org/).

6
The selection of projects was designed to ensure a wide geographic distribution of projects, a
balanced sectoral spread between mining and oil and gas, and a range of types of investment.
Some basic details on the projects selected are given in Table 2.1.

Table 2.1 Details of projects included within the scope of the CAO Review
Environmental
IFC/
Country Sector Description Assessment
MIGA category
Russia MIGA Oil and gas Expansion of onshore oil field B
Kazakhstan IFC Oil and gas Expansion of onshore oil field B
Guinea MIGA Mining Modernization of bauxite mine and B
processing plant
Mexico IFC Mining Rehabilitation and expansion of A
silver mine
Pakistan IFC Oil and gas Expansion of gas field B
Brazil IFC Mining Expansion of iron ore operation A
Lao PDR IFC Mining Greenfield gold mine A
Gabon IFC Oil and gas Offshore oil field B

2.2. Development and application of the analytical framework

An analytical framework was derived in matrix format based on the ‘short-list’ of 52 review
criteria referred to above (see Annex 1). The framework was designed to: (i) assess the
relevance of each issue to a given project, (ii) review the extent to which each issue had been
adequately assessed, mitigated, or managed, and (iii) assign a scoring based on a simple
numeric scale (see table 2.2), which reflected how comprehensively review criteria had been
addressed. Individual matrices were completed for each of the eight projects, which provided
much of the basic data for the review.

An overall rating of comprehensiveness was assigned to each issue (for each project). The
guidance in Table 2.2 assisted with the rating of comprehensiveness, supplemented by more
issue specific guidance in Annex 1.

Table 2.2 Guidance on comprehensiveness rating of review of criteria

Rating Guidance on rating
N/A Issue not considered as it is not applicable to the project
0 Issue not considered, but it ought to have been as it is relevant to the
project
1 Cursory treatment of the issue in assessing significance and
developing mitigation measures or management plans

2 Fairly comprehensive treatment of the issue, although some aspect

of the assessment of significance, or development of mitigation
measures or management plans should have been more robust

3 Comprehensive treatment of the issue

Separate ratings were allocated to each issue based on whether it had been considered, its
significance appreciated, and mitigation measures developed (where applicable). These were
aggregated to provide one overall score for each issue. In practice, it was not always easy to

7
un-bundle the assessment of significance from the adequacy of mitigation measures, and vice
versa. Overall the review was concerned with whether there was a link between the level of due
diligence that had been undertaken, and that which ought to have been applied. This
fundamental consideration helped to guide the allocation of ratings.

2.3. Ground-truthing the results of desk reviews

For three of the eight projects that were fully operational, site-visits were undertaken to ground-
truth the results of the desk reviews. In almost all cases the adequacy ratings assigned by field-
based and desk-based review team consultants (who were not appraised of each other’s
results) were identical. The minor differences observed resulted from the availability of
supplementary information at the project sites, or differences in professional judgment.

2.4. Assessing the extent to which review criteria had been addressed
The final step involved analyzing the results of the desk reviews and reports of site-visits to
determine the extent to which the wider set of review criteria (i.e. sustainability issues) had been
addressed. In addition, the factors influencing the consideration of review criteria were
explored.

2.5. Basis for project selection and methodological limitations

The selection of a representative cross-section of projects was considered critical to the validity
of the review. The approach adopted was to identify all recent IFC and MIGA projects in the oil,
gas and mining sectors (23 projects between FY2000-2002), and to apply a set of selection
criteria to produce a sample of eight projects. Three of these projects had been closed and
were excluded. A further 7 projects were subject to some other type of review or evaluation
(either an Ombudsman process, Safeguard Policy Review field visit, or Inspection Panel
process). From the remaining short-list of 13 projects, a wide geographic distribution of projects
was sought, with a balance between oil and gas and mining. No Financial Intermediary (FI)
projects were included in the sample 8 .

While the selection criteria aimed to produce a representative range of projects, it resulted in a
number of unintentional biases. For example, some more controversial projects were excluded
from the sample because they were subject to an Ombudsman or Inspection Panel
investigation. This limited the number of Category A projects that were left for inclusion in the
final sample (three out of eight). But it also eliminated the Chad-Cameroon pipeline project,
which is illustrative of a more innovative (albeit as yet unproven) approach to issues such as
revenue management.

The sample size is not sufficiently large to provide for detailed statistical analysis. The results
represent a snapshot of current practices rather than a complete and comprehensive picture.
However, given the total number of possible sample projects, this limitation would have applied
even had all 23 projects been reviewed. Furthermore, some of the review findings stem from the
absence of systematic approaches to dealing with or reporting on some aspects of
sustainability. In this respect, such findings are independent of sample size and therefore valid.
Other methodological limitations are discussed in Annex 2. In the opinion of the review team,
the inherent biases do not compromise the overall value of the review nor adversely influence
the conclusions.
8
While some IFC and MIGA supported FIs may invest in extractives companies, the exclusion of FI projects reflects
the limited availability of sub-project information for the purposes of review. The recently completed IFC Safeguard
Policy Review report makes specific recommendations pertaining to FIs.

8
The discussion throughout the following chapters refers to the scoring system explained
in Table 2.2 above for comparative purposes, so familiarity with this table is a
prerequisite to understanding the narrative and interpreting the scores. The scores reflect
the extent to which review criteria had been considered, their significance appreciated, and
mitigation measures developed. A score of 0 indicates that an issue was not considered, but
ought to have been as it was relevant; 1 indicates that an issue was only cursorily treated; 2
indicates that an issue was fairly comprehensively dealt with; and 3 that it was comprehensively
treated. The scores for mandatory and non-mandatory review criteria are presented separately,
to enable a comparison between how IFC and MIGA are performing with respect to the review
criteria that are mandatory, and those that are emerging as important for the sector.

9
3 Variations between dimensions of sustainability
and between projects

T his chapter begins with a comparison of the performance of IFC and MIGA for each of the
three broad dimensions of sustainability (section 3.1), followed by a discussion of the
variability in performance between individual projects (section 3.2).

3.1. Variation between different dimensions of sustainability

The review considered how well IFC and MIGA performed with respect to the three broad
dimensions of sustainability: environment, , social development and impact, and economic and
governance. This is illustrated in Figure 3.1, which compares the average scores per review
criteria for each of these three dimensions. Overall, the average scores for the mandatory social
and environmental review criteria were both markedly higher and similar (2.6/2.5), while the
scores for the non-mandatory social dimensions averaged 1.8, somewhat higher than for
environment (1.4). The scores for the economic and governance dimensions were lowest (1.2),
but it is important to note that none of the review criteria for this dimension were mandatory.
The performance of these three dimensions is discussed in detail in subsequent chapter, but a
few overall observations are worth noting.

Figure 3.1 Average scores for each dimension of sustainability

Comprehensive*
3 Maximum possible score
Extent to which issues were addressed

Mandatory review criteria

2.5
Non-mandatory criteria
Fairly
2 comprehensive*

1.5

Cursory*
1

0.5

0
Environmental Social Governance and
dimensions dimensions economic **

*Note: See table 2.2 for explanation of terms

**Note: None of the review criteria for this dimension were mandatory

Firstly, the overall average scores for the mandatory social and environmental review criteria of
2.6/2.5 (out of a maximum of 3) indicate that these review criteria are generally treated
comprehensively. In practice, this means that such issues are systematically considered, their

10
significance is adequately assessed, and that mitigation measures or management plans have
been developed. The marginally higher scores for the social dimension are interesting, given
that IFC and MIGA have had a longer history of dealing with environmental as opposed to social
issues. One possible explanation is that a relatively higher proportion of the mandatory social
review criteria were rooted in Safeguard Policy provisions as opposed to guidelines (as review
criteria embedded in policy provisions scored marginally higher than those in guidelines), but
the overall difference between social and environmental scores was negligible.

There was an apparently marked difference between the scores for the non-mandatory
environmental review criteria and social review criteria, with the average scores for
environmental criteria falling below half the maximum (1.4 out of 3). This is primarily because
only two of the five clusters of environmental requirements had non-mandatory review criteria,
and the average scores for one of these were very low. So the ‘marked difference’ is to some
extent exaggerated by the very low numbers of non-mandatory environmental requirements,
and is not thought to be significant. This aspect is discussed in greater detail in chapter 4.

With respect to the economic and governance dimensions the scores indicate that on average,
this cluster of criteria has only been considered to a limited extent (or cursorily) during project
preparation, based on a review of the available documentation. One obvious explanation is that
neither IFC nor MIGA have any Safeguard Policies or guidelines that require them to consider
such issues. Furthermore, both organizations contend that the scores fail to reflect that some of
these issues are in fact considered, but that this is not necessarily shown in the project
documents.

While MIGA routinely considers issues relating to in-country corruption and political stability as
an integral part of its business model (which was reflected in MIGA’s reporting on such issues
and related scores), it has no mandate to actively mitigate these risks through specific actions;
their analysis is used in the determination of political risk insurance premiums. The lower scores
for the economic and governance dimension may also reflect the perception by IFC that these
issues are not relevant to many of the sample projects, given their relatively modest contribution
to government incomes and the limits this places on IFC’s leverage. These aspects are
explored in greater detail in chapter 6.

Overall less than half of the individual review criteria were mandated by Safeguard Policy or
guideline provisions. Given the higher average scores for mandatory social and environmental
review criteria, the existence of policies and guidelines appears to have a positive influence in
ensuring that review criteria are met – which is supported by the strong culture of compliance
within IFC and MIGA. This effect appears to be marginally stronger for policies than for
guidelines, as the average score for all Safeguard Policy mandated review criteria is 2.51
compared with 2.45 for guideline mandated review criteria.

3.2. Variability between projects: were some better than others?

It is interesting to note the range of variability in scores between projects, and to consider the
sources of this variability. The distribution of scores for individual projects (excluding review
criteria that were not applicable) is illustrated in Figure 3.2. The variability in average scores per
issue between projects was high, with scores for mandatory review criteria averaging 1.8 – 2.9
(out of a possible maximum of 3) and for non-mandatory review criteria averaging 1.1 – 2.2.
With one exception, the average scores for mandatory review criteria exceeded 2.3 and the
average score for all review criteria across all projects was 2.1. So on balance, most review
criteria were fairly comprehensively dealt with.

11
Why did some projects perform much better than others against the review criteria? A number
of factors appear to have had an influence, although their subjective nature makes a definitive
prioritization difficult. The commitment and capacity of the client appears to have been very
significant. Even where the client’s capacity for environmental and social management was
limited, in almost all cases they exhibited a strong resolve to do the right thing, which
manifested itself in positive actions on the ground. For example, in two of the projects visited,
clients were unaware of some specific requirements of IFC or MIGA, but had nonetheless made
considerable efforts that exhibited a strong social or environmental commitment. Where
commitment was matched by capacity, the overall scores improved.

Public consultation (and in particular public involvement) may also have been important, as the
higher scoring projects overall also scored highly on this aspect. Environmental Assessment
(EA) categorization appears to have been a less important factor. One might have expected a
greater level of attention to a wider set of review criteria with the three IFC category A projects
(compared to category B projects), but this was not the case. As both MIGA projects were
category B, there was no basis for internal comparison between As and Bs. However, MIGA’s
Category B projects scored less well than those of IFC. This reflects MIGA’s almost exclusive
focus on Safeguard Policy compliance, which means that it pays limited attention to value-
added activity (through consideration of the non-mandatory criteria).

Figure 3.2 Variation in average scores between projects

Fairly Comprehensive*
Cursory* comprehensive*

Project 1

Project 2
Maximum possible score
Project 3

Project 4

Project 5

Project 6

Project 7
Mandatory review criteria
Project 8 Non-mandatory criteria

0 0.5 1 1.5 2 2.5 3

Extent to which sustainability criteria were addressed

*Note: See table 2.2 for explanation of terms

12
The investment of effort by IFC and MIGA’s environmental and social staff in individual projects
would also appear to be very important. Some specialists adopted a more hands-on or hand-
holding approach than others, which appears to have paid dividends. The scale of the potential
impacts was sometimes important; for example, the greater the potential impacts the more
leverage IFC or MIGA may have had to push for a higher standard of mitigation. Some smaller
clients had less capacity to deal with environmental and social issues (although commitment
may have been high), so the size of the project may also have been a factor.

