European Investment Bank: Promoting sustainable development, “Where appropriate” A survey of the EIB’s social guidelines for project financing outside the European Union November 2007 “You who are on the road, must have a code, that you can live by“ Crosby, Stills, Nash and Young, “Teach Your Children” (1970) Study written by: Dr. Christopher Wright Visiting researcher, Center for Development and the Environment University of Oslo Email: christopher.wright@sum.uio.no Study commissioned by: CEE Bankwatch Network Acknowledgements Numerous people provided comments and suggestions that benefited the lead author and greatly influenced the final draft, particularly the sections with specific policy recommendations for the EIB. Therefore, the lead author wishes to specifically thank the following people for generously providing their time and wis- dom in support of the report; Petr Hlobil (CEE Bankwatch), Erica John-Marie (BrettonWoods Project), Anders Lustgarden (BrettonWoods Project), Crescie Maurer (independent consultant), Regine Richter (Urgewald), Magda Stoczkiewicz (CEE Bankwatch), and Antonio Tricarico (CRBM). Designed by: Tomáš Barčík – design studio, www.design-studio.cz Printed by: Grafokon, Prague This report is printed on recycled paper. CEE Bankwatch Network gratefully acknowledges financial support from the Ministry of Housing, Spatial Planning and the Environment (Netherlands), the European Commission and the Charles Stewart Mott Foundation. Sole responsibility for content lies with the author of the report. Funders cannot be held res- ponsible for any further use that may be made of the information contained therein. CEE Bankwatch Network Jičínská 8, Praha 3, 130 00, Czech Republic Tel/Fax: +420 274 816 571 E-mail: main@bankwatch.org www.bankwatch.org Contents ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The dilemma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Report objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Social assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Community participation and consent . . . . . . . . . . . . . . . . . . . . . . . . 7 Labour rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Gender equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Conclusion: Towards external accountability . . . . . . . . . . . . . . . . . . . . . 10 THE EIB’S STRUCTURE AND ACTIVITIES . . . . . . . . . . . . . . . . . . . . 13 The EIB’s lending policies in developing countries . . . . . . . . . . . . . . . . . . 15 Report objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1. SOCIAL ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.1 The EIB’s current approach to social assessment . . . . . . . . . . . . . . . 20 1.2 International best practice in project finance . . . . . . . . . . . . . . . . . 22 1.3 Recommendations for the EIB . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2. HUMAN RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.1 The EIB’s current approach to human rights . . . . . . . . . . . . . . . . . . 27 2.2 International best practice in project finance . . . . . . . . . . . . . . . . . 27 2.3 Recommendations for the EIB . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3. COMMUNITIES PARTICIPATION AND CONSENT . . . . . . . . . . . . . 31 3.1 The EIB’s current approach to community participation and consent . . . . 34 3.2 International best practice in project finance . . . . . . . . . . . . . . . . . 37 3.3 Recommendations for the EIB . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4. LABOUR RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.1 The EIB’s current approach to labour rights . . . . . . . . . . . . . . . . . . . 44 4.2 International best practice in project finance . . . . . . . . . . . . . . . . . . 45 4.3 Recommendations for the EIB . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5. GENDER EQUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.1 The EIB’s current approach to gender equality . . . . . . . . . . . . . . . . . 48 5.2 International best practice in project finance . . . . . . . . . . . . . . . . . 49 5.3 Recommendations for the EIB . . . . . . . . . . . . . . . . . . . . . . . . . . 50 CONCLUSION: TOWARDS EXTERNAL ACCOUNTABILITY . . . . . . . . . . 51 APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Multilateral development bank lending to developing countries: Total commitments 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 CEE Bankwatch Network 2007 4 Index of abbreviations ACP Africa, Caribbean and Pacific region. ADB Asian Development Bank. ALA Asia and Latin America. CBD Convention on Biological Diversity. CLS ILO’s Core Labour Standards. DDP (UNEP’s) Dams and Development Project. DIAF (EIB’s) Development Impact Assessment Framework. EC European Commission. EIB European Investment Bank. EIF European Investment Fund. EIR Extractive Industries Review. EITI Extractive Industries Transparency Initiative. EPE European Principles for the Environment. ESIAF (EIB’s) Environmental and Social Impact Assessment Framework. EU ETS European Union Emissions Trading System. EU SDS European Union Sustainable Development Strategy. EU European Union. FPIC Free, Prior and Informed Consent. FPICon Free, Prior and Informed Consultation. IADB Inter-American Development Bank. IAIA International Association of Impact Assessment. IF EIB Investment Facility. IFC International Finance Corporation. IFI International Financial Institution. ILO International Labour Organization. MDB Multilateral Development Bank. MDGs Millennium Development Goals. MIF IADB’s Multilateral Investment Fund. OPIC US Overseas Private Investment Corporation. PJ Projects Directorate. UNCTAD United Nations Conference on Trade and Development. UNEP United Nations Environment Program. WBG World Bank