IFC’s Environmental and Social Lessons Learned April 9, 2014 CSO Session

1. IFC’s Environmental and Social Lessons Learned April 9, 2014 CSO Session

2. AGENDA • Dinant: Lessons Learned / CAO Audit • Learning & Adapting • Key themes • Links to recent cases • Dinant: Update on Action Plan • Discussion

3. Dinant: Key Lessons Learned IFC acknowledges deficiencies in the handling of the Dinant investment: • During project preparation, IFC underestimated the broader risks in the Aguan Valley (land conflict, security issues, political instability) • When acute problems emerged, neither IFC nor client was prepared • IFC’s project supervision was not commensurate with level of risk • Internal communication and documentation sub-optimal Scope of the challenges in the Aguan Valley go beyond Dinant: • Complex history of land conflict/violence requires long-term solutions • Limited ability of IFC and client to address this

4. Dinant: Key IFC Actions We must: • Take credible steps on the ground in Honduras with our client • Internalize and disseminate lessons learned • Ensure we are building these lessons into our operations • Continually adapt our approach to E&S risk management • Continue to build our capacity to identify and mitigate risks (especially in fragile and conflict-affected project locations) • Strengthen ownership of E&S issues across the institution * More details and discussion to follow…

5. How IFC is Learning from Recent Experiences

6. Key Issues • Country/Sector Context • Stakeholder Engagement • Land & Water • Supply Chains • Labor • Financial Intermediaries

7. IFC Facing Increasingly Complex Challenges • IFC’s target markets are high risk environments • Fragile and conflict situations • Limited capacity and resources on the ground • Low client capacity • Weak Institutions • Robust E&S risk management will be a key factor in our ability to achieve objectives • Broader contextual risks often cannot be addressed through a single transaction alone • Enhanced collaboration across WBG is key to success

8. What are we Learning and Doing about country/sector Context? What we are learning • Narrow transaction focus insufficient (Agrokasa, Dinant, Wilmar) • Broader contextual and inherent risks, e.g. conflict, security forces (Dinant) • Cumulative impacts (Tata Mundra), legacy issues What we are doing • Deepen Country Situation Analysis (e.g., for palm oil investments) • Broader use of country studies and data from independent sources • Enhanced engagement with WBG on the ground

9. What are we Learning and Doing aboutStakeholder Engagement? What we are learning • Insufficient consultation can lead to community conflicts (Tata Mundra, Cambodia Airports) • Clients still struggle to do this well (Maple Energy, Agrokasa) • Just having a Grievance Mechanism is not enough(Nicaragua Sugar, Harmon Hall) What we are doing • Strengthened requirements in 2012 Sustainability Framework, including grievance mechanisms • Verification of Broad Community Support, Free Prior & Informed Consent • Portfolio review, tools, lessons on Stakeholder Engagement • Technical training & guidance for staff and clients

10. What are we Learning and Doingabout Land and Water? What we are learning • Frequent source of conflict (Dinant, Agrokasa, Yanacocha, OyuTolgoi) • Challenges of Government-led resettlement (Agri-Vie/New Forest Company) • Poor land governance: public to private land transfers; watershed issues are difficult What we are doing • Strengthened Performance Standards requirements (PS3, PS6) • New risk screening and assessment tools (GMAP, Guidance Note on Land) • Applying Principles on Responsible Agriculture Investments • Engagement with World Bank, other multilaterals (e.g. FAO, UN Compact)

11. What are we Learning and Doingabout Supply Chain Issues? What we are learning • Verification in extended supply chains is difficult (Bujagali) • Clients often have limited leverage to improve practices • Need for better screening on High Risk Commodities (Wilmar) • Labor • Biodiversity What we are doing • Good practice guidance • Agro-commodities and supply chain • Child Labor Monitoring Tool • Commodity roundtables • Expanded scope of verification • Better screening tools (Trade Finance due diligence)

