Banking on Responsibility

Global Finance,  Sep 2005  by Green, Paula L

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The report criticizes the multilateral institutions for making loans to so-called financial intermediaries, such as a local bank in Egypt, without fully assessing the effect that the local bank's loan to a local business will have on the environment and community. The institute's report comes out as the IFC is in the midst of updating its own safeguard policies-guidelines used to make sure the private business ventures it finances aren't polluting the air or disrupting the homes of local people.

First adopted in 1998, the safeguard policies are based on the World Bank's operational policies. The IFC has been working with other groups for some time as it reshapes the guidelines and will be accepting public comment, both oral and written, before the end of the year, an IFC spokesperson says. The agency hopes the revised guidelines are in place by the beginning of next year.

Sohn says the WRI believes the IFC safeguard policies do not pay enough attention to the loans given out by the local banks at the same time that these financial intermediaries are receiving a larger portion of IFC funds. For example, more than 50% of IFC loans in 2002 went to financial intermediaries in developing countries.

But IFC officials say they and the WRI have the same goal: insuring that the business ventures it finances follow environmentally sound practices. "We want the same thing, but it's not possible to supervise every sub-project," says William Bulmer, associate director of the environmental and social department at IFC in Washington. He adds that the IFC closely investigates the managing capabilities of the financial intermediaries.

The IFC has boosted its loans to the local financial institutions as a way to get more money to viable business projects. "There's a shortage of capital to support grassroots development," Bulmer says. "We have the capital but can't always reach the small-scale businesses."

Whether private or multilateral, financial institutions' efforts to integrate the environment into their lending practices are here to stay, industry observers agree. "While the transformation may have been motivated by advocacy groups and outside pressure, the process of examining the real consequences of destructive lending policies has created real commitment in these banks," says Hogue. "Wall Street is emerging as a leader on enacting solutions to these complicated and pressing problems. Still, we are far away from where we need to be, given the gravity of the global issues facing us in the 21st century."

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