World Bank Safeguards and Program-for-Results (P4R) Financing

Summary of Concerns

Greater reliance on borrowing country systems: Focus on borrower systems for managing

environmental and social (E&S) risks is a welcome objective, provided that such systems adequately

and consistently prevent and mitigate potential harm to people and the environment. P4R reliance

on borrower systems should provide ‘comparable treatment for comparable risks’ at the Bank –

ensuring that risks across each type of lending are addressed in a consistent way.

Inconsistent standards: Unlike project-based lending, P4R financing is not subject to the Bank’s

environmental and social “safeguard” policies. Rather than creating innovative ways to apply a

unified safeguard framework across all Bank lending instruments, P4R created a separate regime for

treatment of social and environmental issues, a development that may lead to inconsistent E&S risk

management and outcomes.

Safeguard flexibility without clear leverage: P4R’s vague and somewhat discretionary approach to

assessing and using a borrower’s E&S systems to address potential operational impacts offers

unclear leverage over wider programmatic adoption of higher standards. This approach will expose

communities in areas where programs are implemented to higher levels of risk.

Transparency: P4R lets the borrower determine what, if any, information related to activities funded

through P4R operations is made publicly available or available directly to potentially-affected local

communities. Further, there is no clear mechanism for disclosure of information on sub-projects.

Independent clearance: The P4R operational policy and procedure (OP/BP 9.00) dilutes the

independent clearance role for the Bank’s regional safeguard advisors.

Sequencing: P4R operations run the risk of perpetuating weak or inadequate mitigation systems.

The absence of a requirement to ensure proper sequencing – ensuring that capacity gaps are

addressed before funding is provided for program activities that depend on adequate capacity

constitutes a significant concern.

Weak stakeholder consultation: The Bank relies entirely on borrowers to perform project-level

consultations, providing no requirements for these activities and no oversight. The lack of

consultation standards for P4R supported actions, which may involve considerable environmental

and social impacts (Category B level), raises concerns.

Key Recommendations:

1. No policy change in OP/BP 9.0 before results of IEG evaluation in FY16-17. 2. Open the World Bank Safeguard Review to include all instruments and ensure portfolio wide risk management consistency.

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1. What is P4R?

“Program-For-Results Financing” (P4R) is a relatively new World Bank lending instrument that aims to

support a borrower’s “programs” – a flexible term that encompasses a wide-range of potential

government-led development initiatives with a national, subnational, multi-sectoral, or sectoral scope.

P4R operations can be used to finance investment-lending types of activities that have notable risks, i.e.,

‘Category B’ projects.1 Current P4R operations include capacity building for multiple local governments,

expanded governmental national health service delivery, road rehabilitation and construction, municipal

infrastructure, rural water supply and sanitation, and bridge rehabilitation and construction. 2

P4R is a “results-based” instrument: disbursements are largely tied to achievement of agreed

“development linked indicators” rather than to preparation and expenditures for inputs, as is typically

the case with more traditional project lending. Financing is provided to the borrower’s overall

expenditure program budget rather than linked to individual transactions (such as scheduled purchases

of goods and services required for the project). Development linked indicators are identified initially by

the borrower, and approved by the Bank. It appears indicators can be changed after the Board approves

the P4R operation.3

P4R lets the borrower determine what, if any, information related to activities funded through P4R

operations is made publicly available or available directly to potentially-affected local communities. In

other words, the public has assured access to information related only to ‘program level’ activities – not

necessarily to activities funded through the program.

The Bank considers P4R a third core component of its suite of lending instruments: Development Policy

Lending (DPL) to finance government policy reforms and actions, P4R for program-level operations, and

Investment Lending (IL) for projects. The Bank argues that P4R will enable it to extend the reach of its

advice and financial support to entire national programs despite providing a relatively small share of a

program’s operating budget.

P4R also represents a further fragmentation of the Bank’s approach to ensuring that its financing does

not contribute to environmental and social harm. Unlike project-based lending, P4R financing is not

subject to the Bank’s environmental and social “safeguard” policies.4 Instead, P4R operations rely on the

borrower’s systems for avoiding and mitigating potential impacts, with potential capacity strengthening

of the systems during the operation. Bank staff are to utilize a set of P4R-specific environmental and

social principles to guide an assessment of the “adequacy” of a borrower’s systems, and Bank standards

do not apply to activities funded through these systems – even when these are the same types of

1 Current two year prohibition on funding of Category A, that will be revisited in 2014 and may be removed.

2 The P4R instrument – Operational Policy/Bank Procedure 9.00 Program-For-Results Financing – was approved in January 2012.