Group. WCD World Commission on Dams. Promoting sustainable development, “Where appropriate” 5 Executive summary1 This wavering risks encouraging a ‘race to the bottom’ in environmental and social standards among financial in- stitutions which strongly conflicts with its mandate to further EU development cooperation policy in develop- ing countries. As identified in this report, the peculiar internal govern- ance structure of the EIB comparing with other MDBs – only EU Member States and the European Commission sit on its board – provides the EIB with distinct respon- sibilities to promote European sustainable development and social justice goals when lending to developing coun- tries and offers the opportunity to define more advanced approaches to safeguard the environment and benefici- aries’ rights. The dilemma Its recent funding increase will make the EIB the larg- est multilateral lender in developing countries by vol- ume (see appendix). Yet, compared to other lenders, the scope, depth and clarity of the EIB’s environmental and social policies leave a lot to be desired. In August 2006, the EIB released the Environmental and Social Practic- es Handbook, a guidance document primarily for internal staff that contains a series of guidance notes on a vari- ety of social assessment topics. They identify why and how the EIB conducts social assessments of projects, and which international laws, standards and conventions are used in a variety of issue areas, including population The European Investment Bank (EIB) was established in 1958 under the Treaty of Rome as the long-term lend- ing institution of the European Union (EU). As such, it is mandated to provide financing in support of the policy objectives of the EU, including EU environmental policy. Acting outside of the EU, the EIB is charged with imple- menting European Commission (EC) policy in the sphere of development cooperation. But while the World Bank and the IFC operate with a single overarching mission in all their countries of operations, the EIB operates with distinct regional mandates outside of the EU, as defined by the European Council. While its financing is concentrated in the EU, its opera- tions in developing countries are growing rapidly. In De- cember 2006, the EIB was given a new mandate that called for up to 35 percent growth in financing, includ- ing sizeable increases to Latin America, Asia and Africa. In 2006 alone, it distributed EUR 5.9 billion to projects outside of the EU, exceeding the total lending volume of several other multilateral lenders, including the EBRD and the International Finance Corporation (IFC). Meanwhile, in terms of ensuring that such investments do not harm the environment or local communities, the EIB president Phillippe Maystadt has on several occa- sions called into question the rationale for applying ‘in- ternational best practices’ given growing competition from other lenders, notably Chinese financial institutions. 1 Footnotes with sources for various statements and figures have been omitted from the executive summary, and can be found in the main text. CEE Bankwatch Network 2007 6 movements and involuntary resettlement, labour stand- ards and minority rights. While the Handbook adds some substance to previous documentation, it reveals that there is still a notable dis- crepancy between the standards the EIB is prepared to adhere to inside and outside the EU. For example, whereas projects in the former are required to “comply” with EU laws and standards, those in the latter are only “bench- marked” against them. Furthermore, the EIB argues that the application of EU standards to non-EU projects is subject to local conditions such as affordability, local en- vironmental conditions, international good practice and with reference to factors such as the costs of application. And curiously, while the EIB has in the past declared its lending outside the EU would “subscribe” to the Equator Principles – a voluntary set of standards adopted by more than 50 private financial institutions exclusively for their project finance operations - this notable commitment is not explicitly stated in the recent Handbook. Report objectives This report aims to inform the ongoing review of environ- mental and social practices within the EIB by examining the standards endorsed by the EIB in a variety of social policy areas, and identifying ‘international best practic- es’ against which the EIB’s new framework will invari- ably be judged. Specifically, it will focus on five different social policy areas in which EIB policy remains unclarified and underdeveloped; social assessment, human rights, communities’ participation and consent, labour rights, and gender equality. By surveying key publicly available documents issued by the EIB, the report intends to identify the gaps between the EIB’s existing social policies and the standards em- bedded in EU laws, conventions and mandates that in- form its relations with developing countries, as well as the policies and procedures of both public and private financial institutions that provide loans to developing countries. In doing so, it hopes to identify and clarify which areas of lending policy require additional atten- tion, either because of lack of clarity, or because they do not adequately fulfill the EIB’s current mandates and re- sponsibilities as an investment arm of the EU. What follows are separate sections with the main find- ings and policy recommendations pertaining to each so- cial policy area. Social assessment Social assessments are management tools for achieving a variety of social development objectives, including those considered in this report. In the EU, a number of recent directives, agreements and initiatives provide the nor- mative and legal framework for EU