Higher scores imply more sustainable project outcomes. The highest scoring projects are also
those in which IFC has worked collaboratively with sponsors to enhance project sustainability.
However, one of the lowest scoring projects had a significant development benefit, at least in
the short-term (as it prevented an enterprise from closing, which would have had wide-ranging
social impacts, and provided a revenue stream to finance much needed environmental
investments). While this project represents an exception, it illustrates the importance of
considering the broader context and the potential value of applying appropriate weighting or
ranking criteria (which were not applied for this review).

In summary, a range of factors influenced the attention to environmental and social issues,
some of which were unique to clients or projects and some that pertained to IFC and MIGA. The
following chapters discuss IFC and MIGA’s performance against the three dimensions of
sustainability in greater detail.

13
4 The environmental dimension

F ive groups of review criteria were considered under the environmental dimension of
sustainability, including issue clusters (in brackets below) designed to ensure the
consideration of:
• The handling, storage, transport and overall management of hazardous materials, site
contamination, and the disposal of wastes (Hazardous materials and site contamination);
• Mine closure or facility decommissioning, including financial provision for closure and action
in the event of unanticipated closure (Closure and decommissioning);
• The protection of surface and subsurface waters and hydrology, and whether key
safeguards on either Dam Safety (OP4.37) or International Waterways (OP7.50) are
triggered (Water and hydrology);
• Biodiversity protection including provisions for rare and endangered species, as well as
broader ecological impacts (Ecological assessment and mitigation); and
• The protection of air quality, both in the immediate vicinity of the project and in relation to
global concerns such as ozone depleting substances and greenhouse gases (Air quality).

These five issue clusters encompass a range of mandatory and non-mandatory review criteria,
which are linked to environmental sustainability. However, in contrast to the economic and
governance dimension (where all the criteria were non-mandatory) and the social development
and impact dimension (where many review criteria were non-mandatory), only a few non-
mandatory environmental criteria have been considered. This is because most of the emerging
issues for the extractives sectors are in the governance and social arenas, whereas
environmental due-diligence is better established. An overview of the performance of the eight
projects against these review criteria has been given in section 3.1. A more detailed discussion
of the scores for each cluster of review criteria is given below, with a distinction between
mandatory and non-mandatory review criteria. The distributions of scores are illustrated in
Figure 4.1.

4.1. Hazardous materials and site contamination

This broad category of review criteria asked whether the following had been considered:
• The identification of all environmental hazards and assessment of related risks (mandatory
under the guidelines on Hazardous Materials);
• The handling, storage and overall management of hazardous materials (mandatory under
the guidelines on Hazardous Materials);
• The disposal of hazardous and other waste materials (mandatory under the provisions of
guidelines for mining and oil and gas projects);
• The presence of site contamination and potential for future contamination of soil or
groundwater and any interactions with contamination from neighboring projects (non-
mandatory).

Discussion of review findings

With few exceptions, the mandatory review criteria under this cluster were addressed
comprehensively, with an average score of 2.9 across the eight projects (see Figure 4.1). One
exception was the absence of any mention of Operational Policy 4.09 on Pest Management for
any of the projects. This aspect is not considered to be very significant however, and has
therefore not been reflected in the overall scoring. Encouragingly, the non-mandatory aspects

14
also scored well with scores averaging 2.4, indicating that these issues were dealt with fairly
comprehensively.

There was considerable variation in the level of assessment in the project documentation (for
mandatory and non-mandatory criteria) and in the details provided for different projects. A
certain amount of latitude has been given by the review team in scoring individual projects. For
example, some projects provide details on the management procedures for specific hazardous
materials, whereas others mention that detailed emergency response plans (or spill prevention
plans) have been or will be developed. As these aspects are often dealt with within separate
documents that were not available to the review team, the relatively high scoring reflects the
benefit of doubt. However, in light of historical incidents related to hazardous materials within
the sector (and IFC/MIGA’s portfolios), there is no cause for complacency.

While environmental risk assessments have become accepted industry practice 9 (particularly
within the oil and gas sector), the World Bank’s guidance on Techniques for Assessing
Industrial Hazards (Technical Paper Number 55, 1988) appears to be no longer in common
usage nor is it up to date.

Figure 4.1 Average scores for environmental dimensions

Comprehensive*
3 Maximum possible score
Mandatory review criteria
Extent to which issues were addressed

Non-mandatory criteria
2.5

Fairly
2 comprehensive*

1.5

Cursory*
1

0.5

0
Hazardous Closure Water and Natural habitats ** Air quality **
materials hydrology **

*Note: See table 2.2 for an explanation of terms

**Note: All of the review criteria for these three issues were mandatory

4.2. Closure and decommissioning

This cluster of review criteria was concerned with ensuring that:
• All residual environmental impacts had been considered in preparing plans for mine closure
or facility decommissioning (mandatory);

9
For example, Standards Australia’s Environmental risk assessment: principles and process (HB203:2000) outlines
such an approach.

15
• Adequate financial provision was made for closure (mandatory for mine closures but not for
oil and gas 10 );
• Consideration was given to the potential for unanticipated closure to compromise final
closure commitments (non-mandatory).

The handling of closure can profoundly influence the long-term environmental and social
sustainability of extractives projects. Unless closure is carefully planned, many potential
benefits of extractives projects can be undermined in the longer-term. While closure planning
should be concerned with social as well as environmental concerns, the discussion here is
limited to environmental matters (as many of the social aspects have been addressed more
broadly elsewhere). Given that all of the projects reviewed are either very recent or have
recently expanded, closure is not imminent. The review was concerned with the existence of
closure planning processes and related financial provisions.

Discussion of review findings

The average scores for the mandatory review criteria (2.4) indicate that closure planning is fairly
comprehensively addressed (see Figure 4.1). The adequacy of closure provisions was difficult
to assess however, as detailed closure plans are not available at the outset of projects. While
not explicitly considered as part of the review criteria, most mining projects made some
reference to the inclusion of socio-economic considerations in mine closure plans.

The non-mandatory review criterion questioned whether IFC and MIGA had considered the
potential for unanticipated closure to compromise final closure commitments. The scores for
this issue were low (averaging 0.5). Although some extractives companies address such issues
(for example through posting a financial surety or bond), in other cases funding for closure may
accrue throughout the lifetime of a project. This may be important where early closure has the
potential to cause significant adverse environmental impacts, and there are insufficient closure
funds to mitigate these impacts.

Within the mining industry, closure estimates typically increase in the latter stages of mining.
There are currently no provisions for ensuring that clients continue to make financial provisions
for closure once IFC or MIGA have exited a project.

4.3. Water and hydrology

All the review criteria under this heading were treated as mandatory, as they are either required
under Safeguard Policy provisions, or extractives guidelines. These included whether
consideration had been given to:
• Adverse impacts on surface water, hydrology, and ground waters (including impacts on
competing water users);
• Impacts on International Waterways (under Operational Policy 7.50), which was applicable
to one of the projects;
• Impacts relating to construction and operation of tailings dams (historical ambiguities
regarding the applicability of OP4.37 on Safety of Dams to tailings dams have been
addressed by the IFC with the issue of a September 1999 Draft Policy).
10
The Base Metal and Iron Ore Mining guideline specifies requirements for mine closure and restoration plans, and
includes a requirement to make financial provision for closure over the life of the mine. In the absence of specific
guidelines for other metals (such as copper and gold) or any mention of financial provision in the interim Mining and
Milling Open Pit or Underground guidelines, all four mining projects included either provisions to set money aside for
closure on an ongoing basis (3 projects) or for ongoing reclamation (1 project). The Oil and Gas Development
(Onshore) guideline also requires the preparation of a reclamation and closure plan, but there is no requirement on
financing closure.

16
Discussion of review findings
The average scores for the review criteria of 2.6 indicate that they are treated comprehensively.
The main areas for improvement relate to more thorough assessment of the impacts on
groundwater and on competing water users, which were not consistently assessed.

4.4. Ecological assessment and mitigation

This cluster of mandatory review criteria is concerned with the protection of biodiversity, and in
particular whether the following have been considered:
• Impacts on biodiversity and especially on critical natural habitat, rare, protected, threatened,
and endangered species (as mandated by OP4.04 Natural Habitats);
• Potential impacts on forestry resources (in line with OP4.36 Forestry);
• Any other impacts on ecology (which should be routinely considered as part of the
environmental assessment).

Discussion of review findings

With the exception of one project, the impacts on biodiversity were fairly comprehensively
considered with scores averaging 2.2 (see Figure 4.1), and OP4.04 and OP4.36 were followed
where appropriate. However, the level of assessment varied between projects, both in terms of
the assessment of the ecological value of affected habitats and the identification of rare,
protected, threatened, or endangered species. The latter was often not reported on in any detail.

Where valuable habitats are affected, there is not always adequate provision for mitigation
measures. Where impacts on rare, protected, threatened, or endangered species were
identified, there was a tendency to accept these impacts as inevitable, rather than develop
proactive mitigation measures. Neither the Natural Habitats nor Environmental Assessment
policies provide clear guidance on how to approach ecological impact assessment and
mitigation.

4.5. Air quality

The mandatory review criteria asked whether the broader impacts on air quality (including
contribution to greenhouse gas emissions and ozone depleting substances) had been
considered. These issues were fairly comprehensively covered (average scores of 2.2). Only
three of the eight projects explicitly considered greenhouse gases. However, in all instances the
documentation confirmed that the projects would meet (or were currently meeting in the case of
sites visited) prescribed emission limits.

Gas flaring is a major contributor to global CO2 emissions, which is the rationale behind the
Global Gas Flaring Reduction Public-Private Partnership 11 announced at the World Summit on
Sustainable Development in Johannesburg, August 2002. Two of the four oil and gas projects
had minimized flaring of associated gas by recovery for power generation. In another oil project,
gas was initially flared but investments were underway for processing and export. In one gas
project, a limited amount of non-recoverable gas was flared.

11
See www.ifc.org/ogc/global_gas.htm for more information.

17
5 The social development and impact dimension

E ight clusters of review criteria were considered under the social development and impact
dimension of sustainability. These include a combination of issue clusters (in brackets
below) designed to ensure the consideration of:
• People who may have been resettled as a consequence of a project or who may have been
impacted by project-related migration or induced development (Migration and involuntary
resettlement);
• Indigenous peoples or access to land or environmental resources of any people (Land
rights and indigenous peoples);
• Sites of religious, cultural heritage or archaeological significance (Cultural property);
• Consultation with affected communities and others, disclosure of project information, and
the involvement of affected people in project decision-making (Public involvement and
disclosure);
• The local development needs of communities affected by the project (Community
development);
• The potential for a project to exacerbate conflicts or adversely affect human rights (Conflict,
human rights and labor);
• The health and safety of the workforce and wider public health implications of the project
(Health and Safety); and
• The potential for a project to cause a nuisance to nearby communities (Nuisance and
visual aspects).

These eight issue clusters encompass a range of mandatory and non-mandatory review criteria,
which have the potential to impact the well-being and development of communities in the vicinity
of extractives projects. An overview of the performance of the eight projects against these
review criteria has been given in section 3.1. A more detailed discussion of the scores for each
cluster is given below, with a distinction between mandatory and non-mandatory review criteria.
The distributions of scores for these clusters are illustrated in Figures 5.1 and 5.2.

5.1. Migration and involuntary resettlement

The review criteria under this heading are concerned with minimizing the adverse social
consequences of involuntary resettlement, internal migration, and induced development. These
included:
• Whether resettlement occurred or the project involved loss of or disruption to livelihoods,
and whether the wider social consequences were adequately dealt with (mandatory where
applicable in line with OD4.30 Involuntary Resettlement);
• Whether the potential for internal migration or induced development had been considered,
and their related impacts (non-mandatory, but could be covered in environmental or social
assessments).

