Corporate Social Responsibility and Extractive Industries (EI) A World Bank Perspective :Corporate Social Responsibility and Extractive Industries (EI) A World Bank Perspective Houston December 2004


The World Bank Group (WBG) :2 The World Bank Group (WBG) IBRD - helps finance and advise governments IDA - helps governments of the poorest countries IFC - helps develop private business through financing MIGA - helps private sector through political risk insurance ICSID - resolves investors-government disputes A group of 5 Institutions with a common goal: sustainable economic development poverty reduction


The WBG and CSR :3 The WBG and CSR Private sector operating in competitive markets is fundamental to development WBG helps governments create appropriate framework for this. Finances private investment (IFC and MIGA). CSR is seen as a means of broadening business’ positive development impacts


The WBG and CSR II :4 The WBG and CSR II Active program to encourage CSR: http://www.crswbi.org Active partnerships with other institutions and private sector. International Finance Corporation (IFC) is: Helping companies benefit from focus on sustainable development: http://www2.ifc.org/sustainability/ Assisting improve standards of corporate governance generally: http://ifcln1.ifc.org/ifcext/CorporateGovernance.nsf/content/Home Specific programs to help private sector with issues: e.g. IFC HIV/AIDS guide for the mining industry http://www.ifc.org/ifcagainstaids


Extractive Industries being challenged :5 Extractive Industries being challenged Questioning about contribution to national development: Academic “resource curse” literature Examples of apparent notable failures of resource riches to contribute to national development. Communities have not always benefited: “Enclave projects” Social impacts Revenues captured by national governments with few local benefits Environmental concerns: Local level – hazardous materials, bio-diversity protection Contribution of green house gases from fossil fuels to global warming.


The WBG recently completed amajor review of its role in EI :6 The WBG recently completed amajor review of its role in EI The Major Messages: External consultations: - “The EIR believes that there is a role for the WBG in oil, gas and mining sectors – but only if its interventions allow extractive industries (EI) to contribute to poverty alleviation through sustainable development. And this can only happen when the right conditions are in place….” Internal evaluations: - Overall development results in WBG EI projects were about the same as in other sectors… But…


Key Issues :7 Key Issues Governance Governance Revenue Transparency Communities Ensuring communities benefit Protecting the rights of people Disclosure Mitigating environmental risks Local Global


Governance :8 Governance Governance is key EI issue – when should WBG step back and focus on capacity building (sequencing) In the case of EI the WBG will: Address EI issues in Country Assistance Strategies (CASs) Clearly confront governance risks in EI projects Explain when we choose to proceed with projects Not promote investment when the balance of risks is too poor Require mitigation of revenue risks in the largest projects Identify and use appropriate indicators to judge governance risk (CPIA, rule of law, corruption, transparency, risk of conflict) But, one size does not fit all, judgment needed


Revenue Transparency :9 Revenue Transparency Transparency about EI revenues is a key step to stronger accountability and better governance. Transparency and accountability are key objectives WBG will: Encourage revenue transparency for all projects now Require revenue transparency for largest projects (>10% government revenues) now Require transparency for all EI projects in two years Ensure public disclosure of relevant terms of key project agreements when appropriate WBG is a leading partner in the Extractive Industries Transparency Initiative (EITI)


Ensuring Communities Benefit :10 Ensuring Communities Benefit Affected communities must benefit from projects. WBG will: Require free, prior informed consultation with affected communities Ascertain if “broad support” of affected communities exists Develop and implement best practices with others to ensure communities benefit Where possible link small business development/linkages programs to EI projects Identify and track poverty and development objectives and outcome indicators for EI projects


Protecting the Rights of People :11 Protecting the Rights of People Human Rights are a vital part of the development process and need to be central to WBG approach. Human Rights is a complex issue for the WBG that affects all activities Use of Security Forces - Ask clients to agree to requirements based on US/UK Voluntary Principles on the Use of Security Forces IFC’s draft Safeguards revision provides for right to organize and no discrimination plus existing requirements about child and forced labor


Disclosure :12 Disclosure Communities need meaningful information about projects to fully participate and benefit. WBG will: Ask clients to ensure regular public information about economic, social & environmental impacts of ongoing projects Publicly identify expected EI project development impacts prior to board approval (SPI) and track outcomes Publicly disclose assessment of governance risk (SPI)


Mitigating Environmental and Social Risks :13 Mitigating Environmental and Social Risks Safeguards need to be updated, expanded and better implemented. IFC now revising its safeguards, and will: Address specific EI recommendations (e.g. mine closure) Fully explore more general issues (e.g. no-go zones) Undertake a rolling update of technical guidelines (best practices) with priority for EI issues Address risks equitably and realistically with increased focus on going beyond “no harm” Fossil Fuels are contributing to global warming and WBG should address this threat. WBG will make special efforts to promote and support renewable energy (when in interests of member countries).


How to meet the challenge - stakeholders roles. :14 How to meet the challenge - stakeholders roles. Government Setting the rules to establish an appropriate investment environment and ensure that EI occurs in a socially & environmentally responsible way including good use of revenues. Community Organizing itself to manage the impacts (both negative and positive) of EI, including avoiding becoming overly dependent. Corporate Sector Managing environmental & social risks and adding value so that the project leaves a positive legacy for the community.


Immediate Next Steps for WBG: :15 Immediate Next Steps for WBG: Implementation of most recommendations over next 6-12 months More detailed guidance for WBG staff WBG EI Advisory Group to be set up Annual reporting to our Board on progress IFC Safeguard and Disclosure policies – now in consultation phase Revised IBRD/IDA Indigenous Peoples Policy to CODE end November 2004


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