See the Bank’s P4R website for documents and a list of P4R operations. 3 See OP 9.0 ¶ 16. A "Level One" restructuring involving modification of the original Program objectives, which includes any

change to the original DLIs, is submitted for Board approval under absence of objection procedures. 4 World Bank “Safeguard Policies” (hereafter “safeguards”) refer to a set of ten Operational Policies (OPs) and Bank Procedures

(BPs) that specify standards and actions to minimize social and environmental impacts that borrowers and Bank staff must meet as a condition of Bank financing. The safeguards apply to Bank “projects” but not to DPLs and P4R operations. See World Bank Safeguard Policies.

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activities to which Bank safeguards apply when funded through investment lending operations at the

Bank. DPLs are also not subject to the Bank’s safeguard policies.5

P4R is currently being rolled out in a limited manner through 2014. Bank management agreed to limit

total P4R financing to no more than 5% of total IBRD/IDA annual lending for the first two years (or

roughly US$1.5-2.0 billion per year). Since inception in early 2012, the Bank has approved 10 P4R

operations with total Bank financing of US$1.781 billion (as of April 1, 2014), with another 17 projects

(totaling over US$1.572 billion) in the pipeline.6

2. Why should civil society care about P4R?

P4R could potentially encompass a sizable portion of the Bank’s portfolio. A Bank review found

significant demand among country clients for programmatic lending.7 Bank staff are examining projects

in the pipeline to be converted to P4R operations. Many client countries want to transition from reliance

on the Bank’s safeguard, procurement, transparency, and accountability standards in favor of greater

reliance on country systems and practices. If the 5% cap is lifted after the two-year rollout period, P4R

lending could expand significantly.8

The shift toward greater reliance on borrowing country systems for managing environmental and social

(E&S) risks is a welcome objective, provided that such systems adequately prevent and mitigate

potential harm to people and the environment. These systems should provide ‘comparable treatment

for comparable risks’ at the Bank – ensuring that risks across each type of lending are addressed in a

consistent way. The Bank argues that by exempting P4R operations from the safeguards, it will be able

to provide broader support to and exercise more influence on borrower systems compared to IL projects,

which are typically “ring fenced” from other development activities that would not comply with the

Bank’s standards. However, it is unclear whether P4R’s “more leverage”9 approach will be embraced by

borrowers. Furthermore, P4R’s vague and somewhat discretionary approach to assessing a borrower’s

E&S systems and addressing potential operational impacts will expose communities in areas where

programs are implemented to higher levels of risk. Upon the Bank’s review and approval of an

acceptable borrower social and environment risk management system, borrowers will assess and

address risks associated with activities funded through P4R programs, including those activities that

would be characterized as ‘Category B’ if funded through investment lending operations.

5 For DPLs, Bank staff are to determine whether supported policies are likely to have “significant poverty and social

consequences” or “significant effects on the county’s environment, forests, and other natural resources.” Staff must also assess whether the borrower has systems in place to manage such risks, and DPL operations may include capacity strengthening measures if “significant gaps” in environmental and social risk management are identified. See World Bank Operational Policy 8.60 Development Policy Lending (2004), paras. 10 and 11. 6 See the Bank’s P4R website, the estimate of projects in the pipeline excludes amounts for five projects for which no

documentation is yet available. 7 World Bank, Operations Policy and Country Services, “A New Instrument to Advance Development Effectiveness: Program-for-

Results Financing” (December 29, 2011), para. 8. P4R website. 8 For speculative scenarios, see Vince McElhinny, Bank Information Center, “P4R Update” (February 2012)

9 The Bank claims, “In aggregate, the Bank finances between 1-2 percent of the public expenditures of developing countries.

Under PforR, the Bank will provide a fraction of the overall funding for a larger program and will be able to apply its technical expertise, capacity building support, fiduciary, environmental and anticorruption oversight and Access to Information Policy to a larger range of government spending.” “PforR focuses on behavioral and institutional changes required to achieve results and manage associated risks.” World Bank “Program-for-Results: An Overview.” P4R website.