institutions, includ- ing the EIB, to develop their own operational objectives and policies. For example, the recent Review of the EU Sustainable Development Strategy (EU SDS) declared that all EU institutions should ensure that major policy decisions are based on proposals that have undergone high quality impact assessments, assessing in a balanced way the social, environmental and economic dimensions of sustainable development and taking into account the external dimension of sustainable development and the costs of inaction. Therefore, for the EIB, a systematic and expanded use of social assessments in its financing op- erations in developing countries can be seen as a way to fulfill its own operational mandate, and as a critical ele- ment of promoting policy coherence among and between EU development institutions. The EIB claims it has always paid attention to social is- sues in projects, but not systematically. Its current pol- icy is that social assessment will be carried out for all projects outside EU-27 and “on a selective basis” in projects in Candidate and potential Candidate countries. In this context, the EIB notes that investment analysis routinely includes the examination of any significant ef- fects on income distribution and the likely impact on pov- erty alleviation. But, as is emphasized, the scope of social assessments will vary according to the circumstances, the capacity of the Promoter (the borrower and project operator in EIB’s terms) and the involvement of other fi- nancial partners. For projects in the Africa, Caribbean and Pacific (ACP) region, the EIB has introduced a De- velopment Impact Assessment Framework (DIAF) (later renamed ESIAF) which uses qualitative ratings and re- lies on informed judgement to outline a project’s contri- bution to the relevant EU mandate and the Millennium Development Goals (MDGs). Best practice principles and guidelines are commonly attributed to the reports released by the World Com- mission on Dams (WCD) and the Extractive Industries Review (EIR). In particular, these inclusive multi-stake- holder processes concluded that such assessments should be conducted or verified by parties independent of the interests of project developers, given the sensitiv- ity of the issues involved. Among multilateral lenders, so- cial assessment is increasingly becoming a priority area, evidenced in the inclusion of social as well as environmen- tal assessments as part of a client’s project prepara- tion and respect for all core labour standards in the IFC’s Performance Standards. Similar to the IFC, the African Development Bank (AfDB) and the European Bank for Promoting sustainable development, “Where appropriate” 7 Reconstruction and Development (EBRD) have developed assessment policies and guidelines that include social is- sues. In terms of the World Bank, although it has devel- oped best-practice guidelines on social analysis, it still confines mandatory requirements for social assessment to sub-provisions in specific operational policies on Re- settlement and Indigenous Peoples. Key recommendations • Translate guidance notes into binding operational policies, so as to communicate to internal staff, Promoters and stakeholders that it is fully committed to complying with well-recognized international laws and norms, notably human rights. • Clarify which EU and international laws the EIB is prepared to honour in its non-EU projects, and how it plans to monitor compliance with these laws once projects are operational. A critical element of doing this, as noted by the WCD report, is to have an assessment and monitoring process that is independent of the interests of Promoters. Human rights The protection of human rights is deeply enshrined in EU constitutive law, and is foundational to EU development cooperation policy. As stated in the European Consensus on Development and the EU EDS, the promotion and pro- tection of fundamental rights is among the EU’s guiding principles. Furthermore, in relation to ACP countries, the Cotonou Agreement refers to a multitude of constitu- tive human rights law and states that cooperation shall be directed towards sustainable development centered on the human person, who is the main protagonist and beneficiary of development; this entails respect for and promotion of all human rights. The EIB does not have a separate policy on human rights, but its current policy can be principally deduced from its Guidance Note on Dealing with Minority Rights, Including Women, Indigenous People and Other Vulnerable Groups. In the Handbook, the EIB states it is committed to EU policies that uphold and respect human rights in its in- vestment activities and aims to ensure that investments support and respect international conventions on human rights and that it is not complicit in human rights abuses. And while the EIB has unequivocally stated that it will not disburse funds in a country declared “off-limits” for EU-financing, it merely “encourages” adherence to the various international conventions, and other laws gov- erning the protection and promotion of human rights in the countries in which it operates. Despite the legal and symbolic significance of human rights to democracy, equity and law, no multilateral de- velopment bank has to date issued a specific and consol- idated policy or statement on human rights that clarifies its role and responsibilities as a public lender. Instead, references to human rights appear in more issue-spe- cific operational policies in areas such as labour, reset- tlement and gender. Among the private banks surveyed that have committed to specific human rights declara- tions and conventions, Rabobank has formally recognised an obligation “to not associate with immoral parties” and committed to explicitly support