Discussion of review findings

In general, the scores for the mandatory review criteria were very high (averaging 2.8), which
indicates that they are comprehensively dealt with where applicable (see Figure 5.1). The
average scores for non-mandatory review criteria were lower (2.3), which indicates that there is
some scope for improvement in dealing with issues relating to internal migration and induced
development. In contrast to resettlement, there is no guidance on how to deal with these
specific issues, which may have contributed to the lack of consistency in tackling them.

18
 5.2. Land rights and indigenous peoples
The review criteria considered whether:
• Indigenous peoples had been affected and their specific needs taken into account
(mandatory where applicable, in line with OD4.20 Indigenous Peoples);
• The broader impacts of disruption of access to land had been considered, irrespective of
whether legal or customary tenure applied (mandatory under OD4.30 Involuntary
Resettlement), including loss of access to environmental resources (non-mandatory, but
could be covered in environmental or social assessments).

Discussion of review findings

In general, scores were very high for the mandatory review criteria (averaging 3.0), despite
practical obstacles with more than one project (see Figure 5.1). For example, in two cases local
governments refused to acknowledge the legitimacy of all those claiming an interest in land, and
intervened to prevent full compensation. In both cases, mechanisms were found to provide
surrogate forms of compensation. The non-mandatory review criteria were fairly
comprehensively addressed (average of 2.1), but the scores were affected by the inconsistent
consideration of loss of access to environmental resources (such as water or forage crops) on
state-owned land. However, the attention to these issues was very good where direct loss or
impairment of access to titled land occurred. While these review criteria were clearly not
relevant to some projects, in one or two cases it was difficult to judge whether the criteria were
not adequately dealt or were not applicable.

Figure 5.1 Average scores for social dimensions (1 of 2)

Maximum possible score Comprehensive*

3
Extent to which issues were addressed

Mandatory review criteria

2.5 Non-mandatory criteria
Fairly
2 comprehensive*

1.5

Cursory*
1

0.5

0
Resettlement and Land rights and Cultural property Public involvement
migration indigenous peoples and disclosure

*Note: See table 2.2 for explanation of terms

19
5.3. Cultural property
The review criteria were concerned with whether consideration had been given to:
• The potential impacts on sites of religious or cultural significance or known archaeological
significance (mandatory under OPN 11.03 Cultural Property);
• The discovery of unanticipated finds and how to deal with them (non-mandatory, but
especially relevant to some projects).

Discussion of review findings

The scores for the mandatory review criteria were variable (see Figure 5.1), and ranged from full
consideration of cultural property to none on one project (with scores averaging 2.0). In other
cases, a simple statement was made in the environmental assessment that no cultural property
had been affected, but no supporting evidence was provided; in two such cases, site visits
confirmed that a more thorough level of assessment had been undertaken but had not been
fully reported on. Overall, the level of assessment between projects varied widely, and appeared
to be unrelated to the potential value of the affected cultural property.

While efforts were often made to identify and avoid visible sites on the land surface or known
sub-surface sites, the discovery of unanticipated finds was explicitly dealt with in only a few
cases. The scores for this non-mandatory criterion averaged 1.3. This is likely to be important
for some projects, for example where deposition of alluvial sediments may have obscured sub-
surface archaeology in culturally sensitive areas. It was difficult to judge whether these issues
were not dealt with intentionally, or by omission.

5.4. Public involvement and disclosure

The review criteria applied under this category are concerned with:
• Ensuring that the views of affected and interested parties are listened and responded to
(mandatory for IFC projects under the Environmental and Social Review Procedures
Guidance Note F, but not for MIGA’s category B projects);
• Ensuring that an appropriate level of information disclosure had taken place (mandatory for
IFC’s category A and B projects, but not for MIGA’s category B projects);
• Involving affected parties in social and environmental decision-making (non-mandatory).

Discussion of review findings

Scores were very high for the mandatory review criteria (averaging 2.8), which reflects most
clients’ understanding of their importance and IFC’s insistence on its required levels of
consultation and disclosure (see Figure 5.1). It also reflects the growing body of experience and
emerging good practice on such issues, particularly within IFC. The scores for the non-
mandatory review criteria were fairly comprehensive and were in part depressed by not
consistently involving affected parties in decision-making. Another area for improvement is
making more explicit the links between consultation outcomes and project decision-making. It
was not always clear that the feedback from consultation had an influence on the project, i.e.
resulted in design changes that benefited the community or the natural environment.

Most of the review criteria focused on pre-approval consultation, yet the incremental disruption
associated with extractives projects, particularly mines, throughout operation, means that
ongoing consultation post-approval is also very important.

20
 5.5. Community development projects and programs
This cluster of review criteria is concerned with the local development needs of communities
affected by the project, and the extent to which:
• The companies concerned had implemented projects or programs that benefited the
community in terms of social and economic infrastructure (and that are supplementary to
any required compensation or mitigation measures);
• Whether such projects and programs responded to the expressed needs of the communities
concerned, and whether consideration has been given to ensuring their longer-term
sustainability.

It is commonplace for extractives companies to invest in community development initiatives, but

the relevance, value, participatory nature, and sustainability of such projects or programs varies
widely. The review considered the extent to which projects had invested in community
development, and adopted measures that enhanced the longer-term sustainability of such
investments.

Discussion of review findings

Although none of these review criteria were mandatory, as illustrated in Figure 5.2, the average
scores (2.1) indicate that they were fairly comprehensively dealt with. Given that there are no
mandatory requirements for this cluster, this is encouraging. However, in some cases there was
no diagnosis of the development needs of the community or no involvement of the community in
the diagnosis. The longer-term sustainability of many community projects had either not been
considered, or was not reported. In one project, a well-intentioned proposal to support a fish-
farming enterprise was made to a community with no such tradition or interest. While most of
the community investment projects proposed appeared to be well conceived (as opposed to just
well-intentioned), it was not possible to make a qualitative distinction in all cases.

Figure 5.2 Average scores for social dimensions (2 of 2)

Maximum possible score Mandatory review criteria

Comprehensive*
3 Non-mandatory criteria
Extent to which issues were addressed

2.5

Fairly
2 comprehensive*

1.5

Cursory*
1

0.5

0
Community Conflict and Human Health & Safety Nuisance and visual
development ** Rights aspects

*Note: See table 2.2 for explanation of terms

**Note: There were no mandatory criteria for ‘Community Development’

21
 5.6. Conflict, human rights and labor
This cluster of review criteria is concerned with whether the following have been considered:
• The potential for forced labor or child labor and whether the clients were made aware of
their obligations (mandatory under the IFC policy on Harmful Child and Forced Labor, and
equivalent MIGA provisions that are standard conditions of contracts of guarantee);
• The potential for projects to cause an increase in local disputes, more serious conflicts, and
related abuses of human rights (non-mandatory);
• Any measures for the protection or promotion of human or labor rights in the workplace
(non-mandatory, other than provisions relating to forced and child labor).

The review criteria for this cluster encompassed a wider set of concerns than IFC and MIGA’s
mandatory obligations on child labor and forced labor as, perhaps more than any other industrial
sector, extractives projects in general have become the focus of concerns relating to human
rights. The links between human rights and the use of security forces to protect personnel and
assets is one specific area of concern, which a number of governments, companies and NGOs
have explicitly acknowledged with the adoption of the US/UK Voluntary Principles on Security
and Human Rights 12 . It is also noteworthy that a number of other multilateral and bilateral
development institutions have publicly expressed support for all core labor standards 13 (which
includes the elimination of discrimination, freedom of association, and effective recognition of
the rights to collective bargaining).

Discussion of review findings

The review criteria relating to child labor and forced labor achieved the maximum score of 3 for
all projects (see Figure 5.2). However, these issues are included as standard terms in the
covenants for IFC’s loan agreements and MIGA’s Guarantee contracts. The average scores for
other non-mandatory conflict, human rights and labor rights review criteria was 1.5. This is not
to suggest that all projects are failing as a consequence, but in at least some cases conflict
related issues and potential interfaces with human rights ought to have been more explicitly
considered in light of the project’s context (i.e. in a conflict zone).

The promotion and protection of core labor rights beyond child and forced labor were seldom
considered in project documents, and working practices were mixed at the projects visited. For
example, in one instance a company had implemented progressive employment practices for
directly employed workers, but over half the workforce was contracted and did not benefit from
these conditions. In another, while employment conditions were generally good, a recent strike
had been suppressed by the military, which imprisoned the strike leaders.

12
The Voluntary Principles on Security and Human Rights were developed through a process of dialogue between
the Governments of the UK and the USA, extractive and energy sector companies, and NGOs with a common
interest in human rights and corporate social responsibility. They provide guidance on risk assessment, and on
interactions between public or private security forces (including the reporting by companies of any credible allegations
of human rights abuses by public security).
13
For example, the European Bank for Reconstruction and Development (EBRD) includes an explicit reference to all
ILO core labor standards in its recently revised exclusion list, and the Asian Development Bank’s (ADB) Social
Protection Strategy acknowledges core labor standards as an integral part of its development mission. Similarly, the
UK’s Department for International Development (DfID) and Germany’s Deutsche Investition-und
Entwicklungsgesellschaft (DEG) are also supportive of ILO core labor standards.

22
 5.7. Health and Safety in the workplace and surrounding community
The review criteria considered included:
• The health and safety of employees and subcontractors (mandatory);
• Broader potential public health and safety impacts, both positive and negative, such as
increased prostitution and sexually transmitted diseases (STDs) including HIV/AIDS, and
improved access to medical care (non-mandatory);
• Broader social impacts with a bearing on health such as increased alcoholism, domestic
violence, or violence against women (non-mandatory).

The combination of worker health and safety with wider public health concerns is justified on the
basis that they are inextricably linked. The potential negative impacts are increasingly well
understood, while there is also an emerging body of best practices in areas such as HIV/AIDS
by some leading-edge extractives companies. While worker health and safety is frequently
managed by a combined Environment, Health and Safety (EHS) function in extractives
companies, this cluster of review criteria has been considered under the social rather than the
environmental dimension of sustainability.

Discussion of review findings

The overall scores for the mandatory review criteria indicate that worker health and safety was
treated comprehensively (averaging 2.6), consistent with the importance placed on these issues
within many extractives companies. The scores for the non-mandatory review criteria were
much lower (averaging 1.4). While the public health risks of industrial hazards scored highly,
the broader public health risks from social impacts such as prostitution, STDs and HIV/AIDS,
were rarely considered in any detail.

5.8. Nuisance and visual aspects

This included consideration of:
• Whether nuisance issues such as noise and dust had been addressed (mandatory where
referred to in guidelines);
• Whether impacts on the visual environment had been considered (non-mandatory, but may
be relevant in some projects).

Discussion of review findings

The mandatory nuisance aspects have been treated fairly comprehensively (with scores
averaging 2.4). The impacts on aesthetics and the visual environment (which were non
mandatory) were less comprehensively dealt with, with average scores of 2.0. The latter should
be factored into environmental and social assessments, particularly where there are nearby
communities or where the project is in an area of high amenity value for landscape.

23
6 Economic and governance dimension

T he private sector interpretation of economic sustainability is often simplistically and narrowly

equated with financial profitability, measured as the internal or financial rate of return
(IRR/FRR). As institutions with a broader development mandate, IFC and MIGA are also
concerned with the social returns of projects as expressed by the economic rate of return
(ERR), but even this measure may fail to account for all social and environmental externalities
and does not include distributional aspects. More importantly, it also assumes that revenues
paid to governments will be used for development purposes, which is not always the case. In
IFC and MIGA, ERR does not take into consideration the broader governance factors that
influence the potential positive benefits of extractives projects’ revenues (or so-called second
round economic effects), such as government capacity for revenue management, corruption,
political stability, and potential to stimulate wider economic development. As these factors can
have a profound influence on the sustainability of extractives projects, this review focuses on
how IFC and MIGA account for them at the project level.