4

A number of issues associated with P4R are a cause of concern for achieving sustainable development

goals. These include:

Inconsistent standards: Rather than creating innovative ways to apply a unified safeguard framework

across all Bank lending instruments, P4R created a separate regime for treatment of social and

environmental issues, a development that may lead to inconsistent E&S risk management and outcomes.

For example, environmental assessments for IL projects must examine risks and impacts in a project’s

“area of influence” (which includes all ancillary aspects, including power transmission corridors,

pipelines, access roads, etc., as well as unplanned, induced impacts of a project). It is not clear how the

Bank will apply this requirement consistently to P4R programs, even when specific project activities are

defined.

More discretion, more E&S risk?: P4R operations consciously rely on far greater discretion and judgment

of Bank task teams in assessing E&S risks than is the case for investment projects (see below). With

greater discretion comes the potential that environmental and social risks and impacts may not be

adequately identified and addressed. The Uruguay P4R provides a case in point – no project-level

impact assessments are being required for a relatively extensive road rehabilitation program that will,

admittedly involve resettlement and has underestimated the impacts of the likely expansion of logistics

corridors. The Bank has noted elsewhere, that impact assessments are required for similar road

rehabilitation activities funded through direct investment lending operations. Evaluations of Bank

operations have indicated significant under-estimation of the degree of E&S risk (i.e., in one-third of

high risk projects), even for more prescriptive, compliance-oriented investment projects.10 As the Bank’s

Independent Evaluation Group has found, framework lending, such as P4R, deals less robustly with risk

than other lending approaches. “Supervision results performance in terms of mitigation are both lower

for Bank projects that rely on policy frameworks, whose environmental and social impacts cannot be

assessed at appraisal.” 11

Reduced role of E&S experts: For investment projects, regional safeguard advisors (RSA) have mandatory

review and clearance functions of a project’s environmental and social aspects.12 The P4R operational

policy and procedure (OP/BP 9.00) eliminates formal RSA clearance authority. Rather, all Bank actions

are to be undertaken by the “task team.” While the task team takes the lead in carrying out the ESSA

and have played an active role in some of the early P4R operations, Bank safeguard specialists may serve

solely as advisors for P4R operations as the number increases.

Will capacity building occur?: The Bank states that a “priority area for both preparation and

implementation support will be to strengthen the capacity of institutions to implement the program.”13

But will P4R deliver on this objective? National, subnational, or sector-wide capacity strengthening is an

10

For example, the Bank’s evaluation department found that project E&S risk determination was not always based on objective criteria. “Almost a third of projects with high-risk levels were incorrectly classified as category B, while one sixth of category-A projects had much lower risks.” World Bank Independent Evaluation Group, “Safeguards and Sustainability Policies in a Changing World – An Independent Evaluation of World Bank Group Experience,” 2010, p. 68. 11

Ibid, p. 29. 12

“At the Project Decision stage, the RESU [Regional environment sector unit] provides formal clearance of the environmental aspects of the project, including their treatment in the draft legal documents prepared by LEG [legal department].” World Bank, Bank Procedures 4.01 Environmental Assessment, para. 14. 13

World Bank OPCS, “A New Instrument,” para. 17.

5

expensive, complex and often long-term proposition. Will borrowers be willing to devote more internal

resources for capacity building or even incur more debt for additional technical assistance loans?14 P4R

operations run the risk of perpetuating weak or inadequate mitigation systems. The absence of a

requirement to ensure proper sequencing – ensuring that capacity gaps are addressed before funding is

provided for program activities that depend on adequate capacity constitutes a significant concern.

These sequencing issues should be addressed as a condition of effectiveness at the start of the

program.15

Stakeholder consultation: P4R operations take a different approach to stakeholder consultations than is

the case with IL. The Bank’s safeguards require borrowers to consult affected groups and local NGOs

early on about a project’s environmental aspects and to take their views into account. Category A

investment projects require both early and follow-on consultations.16 In P4R operations, the Bank

conducts program-level assessments and consults stakeholders on the findings (separating borrowers

from this responsibility). The Bank’s assessment is to include a review of a borrower’s arrangements for

stakeholder consultations, but no standards are contained in the P4R operational documents.17 The

Bank relies entirely on borrowers to perform project-level consultations, providing no requirements for

these activities and no oversight. The lack of consultation standards for P4R supported actions that

encompass mechanisms for the feedback of affected populations, which may involve considerable

environmental and social impacts (Category B level), raises concerns.