the UN Norms and all the human rights as written down in the Universal Declara- tion of Human Rights in relationships with its workers, with its clients or suppliers and with governments. Simi- larly, Barclays has declared it will operate “in accordance with” the Universal Declaration of Human Rights, where- as Standard Chartered “supports” it, and aims to uphold it in all circumstances. Key recommendations • Produce a binding operational policy that clearly identifies for internal staff, Promoters and stakeholders which standards it is prepared to adhere to. While the EIB currently shuns countries that the EU has seized to interact with economically and financially, it should also identify similar criteria for Promoters, leaving open the possibility of refusing financing in cases where human rights violations are well documented. • Operationally, the EIB should first assess the human rights record and the human rights approach of the Promoter, leaving open the option of refusing financing in the most critical cases. Subsequently, it should adopt an operational procedure aimed at defining which EU or international law frameworks should be used as benchmarks to assess compliance, reporting and review mechanisms, and how internal staff will ensure that projects are and remain in compliance. And at this juncture the EIB should consult with stakeholders and obtain their consent to the project management plans, including any proposed compensatory measures. And once agreed upon, the human rights standards that the EIB expects the Promoter to comply with should be publicly disclosed, and routinely monitored. Community participation and consent Public consultation has become a common feature of en- vironmental and social assessment processes undertaken in conjunction with high-risk development projects. The CEE Bankwatch Network 2007 8 overarching purpose is to inform project-affected com- munities of investments and development decisions that will affect them, either positively or negatively, and al- low them to voice their reactions to project proposals, influence the selection of adverse impacts that will be considered and managed, and recommendations to be included in management plans. Yet, while having access to consultation may facilitate information-sharing, it by no means guarantees influence, unless consulted parties are given established rights and entitlements. In development finance, international standards can be placed into two distinct yet not entirely separate camps, based on whether they consider participatory decision- making in the context of “consultation processes” or “consent processes.” The former approach, which has been widely adopted by project finance lenders, provides project-affected communities with a right to participate in “free, prior and informed consultations” (FPICon) in a way that is “meaningful”, but denies them the power to prevent particular projects from being implemented. In contrast, the “consent processes” shift the balance of power to stakeholders, and require project developers to obtain the “free, prior, informed consent” (FPIC) of project-affected communities, granting them the right to control access to their land and natural resources, and share in the benefits when these are utilised by others. The EU has indirectly endorsed the FPIC principle by having adopted relevant international law, such as the Convention on Biological Diversity (CBD). More broad- ly, EU laws, policies and conventions commonly affirm the importance of civil society participation in decision- making, and promoting governance that is transparent, accountable and inclusive. For example, the Århus Con- vention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmen- tal Matters to Community Institutions and Bodies advo- cates a “rights-based” approach, in which people should be granted guaranteed rights of access to information, public participation in decision-making and access to jus- tice in environmental matters. Furthermore, the UK Gov- ernment has made a commitment to “implementing the recommendations of the WCD (which endorsed FPIC), and the Swedish and German bilateral aid agencies have adopted the WCD decision-making framework and are supporting their partner countries and project develop- ers in implementing it. For projects outside the EU that require an environmental impact assessment (EIA), the EIB has committed to pro- mote public consultation and participation, “according to EU standards”, through appropriate discussions with the Promoter and other parties. In explicit and unequivocal terms, the guidance note states that the EIB will apply the principles and practices of three central regulatory frameworks to all its regions of operation: the Århus Con- vention, the EU Environmental Impact Assessment (EIA) Directive and the Strategic Environmental Assessment (SEA) Directive. Yet, with particular relevance to indig- enous peoples’ rights and involuntary resettlement, the guidance notes fail to unequivocally state that adher- ence to international law is a precondition for receiv- ing financing. More broadly, a problematic aspect of its current ap- proach is the extent to which ‘local conditions’ may dic- tate both the scope and depth of consultation processes, and the seemingly complete reliance on internal staff for assessing the acceptability of public consultation processes. While the institutional environment of each project will differ, it is important to communicate to in- ternal staff, stakeholders and potential Promoters which principles will govern EIB projects in non-EU countries, regardless of project-specific circumstances. Specifically, the extent to which it considers itself bound by EU law and policy is unclear. Although it has endorsed both the WCD and the