It is important to acknowledge however, that IFC and MIGA’s extractives projects take place in
countries where the World Bank has identified an acceptable level of governance. To this
extent, IFC and MIGA projects are consistent with the World Bank’s Country Assistance
Strategies (CASs). In some instances, IFC asserts that this has meant not pursuing potential
opportunities in countries where the World Bank has either withdrawn its support (e.g.
Equatorial Guinea), or has a limited program of activity (e.g. Angola). Nonetheless, IFC and
MIGA’s experience in the extractives sectors may highlight issues that could help to shape the
CAS process (as discussed below).

It is equally important to acknowledge that none of the review criteria under discussion within
this chapter are mandatory. The distributions of scores from 0-3 for the three clusters of criteria
reviewed under the economic and governance dimension (revenue management; corruption,
political stability and conflict; and economic development) are illustrated in Figure 6.1.

6.1. Revenue management 14

Each project was reviewed against a number of criteria of relevance to revenue management,
which included whether consideration had been given to:
• The contribution of the extractive sectors to government revenue, GDP or export earnings,
and the impact this had on economic development or diversification, or investments in social
and human capital;
• The capacity of governments to manage revenues and the existence of any legal provisions
to direct revenues toward investments in social and human capital;
• The disclosure of revenues paid to government (in support of transparency and
accountability);
• The prevention of revenues being used to support armed conflicts, the suppression of
certain sectors in society, and the encouragement of rent-seeking behavior and poor
governance are also of concern (see 6.2).

14
Revenue comprises project-related taxes, royalties, and other transfers paid by extractive companies to
government. Revenue distribution refers to the allocation of these payments among the central, regional, and local
levels of government. Revenue management pertains to how these payments are utilized by the public sector to
support development at national, and increasingly, at regional and local levels. (Source: Revenue Distribution and
Management in IFC projects, monograph of IFC’s Operational Strategy Department )

24
There is no scope to fully explore the relative importance of revenue management within this
report. There is however an emerging consensus that revenue management – both at the
macro level (in terms of contribution to government revenues and whether these are directed to
development priorities), and distributional aspects (between national, regional, and local
governments, as well as project affected people) – is a critical issue for the future involvement of
the World Bank Group in these sectors. A key consideration is whether the income from non-
renewable sub-surface resources can be directed towards economic diversification and
enhancing social and human capital, and in the process achieve a sustainable lasting benefit.

The importance of revenue management is driving the Publish What You Pay initiative
(www.publishwhatyoupay.org) which calls for greater transparency on multinational corporations
payments to host countries, and is supported by a coalition of over 40 NGOs including the Open
Society Institute in the USA and Global Witness in the UK. Their importance is also highlighted
on the website of IFC’s Oil, Gas and Chemicals Department (which as of July 2002 also
incorporates Mining). IFC’s Executive Vice President Peter Woicke has also called on
extractives companies to disclose payments in the interests of greater transparency.

Discussion of review findings

The average scores for revenue management were low (0.8), which either indicates that these
review criteria are treated cursorily during project preparation (see Figure 6.1), or that IFC and
MIGA’s reporting on how such issues have been considered is at best cursory. While there is
widespread appreciation among IFC and MIGA staff dealing with extractives projects of the
importance of revenue management, the review identified only limited written confirmation that
these aspects are factored into project decision-making. IFC staff have asserted that these
factors are routinely considered by project teams in the early stages of project planning,
sometimes at length, but the outcome of such deliberations is rarely documented and is not
publicly reported.

A one page guidance note has recently been produced by the Operational Strategy Group of
IFC which commits to the following: “When dealing with high-impact projects 15 , IFC will
systematically assess the risks that a government would misuse the large payments or that
intended benefits may not reach local communities”. While this meets some of the concerns
surrounding revenue management, there is as yet no procedural basis for ensuring that it is
practiced. The definition of high-impact (see footnote 15) is also restrictive, as it considers the
relative contribution of a single project to government incomes, as opposed to the contribution of
the sector as a whole.

In Laos the mining sector is in its infancy, but is viewed as a potentially significant contributor to
social and economic development, and considerable efforts have been made by IFC with
respect to revenue management at the project level. In three other countries in which projects
were reviewed, the extractives sectors dominate the economy (Guinea, Gabon and
Kazakhstan), and are very significant in two other cases. In Guinea, a MIGA supported project
restored a previously state-run enterprise to profitability and is also reported to have had a
positive impact in reducing revenue losses through corruption. In Gabon and Kazakhstan, the
projects supported by IFC are small relative to the sector as a whole (and are therefore not
considered to be high-impact projects).

15
High-impact projects are those where the revenues from that project (as opposed to the sector as a whole) are
substantial in relation to a nation’s fiscal income.

25
The current limited guidance of IFC gives no indication of what ought to be done for low-impact
projects (where revenues are not substantial in relation to a nation’s fiscal income), but it is
important to acknowledge that IFC and MIGA have only limited leverage in such cases.
However, this same lack of leverage means that they should very clearly articulate the
anticipated benefits of such projects, given their inability to influence the management of project
revenues. Overall, neither IFC nor MIGA have a coherent strategy on how to respond to these
challenges.

Figure 6.1 Average scores for governance and economic dimensions

3 Comprehensive*
Maximum possible score
Extent to which issues were addressed

2.5
Mandatory review criteria**
Fairly
2 Non-mandatory criteria comprehensive*

1.5

Cursory*
1

0.5

0
Revenue Corruption & Economic aspects
management political stability

*Note: See table 2.2 for explanation of terms

**Note: None of the review criteria for this dimension were mandatory

6.2. Corruption, political stability and conflict

The review criteria considered whether IFC and MIGA factor the following into their decision-
making on extractives projects:
• Whether the level of public corruption 16 undermines positive economic and social outcomes
and impedes poverty alleviation;
• Whether potential political instability or conflict impacts on the project.

The World Bank Group is actively involved in tackling public corruption and poor governance in
many countries, and these issues are significant in some countries where IFC and MIGA
supports extractives projects. This is important, given the correlations (and causal linkages)
between economies dominated by the extractive sectors and poor governance, widespread
corruption, and rent-seeking behavior. It is also relevant as extractive revenues have been used
in some other countries to support intra- and inter-state conflicts. These factors have the

16
The emphasis is on public corruption, as both IFC and MIGA go to some lengths to ensure the integrity or their
clients.

26
potential to undermine the economic sustainability of extractives projects, and in extreme cases
may indirectly result in impacts at the project level (such as attacks on project facilities or
personnel, or attacks on local people by state security forces that may be compelled to protect
strategic assets). These in turn could have significant reputational as well as financial
consequences for IFC and MIGA.

Discussion of review findings

The average score for this cluster of review criteria across the eight projects was less than 0.9
(see Figure 6.1). This either indicates that neither IFC nor MIGA address these issues in any
detail during project preparation, or that IFC and MIGA’s reporting on how such issues have
been considered is at best cursory. In IFC, these review criteria are reported to routinely form
part of the project decision-making process, but this is neither undertaken on a consistent basis
nor is it reflected in any detail within project documents. As an integral part of the underwriting
process, MIGA systematically considers risks arising from political instability, conflict and
corruption. But the diagnosis of risk becomes a factor in deciding whether a guarantee ought to
be issued and the related premiums, and is not tied to mitigation. It should be acknowledged
that endemic corruption, political instability, and conflict are all risk factors that may adversely
influence projects, but over which IFC and MIGA’s clients have almost no influence. So there is
no basis for IFC or MIGA to impose any mitigation requirements on clients, nor do they have
any leverage with host-governments, which partly accounts for the low scores in this category.

Some of these factors were instrumental in the decision by the World Bank to support a sound
revenue management program for the Chad-Cameroon project 17 , which IFC has also invested
in. Ideally, these factors are best tackled at the country level.

6.3. Economic development

The cluster of review criteria under the heading of ‘economic development’ are concerned with
maximizing the economic opportunities arising from extractive sector projects, while minimizing
the potential adverse impacts. These include:
• Whether procurement and employment opportunities had been maximized at the local,
regional and national levels (and the related question of whether the basic economic
infrastructure supported entrepreneurial activity);
• Whether the negative local economic impacts had been considered (such as displacement
of labor from other productive or essential sectors).

IFC and MIGA routinely estimate the economic rate of return (ERR) of projects, which includes
such wider societal benefits as the impacts on suppliers. But except in circumstances where a
project is intimately dependent upon local sourcing (e.g. a food processing plant), there is no
presumption in favor of local or regional suppliers. The labor requirements of oil, gas and
mining projects (post-construction) are often low compared to the manufacturing sector, and so
the greatest employment potential is often within the supply chain (as opposed to direct
employment). In many instances, the requisite skills to gain either direct or supply chain
employment are limited, and may require proactive measures on the part of clients or relevant
government agencies. The negative economic consequences of such projects are not always
considered.

Discussion of review findings

As illustrated in Figure 6.1, economic development review criteria were fairly comprehensively
dealt with (average scores of 2.1), with the exception of one offshore oil and gas project
17
For more information on this project see http://www.worldbank.org/afr/ccproj/

27
(involving no new onshore infrastructure) where such issues were not thought to be relevant.
This is an encouraging finding, given that there is no mandatory requirement to address such
issues. In general, some consideration had been given to employment and procurement
aspects, although there was scope for improvement in most projects. The primary focus of the
project teams was on employment, but in only a few cases did investment and social staff
collectively consider local economic infrastructure or supply chains in any depth.

The prospects for strengthening the economic development aspects of the sustainability of IFC
and MIGA projects are perhaps better than for other aspects of the ‘economic and governance
dimension’, as there is a body of experience to build upon. Also, both organizations are explicitly
required to consider economic development issues, at least to some extent. One obstacle is that
the review criteria straddle the responsibilities of investment staff and social development staff,
and may ‘fall between the cracks’. They also go beyond the traditional social assessment
approach and require a sustainability mindset (discussed under section 5.5 above).

28
7 Assurance and innovation

T his chapter discusses IFC and MIGA’s assurance mechanisms to ensure that environmental
and social concerns are factored into project decision-making. This includes consideration
of: the quality of environmental and social assessment work; the client’s capacity to implement
social and environmental commitments and associated management systems; monitoring and
supervision arrangements; and legal provisions relating to environmental or social aspects. The
chapter concludes with a discussion of some of the sustainability innovations observed during
the review, which go beyond the requirements of specific Safeguard Policies or guidelines.

7.1. The chain of environmental and social assurance

Both IFC and MIGA have a number of assurance mechanisms in their respective environmental
and social review procedures. These are intended to underpin compliance with specific
Safeguard Policy, guideline, or procedural requirements. While the terminology and
mechanisms may differ slightly between IFC and MIGA, the following assurance instruments or
mechanisms are common to both: environmental and social assessment and management (as
mandated by Operational Policy 4.01); assessment of client capacity for management of social
and environmental issues; compliance monitoring; and conditions embedded in the covenants
to the loan agreement or guarantee contracts. This review refers to them collectively as the
chain of environmental and social assurance, and they were all treated as mandatory for the
purposes of the review.

The significance of these mechanisms is that collectively they establish the basis for:
• Assessing impacts and developing mitigation and management plans;
• Ensuring that clients have the capacity and skills to effectively manage environmental or
social issues and maintain ongoing compliance;
• Ensuring that IFC and MIGA monitor compliance with their environmental and social
requirements;
• Providing a legal basis for clients to comply with IFC and MIGA’s environmental and social
requirements.

The average scores for these assurance mechanisms for the eight projects are illustrated in
Figure 7.1.

7.1.1. Environmental and social assessment

The review criteria included under this heading considered whether:
• The environmental and social assessment (EA) was appropriate to the nature, scale and
potential impact of the project;
• Cumulative impacts, and impacts from associated facilities, were considered.