Transparency: P4R operations, by design, are sector and/or system-level interventions. P4R

documentation primarily addresses actions that governments will undertake to address institutional

capacity and implementation issues. However, a ‘transparency gap” exists at the level of program

subprojects, where localized impacts are a primary concern for nearby stakeholders (see below). In

addition, serious concerns regarding transparency of procurement processes within P4R operations

have been raised.18

3. How does P4R address social and environmental issues? How does this

compare with safeguards for investment lending and other programs?

P4R operations include three primary assessments as part of the Bank’s appraisal of the borrower’s

program. The “technical assessment” describes the government program, its rationale and objectives,

technical soundness, expenditure levels, and institutional capacity. The “fiduciary systems assessment”

examines the program’s financial management systems, internal controls, procurement system,

14

“[I]n many cases, the bank will actively support capacity building through dedicated technical assistance activities,” either integrated into the P4R operation or “as a separate stand-alone IL.” World Bank OPCS, “A New Instrument,” para. 27. 15

The Extractive Industries Review indicated the importance of such sequencing for addressing risks in the context of extractive industries projects. See Striking a Better Balance: The World Bank Group and Extractive Industries: The Final Report of the EIR. World Bank Group Management Response (Sep. 17, 2004). 16

For Category A projects, borrowers must consult groups at least twice: after screening and before terms of reference for the EA are finalized, and once a draft EA is prepared. OP 4.01, para. 14. 17

See BP 9.00, paras. 29(b), 30. Regarding indigenous peoples, the P4R procedure does include the Bank’s “free prior informed consultation” standard. See BP 9.00, para. 29(j). 18

For example, see “Transparency International’s Input to the WB Consultation Process on the Draft P4R Operational Policy, Bank Procedures and Anticorruption Guidelines.”

6

financial reporting and auditing to ascertain whether the arrangements provide reasonable assurance

on appropriate use of funds and safeguarding of assets.

Instead of relying on and adapting its existing E&S safeguard policies to assist in addressing risks related

to activities funded through P4R operations, the Bank developed a separate approach to dealing with

potential social and environmental impacts in P4R operations. ‘Environmental and social systems’ are

assessed using a third assessment – the “environmental and social systems assessment” (ESSA). This

assessment considers the degree to which the program’s systems reflect a set of P4R-specific E&S

principles (see Box 1). However, the principles do not reflect most Bank safeguards, nor do they

contain minimum standards, policy triggers, and procedural requirements that make the safeguards risk

management tools. As an example, Bank safeguard policies constitute about fifty pages of detailed

policy, procedure and practices, the Use of Country Systems guidelines condense policy requirements to

about five pages, while the P4R principles reduce this content further to some six sentences. This seems

to be a case of over-simplification leading not to appropriate flexibility, but excessive discretion.

BOX 1: Environmental and social principles for assessing P4R operations

The E&S systems assessment considers, “as may be applicable or relevant in a particular country,

sector, or Program circumstances,” the degree to which [the program’s systems: [emphasis added]

(a) promote environmental and social sustainability in the Program design; avoid, minimize, or mitigate

adverse impacts, and promote informed decision-making relating to the Program’s environmental and

social impacts;

(b) avoid, minimize, or mitigate adverse impacts on natural habitats and physical cultural resources

resulting from the Program;

(c) protect public and worker safety against the potential risks associated with: (i) construction and/or

operations of facilities or other operational practices under the Program; (ii) exposure to toxic

chemicals, hazardous wastes, and other dangerous materials under the Program; and (iii)

reconstruction or rehabilitation of infrastructure located in areas prone to natural hazards;

(d) manage land acquisition and loss of access to natural resources in a way that avoids or minimizes

displacement, and assist the affected people in improving, or at the minimum restoring, their

livelihoods and living standards;

(e) give due consideration to the cultural appropriateness of, and equitable access to, Program

benefits, giving special attention to the rights and interests of the Indigenous Peoples and to the needs

or concerns of vulnerable groups; and

(f) avoid exacerbating social conflict, especially in fragile states, post-conflict areas, or areas subject to

territorial disputes. (OP 9.00, para. 8)

The E&S systems assessment is to “consider whether the Program institutions have the capacity to carry

out adequate planning, decision making, execution, reporting, monitoring, and evaluation, auditing, and

information disclosure under the Program” [emphasis added]. 19

19

World Bank BP 9.00, para. 24.