Extractive Industries Review (EIR) in par- ticular contexts, neither of these frameworks have been identified in the context of binding operational commit- ments. Furthermore, the statement that EU policy will be followed in non-EU projects is not unequivocal, mak- ing it difficult to determine which standards the EIB is prepared to use. To date, no lender has directly adopted the FPIC principle as their guide to engaging with project-affected commu- nities, although the language seems very similar in some cases. The closest example is HSBC, which has commit- ted to the FPIC principle as articulated in the WCD re- port for its investments in the water sector. Meanwhile, the World Bank and the IFC (and by extension the private banks that have adopted the Equator Principles) have committed to an approach based on a process of FPICon that results in ‘broad community support’ at each stage of the project. But depending on how lenders define and interpret what ‘broad community support’ means, this standard could approximate FPIC, if ‘support’ is under- stood as provision of ‘consent’, or it could allow for a loos- er interpretation in which only (limited) support is needed for the development proposal. Meanwhile, the Swiss ex- port credit agency expects project developers to address the WCD’s seven strategic priorities, and the US Overseas Private Investment Corporation (OPIC) applies screening and environmental assessment criteria that incorporate the WCD core values and strategic priorities. Promoting sustainable development, “Where appropriate” 9 Key recommendations • The EIB should in this regard much more forcefully confirm that it is prepared to extend the rights and entitlements given to local communities in the Århus Convention to project-affected communities in non- EU countries by incorporating it into binding policy. To verify compliance, the EIB should either organise consultations or be present at them, and establish clear rules for information disclosure. This includes publicly disclosing the results of any consultation exercises before the project goes before the EIB’s board for approval. • The EIB should produce a binding commitment that identifies the distinct characteristics that indigenous peoples have as vulnerable groups, and the rights and entitlements it is prepared to provide them in its financing operations. In order to follow EU policy statements on the matter, it should align its approach with recent EU policy pronouncements and U.N initiatives and adopt the FPIC principle when engaging with indigenous peoples. Particularly important is the recognition that many indigenous communities are not fully integrated into national legal systems, and therefore require and deserve special protections. • The EIB should make the FPIC principle a cornerstone of its management of forced resettlement issues. In cases where development plans conflict with the interests of local communities, the aim should be to find a consensus solution in which they fully share in the benefits of the project. Labour rights Promoting and protecting labour rights is an important aspect of the EU’s internal policies on social cohesion, and also features prominently in its development coopera- tion policies and mandates. As reiterated in the Europe- an Consensus for Development, this commitment draws directly on the International Labour Organization (ILO) conventions and core labour standards (CLS) that pro- hibit certain labour practices and guarantee a variety of worker protections. In a notable announcement, the EC has stated that the EC and EU Member States should actively promote discussion and consideration of social development and core labour standards in other devel- opment organisations, including the Bretton Wood In- stitutions and the United Nations Conference on Trade and Development (UNCTAD). This pledge was also rein- forced by the Cotonou Agreement, which mandates the EIB to commit to internationally recognised core labour standards, as defined by the relevant ILO Conventions, and in particular, the freedom of association and the right to collective bargaining, the abolition of forced labour, the elimination of the worst forms of child labour and non- discrimination in respect to employment. In the Handbook, there are two guidance notes on Ad- dressing Labour Standards and Addressing Occupational and Community Health and Safety that outline the EIB’s policy on labour standards and community relations for projects outside the EU. In terms of the choice of stand- ards, the former note says the EIB’s due diligence proce- dures should focus on the Core Labour standards (CLS) outlined in the ILO Declaration on Fundamental Princi- ples and Rights at Work, and the relevant national la- bour laws. Subsequently, it explicitly affirms that the EIB will not finance projects that employ, use or benefit from harmful child labour, that use or knowingly bene- fit from forced labour, and that do not comply with na- tional law on worker representation and organisation. Yet, such statements are obscured by language in other sections that provide EIB staff with discretion in apply- ing them to projects. While the policies of multilateral and private lenders vary in this issue area, most do reference the CLS when artic- ulating which labour rights and protections they are pre- pared to guarantee. In the new Performance Standard, the IFC (and by extension the Equator banks) is substan- tially guided by the CLS, stating for example that where national law substantially restricts workers ’ organisa- tions, the client will enable alternative means for work- ers to express their grievances and protect their rights regarding working conditions and terms of employment. Similarly, the Performance Standard explicitly prohibits