The extent to which analysis of alternatives took place was not considered, as the fixed nature
of oil and mineral reserves places some constraints on the location of project facilities; however,
there is scope for considering alternative processing methods and locations for key project
facilities such as processing plants or tailings dams, as well as the macro-level ‘no-project’
alternative (but these aspects were not dealt with in the review). Three of the projects were
Category A and five Category B.

29
The average score of 2.2 indicate that most EAs were fairly comprehensive, but there is still
considerable variation in the quality of EAs submitted to (and accepted by) IFC and MIGA. Part
of this variation may be explained by the timing of IFC or MIGA involvement. The best EAs were
those prepared in close collaboration with the sponsor, where the EA work had not been largely
completed prior to IFC or MIGA involvement. This highlights the benefit of early and ongoing
interaction between environmental and social specialists of IFC/MIGA and clients.

Discussion of review findings

In all but one case, the level of assessment was appropriate to the scale and nature of the
project, yet most projects fell short of the highest rating in some respect. For example, mitigation
was not always tied to impacts, and residual impacts were not clearly identified; the level of
attention to social matters was sometimes inadequate; the significance of reported impacts were
not specified; or the impacts from associated facilities were not fully addressed. Cumulative
impacts were also rarely considered, but the remote nature of many of the projects meant that
this had little bearing on the overall ratings.

The capacity of clients to conduct or oversee environmental and social assessment is an

important factor influencing the quality of information provided to IFC and MIGA. Where capacity
is low, this has a direct impact on the effort required by IFC or MIGA to ensure an adequate
level of due diligence. However, there are limits to the number of times a client can reasonably
be asked to improve upon the quality of an EA as long as the important aspects have been
considered. Despite these limitations, the EAs (and related Environmental Management Plans
or Corrective Action Plans as applicable) provided a reasonable basis for assessing and
managing social and environmental impacts, with one exception, where the documentation was
inadequate.

7.1.2. Client capacity and environmental management systems

At issue is whether the capacity of clients to implement environmental and social requirements
has been considered, as well as the effectiveness of any environmental management system
they may have in place.

The overall scores for client capacity were fairly high, with an average of just under 2.4. In all
cases at least some level of assessment of the client’s capacity was undertaken (albeit of a
rudimentary nature for both MIGA projects). For half of the projects this was comprehensive and
where concerns were identified, remedial action was taken to improve capacity and
understanding, e.g. encouraging employment of environmental specialists or directing trust
funds to educate existing employees on specific environmental or social issues.

Discussion of review findings

In all but two instances, project operators had implemented (or were developing) Environmental
Management Systems (EMS) or had produced Environmental Management Plans (EMPs), and
had allocated responsibility for some environmental or social aspects. In one project, an
environmental management plan had been prepared but there was no information on
implementation responsibilities. The Corrective Action Plan for another project was inadequate.

IFC developed a Management Capability questionnaire in 2001 (to be sent to sponsors during
appraisal), which is intended to improve the quality of information provided in future projects and
the basis on which judgments about capacity are made.

30
 Figure 7.1 Average scores for ‘assurance mechanisms’

Comprehensive*
3 Maximum possible score
Extent to which issues were addressed

2.5

Fairly
2 comprehensive*

1.5

Cursory*
1

0.5

0
Environmental Client Compliance Legal
Assessment capacity monitoring provisions

*Note: See table 2.2 for explanation of terms

7.1.3. Compliance monitoring

At issue is whether monitoring arrangements for ensuring that clients honor their environmental
and social commitments have been established and are being followed through. IFC requires
monitoring information for all category A and B projects. MIGA has no standard monitoring
requirements that apply to category B projects, and either relies on warranties provided by the
insured client regarding compliance, or monitors compliance with specific conditions of
contracts.

The average score for monitoring indicate that monitoring was fairly comprehensive (2.2). In
most cases, monitoring arrangements were clearly specified and consistent with the
requirements of either Operational Policy 4.01 on Environmental Assessment or MIGA’s
contracts of guarantee. However, in one instance the site visits found that monitoring was not
proceeding according to plan. This indicates that in at least some cases, monitoring
arrangements can be improved 18 .

7.1.4. Legal provisions to underpin environmental and social responsibility

Legal assurances are provided through covenants to loan agreements (for IFC) and through
MIGA’s guarantee contracts. At issue is whether the eight projects had adequate environmental
and social provisions to ensure that clients could be held accountable for their implementation.

18
Additional recommendations on project monitoring are presented in the recently completed IFC Safeguard Policy
Review.

31
These aspects were thoroughly addressed and scores averaged 2.5 across the eight projects.
The only departures from the maximum scores resulted from minor omissions. For example, an
audit for one project was not covenanted to the loan agreement. Most of the audit commitments
were incorporated into the EMP (which was covenanted), but not all.

As only one of the eight projects involved an equity investment by IFC, there was no basis for
comparing the conditionality associated with equity agreements.

7.2. Sustainability innovations, origins and incentives

For most projects, initiatives were taken that moved the project beyond the Safeguard Policy
provisions. These are described here as sustainability innovations. The extent of innovation
varied widely between projects and many ‘innovations’ in effect followed internationally
recognized good practice. This section explores what motivated these innovations, the
obstacles that might have prevented such innovations occurring more widely, and incentives
that might be used to encourage more widespread innovation.

7.2.1. Some examples of innovative practices

Maximizing the local economic benefits of projects received a lot of attention and was
achieved in two ways. The first was favoring the direct employment of local people, and this
was actively pursued in the majority of projects. In order to secure employment for local people,
most of the projects included sponsor funded training programs to develop local skills. The
second approach was to maximize supply chain benefits. When there was clear potential for
secondary benefits, but the necessary skills and/or infrastructure were not in place for local
communities to capitalize on this potential, specific measures were sometimes put in place to
overcome such obstacles.

For example, in one project one percent of the operating budget was set aside annually to send
local employees to leading developed-country institutions for training. In another, the IFC SME
department assisted in the creation of new income generating opportunities through the
development of support businesses to the indigenous mining industry. This program included
skills training on business management. A variety of client-funded programs in a different
project assisted the development of support businesses such as a micro-credit scheme, a
computer training center and an agricultural improvement scheme. In another project, trust
funds were mobilized to strengthen local development planning capacity and to finance pilot
projects to build local government capacity, stimulate transparency in the tracing of mining
revenues, and expand the localized economic impact of the project to the wider district.

Some innovative approaches to the development of community programs and community

liaison were also developed. A few projects established a fund for community development.
For example, one client implemented a community welfare program in partnership with the local
community, with the intention of the programs continuing after closure (in areas such as health,
education, and training). This enabled the community to participate in project decision-making.

There were a number of cases of mitigation being developed that went beyond the
requirements of Safeguard Policies or guidelines. For example, in one case there were
concerns over the potential for trade in artifacts of cultural value that excavations might uncover.
It was agreed that an archaeologist would be retained on-site during construction, and
employees were encouraged to report finds. For two projects where there was historical
contamination or land degradation that pre-dated any involvement by IFC and MIGA’s clients,
the companies agreed to clean up the contamination, tackle the causes of problems, and

32
rehabilitate any degraded land. At another project, a client sought to offset the loss of
secondary forest of low biodiversity value. As the land of highest ecological value in the area
was already a designated national park that was under threat, the sponsor agreed to the
preparation of a management plan for the park. Trust funds were found to pay for the
development of the plan and for training of staff to monitor and implement it.

7.2.2. Origins of innovative practices

Many innovations are client led and may either result from concerns relating to actual or
potential adverse local reactions, or from identified local needs. The benefits to the local
community (in terms of job creation, community development, and community involvement) are
maximized in the interest of maintaining good relations with communities. In other cases, IFC or
MIGA specialists identify potential problems or needs and encourage clients to go beyond
compliance. In general, higher anticipated levels of environmental and social impact appear to
stimulate greater innovation.

The success of IFC or MIGA led innovations depends on the relationship with the client and
their willingness to go beyond ‘do no harm’. Concerns regarding client or Government capacity
to implement projects in an economically, environmentally, or socially responsible way, has led
to the creative use of trust funds in some cases, e.g. training sponsor staff and government
officials or working closely with the sponsor on identification and assessment of impacts.

7.2.3. Creating incentives for innovation

Many innovations stem from problems or potential non-compliances with Safeguard Policies or
guidelines that are identified during project design and may prevent the project from receiving
financing or being issued with a guarantee. Demonstrating the benefits is also a mechanism to
incentivize innovation. This can in part be achieved through internal publications such as
Investing in people or Developing value: The business case for sustainability in emerging
markets. But it requires an effort on the part of project teams to actively promote these benefits.

Where financing innovations is problematic, mechanisms such as trust funds should be

explored to support innovative good practices. However, if the business case for sustainability is
to be made persuasively, the concept that sustainability innovations have a return on investment
should be demonstrated.

33
8 Summary of findings and recommendations

I t is important to reiterate that the review methodology holds all projects to a very high
standard. Many of the review criteria are at the leading edge of the sustainability debate in the
extractives sectors (and are not mandated by either IFC or MIGA’s Safeguard Policies or
guidelines). While the overall performance of projects against mandatory review criteria was
high, the review found several systematic weaknesses in IFC and MIGA’s approach to dealing
with a number of non-mandatory yet important aspects of sustainability across the sample of
eight projects. It also identified a number of areas for improvement with respect to mandatory
review criteria. This section makes a series of recommendations to address these weaknesses,
and better position IFC and MIGA in meeting their commitment to more sustainable projects.

The recommendations complement the findings and recommendations of the joint evaluation by
OED/OEG and the work of the EIR, and are a contribution for both IFC and MIGA to consider in
preparing their response to the final report and recommendations of the secretariat to the EIR. A
summary of emerging lessons is included below (in bold), linked to recommendations (in italics)
on how these might be addressed.

The recommendations are not presented in any order of priority, but follow the order of the
discussion in the main body of the report, from which they are derived. Some of the
recommendations are easier for IFC and MIGA to implement than others, because of factors
such as the level of effort involved and the extent of institutional acceptance of the
recommendations. Furthermore, some are likely to have a more immediate impact on
enhancing sustainability outcomes than others. However, it will be for IFC and MIGA to
determine the order of priority, having fully considered the final reports of the EIR and the joint
evaluation of OED, OEG and OEU.

IFC and MIGA have a more considered approach to tackling the environmental and social
development dimensions of sustainability than the economic and governance
dimensions. This is thought to be due to the relative experience of both institutions in dealing
with these three dimensions, and the degree to which each dimension is currently mandated by
policy or guideline provisions. For example, the existence of Safeguard Policies and guidelines
has a demonstrable positive influence in ensuring that review criteria are addressed. It may also
reflect the perception that some economic and governance dimensions were either not relevant
to particular projects, or that IFC and MIGA (or their clients) have no leverage to address these
issues. IFC and MIGA should reinforce their existing guidance to more clearly encompass a
wider set of sustainability concerns. As the sustainability agenda is evolving, a flexible approach
to introducing revisions should be adopted. This should enable both organizations to update
internal guidance efficiently and systematically in response to emerging best practice, in support
of continuous improvement. Where appropriate, the guidance should clearly identify mandatory
requirements.

The rating of individual projects against the sustainability review criteria was highly
variable, although IFC’s category B projects outperformed MIGA’s. Contributing factors
included the commitment and capacity of the clients, and the level of effort by IFC and MIGA
staff. The IFC business model and related environmental and social review procedures provides

34
for a more in-depth and longer-term relationship between clients and project teams than MIGA
(particularly for category B projects), which in turn increases the prospects for constructive
engagement and exerting a positive influence. MIGA’s management should consider and take
a position on this disparity: either it maintains the status quo whereby MIGA projects subscribe
to the standard of do-no harm (which the Safeguard Policies are primarily concerned with), or it
takes action to ensure closer convergence with IFC’s broader sustainability remit.