7

Unlike application of safeguards to projects, P4R’s E&S systems assessment is not aimed at ensuring

compliance with minimum social and environmental standards before the operation commences. If

significant gaps are identified in how the program’s systems address the P4R E&S principles, Bank staff

“may” (if deemed “applicable” or “relevant”)20 identify areas requiring institutional strengthening. These

areas in turn may be included in the “Program Action Plan, which selects, from each assessment, a

limited set of key priority actions.”21 The assessment provides a “reference” for monitoring E&S

performance.22

P4R’s approach also stands in sharp contrast to the Bank’s pilot program on the use of “country systems”

for environmental and social safeguards (OP 4.00). Under the country systems approach, the Bank

undertakes rigorous, two-stage diagnostics (conducted by safeguard experts) to determine whether a

borrower’s systems meet Bank minimum safeguard standards and whether the borrower has the

capacity and implementation track record.23 Such extensive diagnostics have been sidelined under P4R,

relying instead on more context-specific reviews and judgments of Bank task teams. Because the

country systems approach and P4R overlap significantly in the types of activities funded through country

system frameworks – they both fund primarily activities that would be categorized as B or C if funded

through direct investment lending, P4R appears to be replacing the more robust country systems

approach.24

The Bank implicitly acknowledges that P4R’s more discretionary, judgment-based approach25 to

environmental and social risks is not appropriate for activities that may pose significant, irreversible

impacts. Highest risk activities, such as large infrastructure, commercial logging, industrial processing

facilities, etc., currently are excluded from P4R financing.26 In addition, the Bank notes that even this

exclusion “cannot ensure that all potentially significant adverse impacts … will be identified.” 27 Given

the lack of specific assessment standards for P4R operations, it also cannot be assured that all impacts in

a subproject’s area of influence (or the cumulative impact of multiple subprojects) will be addressed.

The Bank therefore recommends (but does not require) task teams to conduct a supplementary E&S risk

screening exercise in addition to a mandatory screening to exclude highest risk activities.28 however,

these and other inherent challenges to managing risks through program-level due diligence frameworks,

20

The assessment considers the degree to which the program systems address the P4R principles “as may be applicable or relevant in a particular country, sector, or Program circumstances.” OP 9.00, para. 8. 21

The time boundedness of sequenced actions or relationship with DLI disbursements is not clarified. See World Bank, Operations Policy and Country Services, “Program-For-Results Financing: Interim Guidance Notes to Staff on Assessments,” Draft June 18, 2012, para. 9. See P4R website. 22

World Bank BP 9.00, para. 30. 23

See the Bank’s website on its Use of Country Systems. 24

In the 17 operations funded through country systems pilot, two were categorized as high risk A projects. 25

“The ESSA uses a risk management approach, in which judgment is applied in assessing both management capacity and the significance of potential environmental and social effects.” “There are few empirical and reliable indicators by which to assess management capacity; application of judgment by the Bank is especially necessary in assessing their commitment of potential borrowers to implement new programs effectively, or to strengthen or broaden effectiveness of existing programs during the course of program implementation.” Interim Guidelines, pp. 82-83. 26

“Activities that are judged to be likely to have significant adverse impacts that are sensitive, diverse, or unprecedented on the environment and/or affected people, and activities … are not eligible for [P4R] financing and are excluded from the Program.” OP 9.00, para. 9. Also, high-value procurement contracts are also excluded. 27

P4R Interim Guidelines, p. 80. 28

P4R Interim Guidelines, pp. 80-81.

8

are not associated with more prescriptive mitigation requirements, despite the Bank’s uneven track

record in overseeing framework and system approaches .