12. What are we Learning and Doing about Labor? What we are learning • Increasing concern and source of complaints (Standard Profil, Avianca, Bujagali,Tata Tea, Harmon Hall) • Weak implementation of national laws • Frequently not under clients’ direct control • Freedom of association & collective bargaining; supply chain; working conditions What we are doing • Greater use of external experts on appraisal and supervision • Engagement with global unions, ILO • Technical training for staff • New guidance for staff and clients(contractor management; child labor)

13. What are we Learning and Doing about Financial Intermediaries? What we are learning • Effective E&S Risk Management Systems are key • Time lag: From system to results • Need for enhanced IFC supervision (esp. for high risk) • Sample of sub-projects • Clients need capacity building What we are doing • Implementing the Action Plan approved by CODE • Increased supervision of high risk FIs • Expanded capacity building for FI clients • Engagement with broader stakeholder groups, strengthening of authorizing environment

14. Going Forward We will: • Share these lessons broadly across IFC • Continue to build capacity – internal as well as client • Increase attention to E&S issues in decision-making at all levels of IFC • Strengthen our dialogue with the CAO • More actively engage with the Board However, challenges will remain—we cannot guarantee outcomes

15. Dinant: Update on Action Plan

16. Approach for revising the Dinant Action Plan • Guided by commitments made to the Board and publicly posted in January—Revised Plan is now more comprehensive and robust • Sought input and advice from CAO, outside experts, NGOs, Board members, WB colleagues and the client • Taking an iterative & consultative approach to build out/refine the Plan – “Consultation Draft” • Little IFC or external precedent with respect to backward-looking investigation • Plan was presented for feedback to Board Members on April 4 and was publicly released April 8 • Consultations with local communities on Draft Action Plan

17. The Security Action Plan and Dinant's Investigation • Revised Dinant Action Plan comprises four components (all of which will be further informed by consultation): • DinantSecurity Action Plan (training, new protocols, compliance investigation of past allegations as per PS 4) • Community Engagement Plan (special focus on Aguan Valley Communities, conflict mapping, baseline surveys) • Establish Grievance Mechanism (conflict-sensitive) • Ongoing Implementation of ESAP (ISO 14000/18000, air emissions, OHS) Result is a comprehensive document that includes all actions Dinantwill take to ensure compliance with IFC's performance standards

18. IFC to Monitor as Guided by External Expertise Investigation of past allegations • No IFC precedent nor expertise for the investigation that Dinant is required to undertake in compliance with PS 4 • IFC will hire a security expert to advise us, reviewToR, and monitor implementation • Stakeholder, CAO and expert input indicates need for reputable third party investigator to lead investigation – candidate must be acceptable to IFC • “Compliance” investigation by client versus “criminal” investigation by GoH • If wrongdoing is found corrective actions will be taken (including disciplinary measures and compensation as warranted) Community Engagement • Recognize that some communities may be in conflict with Dinant – consultations facilitated by international consultants with participation of client and IFC • There is a need for specialized expertise familiar with working on dispute resolution and in conflict zones • IFC will hire its own conflict mediation consultants to support client’s consultation process with affected AguanValley communities

19. Next Steps • “Consultation Draft” of Revised Action Plan has been posted on IFC’s website, and will be reviewed with civil society at Spring Meetings • Dinantwill develop the Security Action Plan and the Community Engagement Plan (including Grievance Mechanism) in consultation with local communities (now through December) • IFC will hire its own expert advisor on security issues/investigations • IFC will monitor Action Plan implementation directly and via input/guidance from external experts • “Lessons Learned” has also been posted on IFC’s website • WBG to continue outreach to the Government of Honduras & partners

20. Discussion

21. Annex: Addressing the Broader Challenges in the Aguan • Stakeholders have made clear that resolving Dinant-specific issues via the Action Plan is a start but not the answer to what drives conflict in the Aguan • There seem to be at least two key areas of focus to reduce tensions: • Restore the rule of law and personal security/prosecute human rights crimes • Establish a stakeholder dialogue that enables farmer, community, private sector and Government representatives to map the sources of conflict and define a future vision for economic and social development for the Aguan • The World Bank Group is reviewing what role we might play based on expertise and convening power (or lack thereof) • The Government is central to any solution and multiple partnerships will be necessary