IFC and MIGA lack sector-specific guidance on how to undertake comprehensive risk
assessments. In the past decade, more sophisticated and pragmatic approaches to
environmental risk assessment have been adopted by leading companies in these sectors than
the World Bank Group’s internal guidance reflects. IFC and MIGA should develop sector
specific guidance on how comprehensive environmental risk assessments should be
undertaken. In addition, IFC should finalize and fully implement its draft guidance on cyanide
handling.

Despite the existence of the Natural Habitats and Environmental Assessment Policies,
there is insufficient guidance on ecological assessment and mitigation. In particular, the
attention to ecological issues was variable (perhaps because not all projects involved significant
conversion of critical natural habitats). There was also a tendency to accept impacts on rare,
protected, threatened, or endangered species as unavoidable, and not develop mitigation. IFC
and MIGA should develop and implement improved guidance on ecological assessment and
mitigation.

While at least some financial provision is made for closure of mining projects, this is not
the case for oil and gas projects. The requirements for closure of mining projects are
inconsistent between different guidelines, while oil and gas projects make no financial provision
for closure. There is also no mechanism for ensuring that clients continue to finance closure
once IFC or MIGA no longer have an interest in a project. IFC and MIGA should strengthen the
available guidance on closure to apply to all extractives projects, and include a requirement to
ensure that social considerations are taken into account. They should also develop and
implement measures to ensure that funds allocated to closure during their involvement with a
project are ring-fenced, even after they exit.

While most clients are undertaking pre-approval consultation well, there is little or no
acknowledgment of the influence that public consultation has had on the design and
implementation of projects. It is not always clear from public consultation what influence (if
any) affected communities have had. This is important if consultation is to retain credibility as a
mechanism for proactive and constructive involvement of those who are potentially affected by
projects. Similarly, the benefits of ongoing consultation and engagement throughout a project’s
life cycle should be routinely articulated to extractives industries clients. IFC and MIGA should
more explicitly acknowledge and report on the influence that public consultation has had on the
design and implementation of projects,. The benefits of ongoing consultation and engagement
throughout a project’s life cycle should routinely be articulated to clients, and required for the period
of IFC or MIGA’s involvement.

The communities in the vicinity of IFC and MIGA projects would benefit from an explicit
adoption by both organizations of a commitment to promote more sustainable
community development projects and programs by its clients. These issues are currently
fairly comprehensively dealt with, despite the absence of supportive policies or guidelines.
Community development projects or programs can be made more sustainable by being
responsive to a participatory diagnosis of a community’s development needs, by actively

35
involving beneficiaries in implementation, and by considering their longer-term sustainability. Yet
despite IFC’s detailed guidance on investing in communities, these principles are often not
incorporated into the community development programs and projects of many clients. IFC and
MIGA should ensure that all clients are familiar with IFC’s Investing in People guidance, and
understand the importance of direct community participation and explicit consideration of the
longer-term sustainability of community investment projects.

Neither IFC or MIGA systematically consider the broader human rights and labor rights
issues associated with extractives project. This is not to suggest that wider human rights
concerns in individual countries should serve as a barrier to entry to IFC or MIGA (unless this is the
stated policy of the World Bank Group). Instead, IFC and MIGA should more systematically consider
potential risks to human rights at the project level, take appropriate steps to mitigate them, and
provide clearer guidance to clients on both of these aspects. Where relevant, these aspects
should be reported on at the project level.

A number of other social issues are not systematically assessed and mitigated across all
projects. For example, there was rarely any discussion about the social implications of internal
migration or induced development, or of the wider impacts of projects on health. The loss of
access to environmental resources on customary or state-owned land were often neglected, as
were measures to deal with unanticipated archaeological finds. IFC and MIGA should develop
improved guidance on how to deal with these issues, and integrate it into improved guidance on
social assessment, as recommended by the CAO Safeguard Policy Review.

Revenue management and distribution is a critical issue for the future involvement of the
World Bank Group in these sectors, and neither IFC nor MIGA have a coherent strategy
on how to respond to this challenge. This is partially addressed by a draft guidance note
prepared by IFC’s Operational Strategy Group, but this does not tackle all extractives projects
(in particular low-impact projects) and there is no procedural basis for its implementation. IFC
and MIGA should more systematically and transparently factor these issues into project
decision-making. IFC should consider revisiting the current definition of high-impact to be more
inclusive. It is currently based on the relative contribution of a single project to fiscal incomes,
whereas it might be extended to include large projects (above a defined threshold) in countries
where the sector as a whole makes a significant contribution to GDP. For high-impact projects,
IFC should report on the steps taken to mitigate adverse impacts and enhance revenue
management and distribution. For low-impact projects, IFC and MIGA should report on their
rationale for providing support to such projects, having fully considered the potential positive
and adverse economic, social and environmental impacts. IFC and MIGA should also continue
to collaborate with the World Bank on the inclusion of these aspects in Country Assistance
Strategies (CAS), and engage with the Bank and IMF to seek coordination of work programs
that address public expenditures management, which are beyond the mandate of IFC and
MIGA.

IFC has no systematic basis for reporting the significance of public corruption, political
instability, and conflict during project preparation, and neither IFC nor MIGA have the
leverage to take proactive action on these issues. Ideally, these factors are best tackled at
the country level. IFC and MIGA should collaborate closely with the World Bank to ensure that
these issues are explicitly dealt with in the appropriate operational instruments (e.g. Public
Expenditure Reviews, CAS) of the countries where they are likely to support oil, gas and mining.
In addition, the investment and underwriting departments should collaborate with their
environmental and social counterparts to more explicitly analyze and report the potential for in-

36
country corruption, political instability, or conflict to result in adverse impacts at the project level,
or to increase as a result of the project.

While IFC and MIGA voluntarily consider issues like maximizing local, regional, and
national procurement and employment opportunities, there is further scope to maximize
economic opportunities arising from extractive sector projects. This will require clearer
allocation of responsibilities between financial and environmental/social staff, as well as
improved guidance on identifying and overcoming potential obstacles to maximizing
opportunities for more sustainable economic development. IFC and MIGA should clarify where
the responsibility lies for ensuring that economic development issues (such as employment,
procurement, and basic economic infrastructure) are dealt with. They should develop improved
guidance, both for internal use and for clients, on the economic development issues that should
be considered and how, the obstacles that often exist to maximizing potential opportunities, and
how to overcome such obstacles to gain the maximum advantage from extractives projects.

Sustainability innovations are emerging – albeit in an ad hoc manner. Some innovations

are client led. In other cases, IFC or MIGA specialists identified potential problems or needs and
encouraged clients to go beyond compliance; or suggested innovations based on their
experience and knowledge. Although informal sharing of ideas between specialists takes place,
IFC and MIGA should explore more formal mechanisms to record and share experiences.

If the business case for sustainability is to be made persuasively, the concept that
sustainability innovations have a return on investment should be demonstrated. IFC and
MIGA should develop mechanisms to buy-down or reduce the perceived incremental costs of
higher risk sustainability innovations where the returns on investment are not readily
demonstrable. Such mechanisms should avoid the provision of any subsidy to the project, while
supporting innovation.

MIGA’s response to the challenge of enhancing the sustainability of extractives projects

is limited by the ‘do no harm’ focus of its procedures, which in turn is linked to its
business model. MIGA should consider whether the broader advisory services capacity on
sustainability within the Bank Group could be harnessed and applied where MIGA clients
express an interest, as an extension of its advisory services. MIGA should also more
systematically assess clients’ capacity for social and environmental management.

37
Annex 1. Relevance and adequacy tests for review criteria
Each of the short-listed issues was posed as a question, which are listed in the left-hand column of this matrix. The second column
identifies relevance tests for each issue, to help determine whether they are relevant to a given project. The relevance tests are simple – in
some cases, an issue was considered relevant to all projects. In others, the test for relevance depended on project-specific demographic or
geographic considerations.

The third column details the adequacy tests, which follow the basic format of: was the issue considered; was the significance of the issue
assessed; and were appropriate mitigation measures put in place or management plans developed. In many cases more specific guidance
on interpretation is provided, with reference to safeguard policies, guidelines or procedures as appropriate. An overall rating of adequacy is
entered in the fourth column of the project matrices, in line with the generic guidance given in Table 2.2 and specific guidance included in
the matrix below.

Is
Issues and aspects that may Relevance Data Source Adequa Guidance on Adequacy tests
need to be addressed test cy an
issue?
1. Economic dimensions and governance (at each stage of the project cycle)
Has the relative contribution of Relevant (see Economist Intelligence Unit; No
EIs revenues to export adequacy WDI; USGS Relevance test: Is percentage contribution of EI sector to GDP significant
earnings or GDP been column) (may need definition of significance – canvass views of O&G and Min professionals
considered? for this and all other questions)
Has the contribution of EI Relevant UNCTAD Commodity Index No Difficult to establish ‘conversion rate’ from natural to social or human capital,
revenues to economic Reports ceased in 1995: EIU; therefore need surrogate indicators. Might look at some basic social indicators
Revenue management

development/diversification or USGS; Oxfam Stats; etc (HDI, education, health, child mortality, income inequality) and link to
investments in human and earnings/revenue from EI sector over time. Alternatively, look at changes in relative
social capital been considered? proportion of spending on education, health, defense as surrogate measure

Has government capacity for Relevant Project Documents; Yes Adequacy of assessment of Government capacity (national/regional)
revenue management been Question for project team • Was track record of Government considered?
considered? WBI governance research; • If there were capacity concerns were remedial measures considered?
EIU country reports • Were specific actions identified and implemented?
Also refer to WDI measure of government effectiveness
Is there a regulatory/legal Relevant (see Project Documents; No
framework in place to direct adequacy IBRD Legal; MMSD Report; Relevance test: Examine in-country legal framework and determine whether
revenues toward investment in column) specific provisions apply to revenue allocation
human and social capital?

38
 Has the value of disclosure of Relevant Project Documents No (Yes/No question with comments).
revenues paid to Government Might also want to consider what has happened in other EIs projects in-country in
by the operators (in terms of the past
transparency & accountability)
been considered?
Have provisions to ensure that Relevant Project Documents (e.g. have Yes Adequacy difficult to determine in terms of numbers, but should consider:
some project revenues are mechanisms been • What mechanisms have been established to channel revenues to social
directed to social development established such as trust development and poverty alleviation?
and poverty alleviation been funds or foundations and how • Do the Governance structures ensure/encourage effective management?
considered? are they directed) • Is there representation of beneficiaries in decision–making?
• Is the nature of investments supported consistent with objectives?
Has the level of corruption in- Relevance Transparency International Yes • Was the potential for corruption to impact upon revenue management
country been considered and dependent upon corruption index; considered?
related potential to subvert level of WBI control of corruption • Were remedial measures developed – at least at a project level?
positive economic and social corruption based index; EIU • Have these measures been implemented or is an action plan in place?
benefits and impede poverty on data search
Corruption & Political Stability

alleviation?

Have potential impacts on Relevance Transparency International Yes • Were potential impacts on the project considered, e.g. unforeseen costs,
project implementation and dependent upon corruption index; WBI control problems getting/transporting supplies/equipment, problems
operation resulting from level of of corruption and political getting/renewing permits, etc.?
corruption or political instability corruption and stability indexes; • Were mitigation measures developed?
been considered? political stability Project and other IBRD • Have these measures been implemented or is an action plan in place?
based on data documents (CAS)
search

Has the effect of existing or Relevant WBI Political stability and rule Yes • Were potential impacts on the project considered such as disruption of
potential conflict, either dependent on of law indices; Uppsala access routes, threats to people or assets, etc?
international or domestic, been political stability, University Conflict Data; • Were mitigation measures identified/developed (e.g. conflict prevention or
considered? rule of law, etc. Project and other IBRD resolution processes)?
documents (CAS); WB work • Have these measures been implemented or an action plan put in place?
on conflict (Paul Collier)

Has the potential to maximize Relevant Project documents Yes • Are proactive procurement & employment policies in place?
procurement & employment • Have skills assessments been undertaken or training programs initiated in
Economic development

opportunities been considered response to skills shortages?

so as to strengthen local and • Is there any information on % local/regional/national employment
regional economies? (predicted/actual) and procurement?
Has the potential for basic Relevant Project Documents (E/S); No?? • Was consideration given to status of basic economic infrastructure
economic infrastructure World Bank Docs; • Were measures proposed to enhance infrastructure and to encourage
provision (e.g. finance, links from IDS entrepreneurial activity?
electricity, etc.) to limit • Have these measures been implemented and are they having the desired
entrepreneurial activity been effect?
considered?