P4R operations involve a somewhat novel shift of responsibilities from borrower to the Bank. For

investment projects, it is the borrower’s responsibility to conduct assessments of environmental and

social impacts, following Bank minimum requirements. For P4R operations, Bank task teams undertake

the assessment of a borrower’s environmental and social systems but leave borrowers responsible for

assessing impacts associated with activities funded through these operations – without following Bank

minimum requirements.29 In addition, the Bank assumes direct responsibility for consulting with

stakeholders on its draft assessment (but not on the specific program activities per se). The Bank adopts

a context-specific approach to consultations (no uniform protocol), following general guidelines.30 In

addition, the Bank is responsible for disclosing the draft and final E&S systems assessment, but allows

the borrower to determine if the activity-level assessments will be disclosed. The program sub-project

level disclosure mechanism is not clearly defined.31

The assessment is also to include a review of grievance redress processes for Program activities.

Grievance redress, as well as borrower disclosure and consultation processes, “should be appropriate to

the activities to be supported under the program.”32

The Bank argues that P4R operations will significantly enlarge its “transparency footprint” because

disclosed program documentation will cover the entire government program, not just the Bank-

supported portion.33 The P4R results framework, overall expenditures, and indicators will be disclosed.

The Bank will also disclose the draft and final program-level ESSA in addition to a number of other

regularly disclosed Bank documents: a Program Information Document, the Project Appraisal Document,

Implementation Status and Results Reports, annual audit reports, and Implementation Completion

Reports.

However, a significant ‘transparency gap’ concerns the issue of subprojects to be financed by the P4R

program. The impacts on-the-ground are of primary concern to local program stakeholders. However,

given the nature of such programmatic interventions, program documentation focuses on the system

level, providing only general information on targeted geographic areas and types of activities to be

supported in the future.

Only one of the approved P4R operations to date specified site-specific interventions, albeit partially

(see Box 2). While some P4R operations may have only broad, sector-wide effects (such as support for

nation-wide health delivery system improvements), others will have site-specific impacts of which local

stakeholders should be fully informed. These include operations supporting infrastructure development.

Other potential subproject risks involve the distribution of benefits, avoidance of corruption and fair

29

“The task team carries out the fiduciary and the environmental and social assessments in accordance with paragraphs 7 and 8 of OP 9.00.” BP 9.00, para. 24. 30

P4R Interim Guidelines, Attachment 4.4. 31

BIC requests for subproject disclosure on Vietnam Water and Sanitation P4R through the Bank's Access to Information mechanisms typically referred back to the PAD. 32

World Bank BP 9.00, para. 30. 33

World Bank, OPCS, “A New Instrument,” para. 21.

9

treatment of program beneficiaries. These risks related to ensuring achievement of positive program

benefits require robust local disclosure of implementation plans, progress updates and results.

Box 2: Approved Program-For-Results Operations (as of April1. 2014)

US$m Subprojects identified?

Morocco National Human Development Initiative 300

areas targeted (but not listed), sub-projects not specified in PAD or ESSA

Uruguay Road Rehabilitation and Maintenance Program 66

subprojects not listed in PAD or ESSA

Vietnam

Results-Based Rural Water Supply and Sanitation Under the National Target Program 200

subprojects not listed in PAD and ESSA

Ethiopia Health MDG Support Operation 100

subprojects not listed in PAD and ESSA

Uganda

Support to Municipal Infrastructure Development Program 150

targeted municipalities identified, but not specific subprojects

Nepal Bridges Improvement and Maintenance Program 60

some (not all) bridges identified in PAD and ESSA

Tanzania Urban Local Government Strengthening Program 255

targeted urban area identified, not specific subprojects

Brazil Child development and Water quality 350 Ceará State

Kenya National Safety Net 250 National Cash Transfer Program

Pakistan Punjab Governance Reforms for Service Delivery 50 Punjab Province wide

Strengthening borrower transparency and stakeholder engagement, an explicit P4R rationale, will

depend on the degree to which the Bank fully assesses existing disclosure, consultation, and stakeholder

participation rules and practices, and, if found deficient, insists on inclusion of institutional

strengthening measures in the action plan. Sequencing of addressing potential gaps is critical:

improvements should be a condition of effectiveness at the start of the program, otherwise

stakeholders may continue to be excluded or be ill-informed regarding subprojects that directly affect

their interests.

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4. Will P4R be included in the WB Safeguard Policy Review?

The Bank’s safeguard policy review has to date excluded consideration of the P4R instrument despite

the review’s objective of developing “a new integrated framework that will articulate how all Bank

instruments can achieve better development outcomes.” 34 The Bank’s Approach Paper for the

safeguards review does not explain its rationale for limiting the review only to application of safeguard

policies for investment lending. The Bank should adopt the principle that comparable risks will be

addressed with comparable levels of protection and due diligence, no matter the specific lending vehicle.

