Infrastructure lending must be based on environmental and social safeguards

    
    摘要:Development banks are gearing up for increasedinfrastructure financing to support the drive for stronger economic growth.That’s good news for narrowing the chronic gaps in energy and transport holdingback growth in many economies. But, unless accompanied by protectivesafeguards, these projects risk damaging the environment, climate, andcommunities—and actually hindering growth.

Development banks are gearing up for increasedinfrastructure financing to support the drive for stronger economic growth.That’s good news for narrowing the chronic gaps in energy and transport holdingback growth in many economies. But, unless accompanied by protectivesafeguards, these projects risk damaging the environment, climate, andcommunities—and actually hindering growth.

Balancing increased financing for infrastructure withenvironmental and social care must be a top concern for both the establishedlenders (such as the World Bank and Asian Development Bank) and the two newlenders for development: the Asian Infrastructure Investment Bank (AIIB),planned to be established in Beijing later this year; and the New DevelopmentBank of BRICS countries. Behind that priority lies the recognition that failedsafeguards in accidents or accumulated damages cost far more than soundregulation and enforcement.

That realization is rooted in worldwide experiencesin infrastructure related to industry and agriculture. The 1978 Amoco-CadizTanker spill on the Brittany coastline of France led to claims of $250 million,while the claims and clean-up costs in the 2010 BP-Amoco Gulf of Mexico oilspill in the United States were more than 100 times as much. In the second halfof the 20th century, discharges from factories and mines caused severe damagesto people’s health in Couer d'Alene River Basin in the United States, MinamataBay in Japan, and the island of Marinduque in the Philippines. Settling damageclaims from such calamities can take decades.

New road projects in forest areas of Brazil andIndonesia have aided the encroachment of agriculture and livestock, whichtogether with illegal logging are behind the massive deforestation and itscontribution to the carbon concentration in the air. The SardarSarovar Dam onthe Narmada River in India eventually displaced over 200,000 people, far morethan planned, while China’s Three Gorges Dam displaced six times as many.Involuntary resettlement of people, unless mitigated, risks permanent loss oflivelihoods and the breakdown of cultures and traditions.

Admittedly, it is hard to pin down the value ofsafeguards. But the gain from these defenses would be several times higher thantheir cost, which is usually 3-4 percent of the project. For example, theenvironmental benefit of pollution abatement is three to 10 times the cost, according to some estimates. The benefit ofpreserving biodiversity may be in avoiding a trigger for an ecosystem collapse.

In recognition of these risks, development banks havefor decades required safeguards in their loans. The scale of the neededresponse can be huge but necessary: the Ertan 1 hydropower project on China’sYalong River successfully resettled 46,000 people.  

Evaluations tell us that development banks mustcontinue to improve the impact and efficiency of safeguard policies, including supportfor ensuring the adequacy of countries’ safeguard systems. The AsianDevelopment Bank (ADB) revised its safeguard policy in 2009 and the World Bankis now doing the same, which could influence others. The original World Bankproposal was widely criticized for weakening the crucial obligation forsafeguard compliance. World Bank President Jim Yong Kim has assured that therevision will not mean a “dilution.” Earlier in May, ADB PresidentTakehikoNakao and Liqun Jin, secretary-general of the multilateral interimsecretariat of the AIIB, jointly stressed “the importance of safeguardspolicies on environmental and social impacts of projects.

These commitments are critical, because in the pushfor faster growth businesses increasingly regard safeguard provisions as anonerous cost to be tolerated or avoided. There are also valid criticisms thatsafeguard regulations are being violated.

The vital question for established banks andnewcomers alike is twofold: what is a desirable scope of safeguards, and how toget good compliance. There’s a growing consensus on the question of the “what,”but the “how” remains highly problematic.

In particular, growth concerns press for greaterflexibility in how safeguards are implemented. By citing a need to alleviatethe burden for borrowers and executing agencies, it is tempting for alterationsor new proposals to relax requirements for mitigation when approving a projectand table them later instead. But rather than diluting safeguard policies thisway, development banks should adhere to delivering sound safeguards whileseeking greater efficiency and speed by reforming internal procedures.

Indeed, sound economics argues for enforceableactions to rectify market failures that cause spillover damages from public andprivate investment. At the start of projects, and not just those supported bydevelopment banks, there has to be a binding mitigation plan based onestablished and clear rules, and compliance to the plan ought to be verified byan independent party and disclosed publicly.  

Multilateral banks need to make improvements in theirsafeguard policies, which could provide lessons for the new agencies as well.But the changes sought need to be about strengthening safeguard implementationto get better environmental and social results, and not about weakeningcompliance and enforcement of the regulation.  

With such high stakes for the public good,development banks must aim for better environmental and social impacts fromsafeguards as they expand infrastructure investment. That includes support forcommitment, capacity, and systems in countries to strengthen these defenses andtheir efficiency.

·Vinod Thomas

Director-General of IndependentEvaluation, Asian Development Bank


http://www.brookings.edu/blogs/future-development/posts/2015/06/01-infrastructure-environment-banks-thomas