39
 Have potential negative local Relevant unless Project documents (E/S) Yes • Were potential impacts of the project considered such as price rises,
economic impacts been communities not increases labor costs or displacement from other sectors, etc.?
adequately considered (such present • Were mitigation measures identified/developed?
as price rises)? • Have these measures been implemented or an action plan put in place?

2. Social Development and impact dimensions (at each stage of the project cycle)
Has the potential for internal Relevance is Project documents (E/S) Yes • Was the likelihood of the project attracting significant number of economic
migration been considered? based on migrants considered?
geographic & • Were the impacts on existing communities and the environment considered
demographic and remedial measures identified?
factors • Has an action plan been developed to deal with identified impacts?
Has the project involved Relevance is RAP/project documents (E/S) Yes • Was the avoidance or minimization of resettlement through project design
resettlement of people and has based on considered?
this been considered? proximity of • Was a RAP developed and implemented?
people to project •
Migration and resettlement

Was guidance on RAP preparation provided and followed?

site • Were displaced settlers appropriately compensated?
• Were displaced settlers able to share in the benefits of the project?
• Were displaced settlers assisted in their efforts to improve their living
standards?
• Was there community participation in the resettlement?
• Were resettlers assisted in the move and their integration with their new
communities? (OD4.30)
Has the project involved loss of Relevance is RAP/project documents (E/S) Yes • Was avoidance through project design considered?
or disruption to livelihoods or based on • Was appropriate compensation provided?
assets and have systems of geography, • Has an action plan for redress been developed and implemented and had
redress been instituted? demographics the desired outcome?
and proximity to
livelihoods
Has the potential for induced Relevance is Project documents (E/S) Yes • Were the potential adverse consequences of induced development for
development (positive and based on people and the environment considered?
negative aspects) been demographic • Were mitigation measures proposed?
considered? and economic • Have the proposed mitigation measures been implemented and did they
factors have the desired outcome?
Has the status of Relevant if Project documents (E/S) Yes • Was there any assessment of the need/potential for enhancing
socioeconomic infrastructure communities are
Community development

socioeconomic infrastructure?
been evaluated and potential present • Were local people involved in the process?
for enhancement been • Has there been any action taken as a consequence?
considered?

Have any community Relevant if Project documents (E/S) Yes • Was a diagnosis of the local development needs undertaken (with
development provisions been communities are involvement of local people) ?
made and have local needs present • Were community development projects responsive to local needs?
and priorities (determined by • Was the sustainability of community development projects considered
communities) been through involvement of local people, NGOs or government?
considered?

40
 Have the potential public health Relevant if Project documents (E/S) Yes • Have the potential risks to the health and safety of the public been
and safety impacts (both communities are considered (both from industrial hazards, STDs, HIV, etc.)?
Domestic, public and worker health & Safety

positive and negative) been present • Have appropriate preventative & response measures been identified (e.g.
considered, e.g. increased medical examinations, treatment, counseling and support)?
prostitution and STDs, • Is a medical service provided to workers/families/wider community?
HIV/AIDS specifically, • Have communities been informed of the existence of hazmats and potential
improved access to medical risks to their health from contact with them (both in the vicinity of the project
care, etc? and along transport corridors)?
Have issues such as increased Relevant if Project documents (E/S) Yes • Were the adverse domestic social consequences of this development
issues

alcoholism, domestic violence, communities are considered?

discrimination/violence against present • Were any remedial measures proposed such as education and awareness
women and other impacts on programs, etc.?
family dynamics been • Are these measures being implemented?
considered?
Has appropriate consideration Relevant Project documents (E/S) Yes • Has the sponsor adopted a Health and Safety Policy?
been given to the health and • Is this policy rigorously implemented, both for employees and contractors?
safety of workers, including • Have training programs been established for all workers on safety and
sub-contractors? environmental issues.
• Are IFC’s guidelines complied with (i.e. protective equipment, equipment
design, noise, air quality, heated areas, confined spaces)?

Have nuisance impacts (such Relevant if Project documents (E/S) Yes • Have all practicable measures been taken to minimize noise and vibration
as noise, dust and increased communities are and dusts (consistent with IFC guidelines) during design?
Nuisance and visual

traffic flows) been considered? present • Have appropriate mitigation measures been implemented (noise attenuation,
dust controls, etc.)?
aspects

• Has the impact of the development on local transportation networks been

considered and mitigation measures developed?
Have the impacts on aesthetics Relevant if Project documents (E/S) Yes • Is landscape and visual impact likely to be a significant issue?
and the visual environment communities are • If yes, has a landscape and visual impact assessment been undertaken for
been considered? present or the project?
tourism is • Have mitigation measures been developed?
important
Have any indigenous peoples Relevant if Project documents (E/S) Yes • Has the affected group been consulted about potential impacts?
Land rights and indigenous

been affected by the project indigenous • Have they participated in the development of mitigation measures?
and have indigenous concerns peoples are • Has an IDPD been developed and implemented?
been considered? present • Does the content of the IDPD follow guidelines in OD4.20?
• Will indigenous people benefit from the investment?
peoples

(OD4.20)
Have any adverse affects on Relevant if Project documents (E/S) Yes • Has it been established what legal or customary rights people have to the
access to lands been communities are land?
considered, where either legal present • If land to which they have a right has been affected have they been
or customary tenure applies? adequately compensated or were they given proper value for the land?
• If they have been given new land do they enjoy security of tenure?
(OD4.30)

41
 Has loss of access to Relevant if Project documents (E/S) Yes • Was the severing of traditional routes of access to environmental resources
environmental resources (e.g. communities are considered and avoided wherever practicable?
water, grazing lands, forest present • If access to environmental resources has been affected, has this been
products, etc.) been compensated for or preferably mitigated?
considered?

Has the potential for an Relevant if Project documents primarily; Yes • Were potential impacts of either local disputes (e.g. wrt compensation
increase in local disputes or communities are WBI Political stability and rule arrangements) or distorting political structures considered ?
distorting political structures present of law indices • Were mitigation measures identified/developed (e.g. conflict prevention,
been considered? community investment programs, etc.)?
• Have these measures been implemented or an action plan put in place?
Conflict, human rights and labor

Has the potential for more Relevant if WBI Political stability and rule Yes • Were potential impacts on human rights considered?
serious conflict and adverse communities are of law indices; Human Rights • Were measures considered for the protection or promotion of human rights
impacts on human rights been present Watch reports; State (e.g. in relation to use of security forces to protect installations or ensure
considered(e.g. as a result of Department Reports; access, etc.)?
the use of security forces)? Amnesty International • Have these measures been implemented or an action plan put in place?
Reports

Have measures been Relevant Project documents (E/S) Yes • Have previous working practices of the operator been examined?
considered for the protection or • Has the sponsor set in place a labor policy, or made other provisions that
promotion of human rights in ensures fair treatment of workers, and dispute resolution mechanisms?
the workplace? • Are these provisions being implemented?

Has the potential use of Child Relevant Project documents (E/S) Yes • Was the Forced Labor and Harmful Child Labor Policy Statement sent to the
Labor or forced labor been sponsor?
considered and has the • Has the sponsor confirmed that no children will be working in exploitative,
sponsor been made aware of hazardous or harmful conditions?
their obligations? • Has the sponsor confirmed that no forced labor will be used?
Has the potential impact upon Relevant Project documents (E/S) Yes • Was the potential for impacts upon cultural heritage assessed?
sites of religious or cultural (state limitations where rely • Could impacts on sites of cultural heritage significance have been avoided or
heritage or known solely on project docs); minimized through project design?
Cultural property

archaeological significance UNESCO World Heritage • Has the protection and enhancement of these sites been considered as part
been considered? Lists of the project design?
(OPN 11.03)
Has consideration been given Relevant Project documents (E/S) Yes • Has the potential for unanticipated finds in the development site been
to the potential discovery of considered?
unanticipated finds and how • Where finds may be uncovered, are mitigation measures in place (e.g.
these will be dealt with? investigation, removal and preservation as appropriate)?

42
 Has consideration been given Relevant if Project documents (E/S) Yes • Have interested and affected parties been identified?
to consultation with interested communities are • Was a PCDP developed consistent with ESRP guidance note F?
and affected parties (e.g. local present • Were they consulted (i) before TOR for the EA was finalized (ii) once draft
communities and NGOs)? EA had been prepared (iii) throughout implementation?
• Is there an ongoing program of consultation?
• If EA was prepared prior to IFC involvement was the adequacy of
consultation reviewed by IFC?
• Where it was found to be inadequate has supplementary consultation been
carried out?
• Was a report on public consultation and disclosure released?
(ESRP guidance note F) (OP 4.01 requirements)
Public involvement & Disclosure

Has the value of public Relevant if Project documents (E/S) Yes • Where the environmental assessment identified different approaches to
involvement in social and communities are resolving environmental and social issues were local people given the
environmental decision-making present opportunity to feed into the decision-making process?
been considered? • Were opinions expressed during consultation taken into account in the
development of mitigation measures? Is this clearly recorded in project
documents.
(PCDP ESRP guidance note F)

Has the appropriate level of Relevant if Project documents (E/S) Yes Cat A projects
information disclosure been communities are • Was the EIA disclosed through the WB Infoshop for a minimum of 60 days
considered? present prior to board approval?
• For disclosure post July 2000 was the Executive Summary and details of
Note: Defined disclosure where documents were available disclosed via the IFC web site?
requirements at that time: • Was the EIA translated and disclosed at appropriate locations locally for a
policy statement 1998 minimum of 60 days prior to board approval?
ERS disclosure guidance for Cat B projects
Bs • Was the ERS disclosed through the WB Infoshop for a minimum of 30 days
prior to board approval?
• For disclosure post July 2000 was ERS disclosed through the IFC website
• Was the ERS translated and disclosed at appropriate locations locally for a
minimum of 30 days prior to board approval?

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3. Environmental dimensions (at each stage of the project cycle)
Have all environmental hazards Relevant Project documents (E/S) Yes • Are hazardous materials involved at any stage in the project?
been identified and the related • If yes, has the characteristic and threshold quantity of the hazmat been
risks considered? screened?
• If quantities or characteristics are sufficient has a hazardous materials
management program been established?
• Was a hazard or risk assessment carried out?
• Have appropriate preventive or emergency preparedness and response
plans been prepared?
• Has the potential for use of pesticides been considered in site preparation
and maintenance, and avoided where possible through Integrated Pest
Hazardous materials, site contamination and waste

Management approaches?
(OP4.09) (Guidelines on Hazmat)
Has the handling, storage, Relevant if any Project documents (E/S) Yes • Do preventive and emergency preparedness and response plans cover the
security, transportation and hazmats handling and transportation of materials?
overall management of • Are management roles and responsibilities clearly defined?
hazardous materials been • Are the materials all stored in secure, bunded locations specifically designed
considered? for this task?
• Are workers trained and provided with appropriate protective clothing and
apparatus for handling chemicals?
(Guidelines on Hazmat)
Has contamination (historical, Relevant Project documents (E/S) Yes • Has an investigation been made of previous uses of the site?
present, future) of soil or • Where contamination may be an issue has a site investigation been carried
groundwater been considered? out to identify whether any contamination exists on the site or in the ground
water?
• Has an assessment been made of whether the operations could result in
contamination of soil or groundwater?
• Have appropriate mitigation measures been developed and implemented?