The Bank will miss a critical opportunity to develop a fully integrated, comprehensive safeguards and

sustainability framework if it does not consider, and solicit feedback on, how all core Bank lending

instruments fit together.

5. Why P4R should be incorporated into the Bank’s safeguard policy framework

Bank Management’s paper on the new instrument presents P4R as one of three core Bank lending

vehicles. After the rollout phase, P4R operations are likely to expand significantly. P4R operations may

include a wide range of activities that may have significant environmental and social impacts (such as

road and bridge maintenance, local municipal infrastructure construction, water supply and sanitation

infrastructure). Without consistent treatment of E&S risks across Bank lending instruments, several risks

may arise. Borrowers and Bank staff are likely to “forum shop” for the least stringent standards, with

one instrument undercutting the standards of another. In addition, different Bank instruments are likely

to lead to divergent E&S outcomes, weakening the Bank’s sustainability objectives. The Bank’s

evaluation department has argued for greater consistency across Bank instruments: “it is vital to seek

consistency among the approaches followed in these growing segments [DPLs, financial intermediaries,

programmatic lending, and the new P4R instrument] of the portfolio to ensure coherence in

environmental and social outcomes.”35

For reasons of effectiveness, efficiency, comprehensiveness, the Bank should open the safeguards

review to include a discussion on how the “new integrated framework” will address all Bank lending

instruments. The exclusion or postponement of consideration key Bank instruments significantly

undermines the integrity of the review process.

6. Is it feasible to incorporate P4R in the Bank’s future safeguard framework?

Application of a revised Bank-wide safeguards framework to P4R operations does not present

fundamental challenges. The Bank has a history of applying safeguards to program-level operations,

including current application to Sector-Wide Approaches (SWaps), Community-Driven Development

programs (CDD), Adaptable Program Loans (APLs) and other types of programmatic lending operations.

Such operations typically employ safeguard frameworks (such as Environmental and Social Management

Frameworks, ESMF) that specify the standards and procedures to be followed as subsequent program

activities are defined and implemented. Bank lending through frameworks or borrower systems share

34

World Bank’s Safeguard Policies Review Approach Paper, October 10, 2012, para. 29. 35

Anis Dani, Ade Freeman, and Vinod Thomas, “Evaluative Directions for the World Bank Group’s Safeguards and Sustainability Policies,” IEG Evaluation Brief 15, World Bank, 2011, p. 17.

11

many common parameters and provide a platform for including both under the safeguard policy review.

In addition, the Bank’s Forest Carbon Partnership Facility applies Bank safeguards to sector-wide

forestry and institutional reform programs among partner countries (utilizing the Bank’s Strategic

Environmental and Social Assessment tool and ESMFs). The revised integrated safeguards policy should

articulate clearly how such frameworks will apply consistently across all non-project lending instruments.

It should be noted that other international financial institutions apply integrated safeguard frameworks.

The Asian Development Bank applies its integrated Safeguard Policy Statement to all operations,

including policy support and results-based reform programs.36 The European Bank for Reconstruction

and Development applies its Environmental and Social Policy (based largely on the IFC’s 2006

Performance Standards) to all its financed operations.37 There is no conceptual reason why P4R

operations could not be integrated into a comprehensive safeguards framework. Waiting until after the

Framework is designed would make this task much more difficult.

7. How should the Bank’s treatment of P4R change?

P4R operations are still in a rollout phase through calendar year 2014. The implementation track record

for P4R operations is thin. In 2014 Bank management will conduct a review of the instrument and in

2015 the Bank’s Independent Evaluation Group will evaluate P4R performance, both potentially yielding

important insights on implementation, and in particular on management of E&S risks. This P4R review

should explicitly consider how the new instrument's approach to safeguards relates to the safeguard

review. The Bank should outline in detail how the results of the P4R and safeguard reviews will be

coordinated to provide opportunities to discuss and consider how safeguards under P4R will be

consistent with safeguards under other forms of Bank lending.

As indicated in the BIC ESAM model policy proposal,38 any decision to use of borrower systems by the

Bank (whether though P4R or other instruments), should be guided by the principle that all similar risks

should receive similar treatment. More objective and tangible screening requirements are needed for

determining borrower eligibility to use P4R (and similar instruments). Such screening tools should

consider both higher level governance criteria as well as more detailed and standardized analysis of the

quality of the E/S management system. E/S risk management system capacity should be more precisely

defined and explained prior to approval and during implementation, so as to better define baselines and

benchmark progress. Category A activity exclusion should be maintained. ESSA should include

predictable, transparent participatory consultation requirements, including mechanisms for sub-project

disclosure. P4R PADs should provide a better explanation of how these analyses determine a single risk

categorization that is consistent with IL.

The overly discretionary nature of the Bank’s risk assessment of P4R programs should be addressed

through updated policy tools to inform professional judgment regarding the level of risk and the

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“This safeguard policy statement applies to all ADB-financed and/or ADB-administered sovereign and non-sovereign projects, and their components regardless of the source of financing, including investment projects funded by a loan; and/or grant; and/or other means, such as equity and/or guarantees (hereafter broadly referred to as projects).” Asian Development Bank Safeguard Policy Statement, June 2009, p. 15. 37

European Bank for Reconstruction and Development, Environmental and Social Policy (May 2008), para. 17. 38

See BIC Safeguards page, ESAM model policy, Section IV d. www.bicusa.org/safeguards

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appropriate mitigation options. The Bank should apply more objective criteria39 in assessing the

governance and capacity dimensions of borrowers’ systems. Strategic Environmental and Social

Assessments (SESAs) of programmatic interventions are already employed in Bank operations and

should become a common feature of P4R operations along with better quality criteria for their effective

use. P4R operations should be guided by appropriate environmental and social management systems or

frameworks to guide borrower subproject selection and risk management approaches.

Stakeholders must be appropriately informed and consulted regarding development and

implementation of P4R subprojects. The Bank should ensure that assessments of subprojects are

disclosed to affected stakeholders in a timely manner, in an accessible form and language. The Bank

should also ensure that minimum consultation standards for subprojects are followed through random

audits.

8. What needs to happen now?

1. No policy change in OP/BP 9.0 before results of IEG evaluation in FY16-17. As instruments that defer strict compliance with safeguard requirements to the implementation stage of the project cycle, the risks and opportunities implied by P4R are not yet known well. It is also crucial for the Bank to ensure that the review of the P4R rollout phase is inclusive and comprehensive. Bank management is to issue a report on implementation by late 2014. The Bank’s IEG is to conduct an early review of the instrument by 2015. Bank management as well as the IEG should release draft terms of reference (TORs) and timetables for the separate reviews and solicit feedback from stakeholders before the reviews are final. The results of both reviews should be fully consulted in public before any decisions on revising OP 9.0 are taken.

2. Open the Safeguard Review to include all instruments and ensure portfolio wide risk management

consistency. The noted risks for P4R are evident for a number of similar Bank instruments, such as

programmatic framework lending, emergency lending and financial intermediary lending. The Bank

lacks a single set of criteria for assessing the capacity of borrower frameworks, systems or related

ways to delegate risk management responsibility, or to properly size, sequence and condition gap

filling actions. Before embarking on piecemeal changes that introduce safeguard flexibility to

different instruments through parallel processes, the Bank should open a discussion on P4R as part

of the ongoing safeguards update process (slated to continue through 2015) to focus on the

definition of these eligibility and capacity strengthening procedures for all higher risks safeguard

instruments. Discussions with civil society stakeholders in countries with ongoing P4R operations

could yield important insights. In addition, experts from other international financial institutions

should be consulted on their experiences in applying an integrated safeguards framework to

programmatic lending operations.

39

The Bank already develops a range of relevant indicators that could be utilized here, such as the Worldwide Governance Indicators and criteria from the Bank’s Country Policy and Institutional Assessment (CPIA).

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For More Information:

For additional background information on the Program for Results, see http://www.bicusa.org/p4r-

update-world-bank-approves-program-for-results-policy/

For more information on the World Bank safeguard review process see

http://www.bicusa.org/issues/safeguards/

To contact BIC staff about the P4R and safeguards, please write Vince McElhinny at

vmcelhinny@bicusa.org or Josh Lichtenstein at jlichtenstein@bicusa.org