Has the potential impact of Relevant if Project documents (E/S) Yes As above, but in relation to neighboring projects
contamination (historical, neighboring
present, future) from projects
neighboring projects been
considered?

Is the disposal of hazardous Relevant Project documents (E/S) Yes • Have plans been developed for the disposal of hazardous wastes?
and other waste adequately • Is the disposal of wastes carried out in accordance with specifications in the
addressed? guidelines?
• Are waste water discharges adequately managed?
• For mining projects is the disposal of tailings adequately considered?
(guidelines)

44
 Have all residual impacts been Relevant Project documents (E/S) Yes Do the plans cover:
considered in preparing initial • disposal of waste materials, particularly hazardous waste (Onshore O&G
mine closure plans or facility guidelines)?
decommissioning plans? • site restoration to conditions capable of supporting prior use (Mining
guidelines) or alternative use
Closure and decommissioning

• reclamation of tailings and waste rock (Mining guidelines)

• restoration of the visual environment
• prevention of future contamination of site or surrounding environment
• sustaining investments in social infrastructure

Has financial provision for Relevant Project documents Yes • Is the amount of money provided for appropriate to the nature of operations
ongoing cleanup costs and final and complexity of environmental issues (mining guidelines)?
closure costs been considered
in the closure or This will be based on the availability of evidence to support the financial
decommissioning plans? provisions for closure

Has consideration been given Relevant Project documents Yes Yes/No question
to future unanticipated closure
or sale of the company that
may result in the dilution of
closure or decommissioning
commitments?
Have the impacts on surface Relevant Project documents (E/S) Yes • Have the impacts on water resources been assessed (in terms of quality and
and subsurface waters been quantity), as well as effects on water users?
considered, including impacts • Have mitigation measures been developed (e.g. for offshore O&G projects
on competing water users? have practices outlined in the guidelines been followed; has acid drainage
from mines, tailings ponds or waste heaps been mitigated)?
• Are plans in place to ensure that water use is minimized and water is
Water and hydrology

recycled as far as possible?

(guidelines)
Have measures to prevent Relevant Project documents (E/S) Yes • Has the potential for alteration of drainage patterns and related erosion been
surface hydrology from being considered in project design? (mining guidelines)
adversely impacted been • Have measures been taken to prevent erosion?
considered?
Does the project affect any Relevant if near Project documents (E/S) yes • Should OP7.50 have been followed for this project? If yes, was it?
international waterway and, if international • Was the beneficiary state asked to notify other riparians about the project?
yes, have appropriate waterway or • Did either the beneficiary state or IFC notify the other riparians?
consultation procedures been using waterway • Did IFC establish whether the riparians had entered into any agreement
considered? relating to the waterway?
• Were any objections raised by the other riparians? If yes, was an
independent expert appointed to examine the issues?
(OP7.50)

45
 If the project involves Relevant Project documents (E/S) Yes • Have dam safety measures been designed?
construction of any • Have local complexities, such as seismicity, propensity to flood or problematic
impoundments or dams (e.g. ground conditions, been assessed?
for water supply or tailings • For dams over 15m in height or between 10m and 15m with design
disposal), are the associated complexities: have reviews been carried out at key design stages by an
impacts fully considered? independent panel of experts?; have necessary plans been prepared?; has
pre-qualification of bidders been undertaken?; are periodic inspections of the
dam carried out after completion?
(OP4.37) (New draft policy dams)
Have biodiversity concerns Relevant Project documents (E/S); Yes • Does the project involve the conversion or degradation of any critical natural
been considered (terrestrial UNEP-WCMC Protected habitat?
and aquatic), including effects Areas Database; • Could this have been avoided through project design, including alternative
on critical natural habitat? IUCN/WWF/FFI/CI site selection?
• Have mitigation measures been developed and implemented, including
minimizing habitat loss, restoration, establishing a new protected area?
• Has the sponsor’s capacity to implement mitigation measures been
established?
• Have opportunities to improve natural habitat quality been recognized and
taken?
(OP4.04)
Biodiversity

Has the potential threat (direct Relevant Project documents (E/S) Yes • Is there a threat to rare or endangered species resulting from a loss of
or indirect) to rare or Could check IUCN Red Data habitat?
endangered species been books • Have mitigation measures, such as providing replacement habitat, been put
considered? in place?
• Have rare or endangered species been indirectly affected through
interference with migration routes or feeding grounds?
• Have appropriate mitigation measures been developed?
(OP4.04)
Has the potential impact of the Relevant if near Project documents (E/S) Yes • Will the project result in disruption to primary tropical moist forest or forest
project on forestry resources or utilizing areas of high ecological value?
been considered? forestry • Does the project involve the loss of forest resources?
• If yes, could this have been avoided and have appropriate mitigation
measures been developed?
• Were local communities consulted?
(OP4.36)

46
 Have all impacts on air quality Relevant Project documents (E/S) Yes • Has an assessment been made of potential impacts on air quality?
been considered (including • Are guideline levels set for concentrations of airborne contaminants both
contribution to greenhouse gas inside and out with the project boundary and is the basis for selection of
emissions, SO2, NOx, these levels justified in the EA?
particulates, ozone depleting • Has technology been installed to minimize emissions to air?
Air Quality

substances etc.)? • For offshore O&G developments are the practices outlined in the guidelines
followed?
• Does the sponsor monitor whether these are met?
• Was an assessment made of the contribution of the project to GHGs?
• Are any ozone depleting substances used (e.g. in fire safety equipment or
refrigeration) and if yes, could alternatives have been found?
(Guidelines)

4. Environmental & Social Assessment and Management and Conditionality

Has consideration been given Relevant Project documents (E/S) Yes • Was the EA undertaken in accordance with OP4.01?
to whether the EA was • Was the content of the EA appropriate to the nature, scale and potential
appropriate to the nature, impact of the project?
scale, and potential • Was the EA process appropriate to the nature, scale and potential impact of
environmental impact of the the project?
proposed project? • For cat A projects were independent experts retained for the EA?
• If the cat A project was contentious was an advisory panel established?
Environmental Assessment

(OP4.01) (ESRP guidance notes A&B)

Were impacts from associated Relevant Project documents (E/S) Yes Were impacts of all associated facilities outwith the physical boundary of the
infrastructure/facilities project that are linked to the project considered ? Such as:
considered? • Access roads
• Supporting facilities
• Pipelines
• Electricity pylons
Is it clear on what basis the decision was made regarding whether a facility was
associated or not?
(Informal CES guidance)

Were cumulative impacts Yes • Did the EA consider cumulative impacts of the proposed project and
considered? realistically define existing and future projects?
• If the assessment identified significant environmental impacts, were
these addressed in the EA for this project?
(ESRP Guidance note G)

Has the adequacy of the Relevant Project documents (E/S) Yes • Did the project team investigate whether the sponsor had the resources
Institutional

sponsor’s environmental and either in-house or through consultants to implement environmental and
Capacity

social capacity to implement social obligations?

commitments been • Did the sponsor show a clear understanding of their environmental and
considered? social commitments?
• Was the track record of the company evaluated?

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 Has the effectiveness of the Relevant Project documents (E/S) Yes • Does the sponsor operate a management system certified to ISO or
sponsors’ Environmental and equivalent standards through which environmental and social responsibilities
Social Management System can be managed? (note: EHS Management System required for Cat A O&G)
been considered? • Does the sponsor operate a well developed and implemented management
system not yet certified through which environmental and social
responsibilities can be managed?
• If the sponsor does not operate a management system were they asked to
develop either an EMS or a project level EMP?
• If there is no management system is it clear who has responsibility for
implementing each environmental and social commitment? Is
implementation being monitored?
• Is there an EAP for the project derived from the management system clearly
setting out environmental and social commitments (required for O&G cat.
As)?
(EAPs = ESRP Guidance Note C)

Have monitoring and reporting Relevant Project documents (E/S) Yes • Has the sponsor’s environmental monitoring and reporting requirement been
arrangements to facilitate set out in the Investment Agreement?
Monitoring

effective project supervision • Were these requirements discussed and agreed with the sponsor during
been considered? project appraisal?
• Is the monitoring program in accordance with those specified in the relevant
guidelines?
(ESRP) (QSI #13 & 16)

Does loan conditionality ensure Relevant Project documents (E/S) Yes • Does the loan agreement contain specific provisions relating to the key
Conditionality

that important environmental commitments of the project sponsor as set out in the EIA ?
and social requirements will be • Is implementation of the EAP referred to in the loan agreement?
complied with by the sponsor • Are specific actions identified as CODs?
(e.g. mitigation, monitoring,
design)?

48
Annex 2. Some methodological limitations and their significance
The methodology was designed to provide a valuable, robust, timely, and cost-effective
contribution to the EIR process. It was not intended to be comprehensive and all-inclusive: time
and budgetary constraints did not provide for desk reviews of, or field visits to, a larger number
of projects. While the Office of the CAO stands behind the findings of the review, it is only right
to point out the methodological limitations.

Firstly, the sample size is not sufficiently large to provide for anything other than fairly
rudimentary statistical analysis. The results represent a snapshot of current practices rather
than a complete and comprehensive picture. However, given the total sample size of projects
that have been approved post 1999, this limitation would have applied had all 23 projects been
reviewed. The recent nature of these commitments also has limited the review to considering
how well the way has been paved for project sustainability, as opposed to actual outcomes.

Secondly, there is an inherent methodological bias associated with holding all projects hostage
to a very high standard. Many of the review criteria pose questions that are at the cutting edge
of an emerging view of sustainable development for extractives sectors. While it was never
expected that all projects would rate highly against all the review criteria, the predominance of
ratings below the maximum of 3 might be (wrongly) interpreted as indicating that the projects
may be mediocre at best. The reality is that the projects perform well against policy and
guideline mandated review criteria, which is where IFC and MIGA currently set the bar of
compliance.

Thirdly, the exclusion of some of the more controversial projects from the sample has prevented
the in-depth consideration of lessons learned through adversity. In the same way that some of
the greatest technological advances have historically coincided with periods of conflict, some
‘sustainability innovations’ within the extractives sectors might also have emerged in difficult
circumstances. The mediation process that emerged from the Ombudsman investigation of the
Yanacocha mine in Peru, or the efforts to ensure sound stewardship of project revenues in the
Chad-Cameroon pipeline project, are two such examples. Nonetheless, some innovations do
come through from the sample under review.

Fourthly, the analysis and presentation of results involve a degree of abstraction. In the place of
project names, a reductive numeric approach has been applied which is based on the rating
system of 0-3 (described in Table 2.2). This is partly the result of the need to honor assurances
to clients regarding the confidentiality of project-specific information. But more importantly, there
was the need to synthesize a large amount of qualitative data for comparative purposes, by the
application of simple, objective semi-quantitative data.

Fifthly, the analytical framework assigned no order of priority to the clusters of issues or
individual issues within a cluster, whereas clearly some clusters are more important than others
(e.g. revenue management is far more important than nuisance concerns). This has not been
corrected for by applying a weighting system to the individual scores presented.

Sixthly, the focus of the desk-reviews on historical information in project documents

(supplemented by interviews) meant that some decisions regarding the relevance of particular
issues might not have been included. For example, an issue might have been considered at a
preliminary stage (but eliminated as not relevant), but not recorded in the project related

49
correspondence. There were one or two examples of this that were highlighted during the field
visits.

Finally, not all the desk reviews of projects were followed up by field visits. The field visits were
intended to ground-truth the results of the desk-based reviews, and as a check on whether
agreed mitigation measures or value-added initiatives were being implemented. Initially, four
visits were proposed (the maximum that might have yielded valuable information, given the
stage of development or location of the other projects), but one was ultimately dropped. The
results of the first three visits confirmed the efficacy of the work conducted based on desk
reviews and conversations with members of the project teams. In the judgment of the review
team, the fourth visit would have yielded little additional information.

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