Promoters to hire child labour or forced labour. For its part, the Asian Development Bank (ADB) recently released a Core Labour Standards Handbook, developed in close con- sultation with the ILO, which identifies the ADB’s inten- tion to take all necessary and appropriate steps to ensure that projects comply with the CLS. Key recommendations • To be consistent with EU policy, the EIB should formally adopt all four CLS in its non-EU projects, and put in place binding operational procedures – in close consultation with the ILO - that ensure that projects comply with them. In this context, the division of roles and responsibilities between lenders and Promoters with respect to implementation, monitoring and disclosure should be firmly established. CEE Bankwatch Network 2007 10 • The EIB should ensure that a requirement for periodic, independent reviews of ongoing labour practices is integrated into loan agreements, so as to reassure workers that the EIB is prepared to protect their rights. In turn, the labour standards should be publicly disclosed, so as to allow workers to learn about the commitments the Promoter needs to abide by in terms of working terms and conditions. Gender equality Gender equality is increasingly becoming a priority ar- ea within EU development cooperation. For example, the European Consensus on Development recognized gender equality as a goal in its own right, identifying it as one of the five common principles of EU development coopera- tion. The Cotonou Agreement identified gender issues as “cross-cutting”, and called on parties to reaffirm the equality of men and women as part of promoting and pro- tecting all fundamental freedoms and human rights, be they civil and political, or economic, social and cultural. To facilitate this, it recommended that systematic account shall be taken of the situation of women and gender is- sues in all areas – political, economic and social. The EIB’s Guidance Note on Dealing with Minority Rights, Including Women, Indigenous People and Other Vulnera- ble Groups outlines the EIB’s policy positions on assess- ing and managing impacts on minority groups, including women. It recognises that the protection of minority rights and the participation of minorities in decision-mak- ing are central to the founding principles of the EU. Yet both EIB documentation and external reporting suggests that redressing gender imbalances is not a high priority in the EIB’s assessment work. Apart from the seeming lack of specialised in-house expertise, the EIB’s guidance notes do not refer to particular international treaties and conventions, and thereby fail to place its gender commit- ments within a particular legal or policy framework. A recent comparative study of MDB policies and practices on gender equality concludes that existing policies tend to be weak, and special gender units are often under-re- sourced and under-staffed. With regard to mitigating and preventing adverse gender impacts in projects, the ADB and the AfDB have the strongest policies among multi- lateral lenders. The ADB requires a preliminary gender assessment to be completed as part of initial project as- sessments, and in cases where it is found that the project may positively contribute to correcting gender disparities, it is classified as having a gender theme. In turn, a gen- der action plan is prepared, and reports concerning the involvement of women in project design are produced. With regard to the AfDB, it has developed a Gender Policy in which it is committed to conduct gender analysis for all Bank interventions. More broadly, the AfDB commits to a variety of public policy objectives related to wom- en’s empowerment, including promoting girls’ education in science and technology, supporting measures that pro- mote equal sharing of work between men and women, boys and girls, and increasing women’s access to afford- able, quality health care and information. Key recommendations • Given the relatively strong commitment to redressing gender imbalances in EU policy, the EIB bears a special obligation to further women’s rights in development finance. The objective for the EIB should be to ensure that its project financing contributes positively to the economic, social and political conditions of women directly and indirectly affected by its financing. • The EIB should consider undertaking an assessment that identifies how its projects in various industry sectors and regions affect women, and how it may contribute to improving the conditions of women as a lender in developing countries. This means identifying opportunities for making positive interventions, and advocating gender mainstreaming as a critical element of responsible financing. Conclusion: Towards external accountability The main shortcoming of the guidance notes annexed to the Handbook is the lack of clarity, consistency and comprehensiveness. While it recommends that staff should write in a clear and concise fashion when pro- ducing project summaries on the EIB website, its own guidance notes do not seem to follow this advice. Rectifying this problem is important for the EIB to be- come externally accountable for the development impact of it non-EU projects, to reduce risk by developing stable expectations among stakeholders and potential Promot- ers, and to contribute to the ongoing upward harmoni- sation of operational policies across public and private lenders. It is particularly worrying that the EIB’s oper- ational policies lag behind those of many private lend- ers, given the strength of EU development cooperation mandates, and the obligation that the EIB has to pro- mote them. Promoting sustainable development, “Where appropriate” 11 Key recommendations While the EIB has made important strides in recent years, notably in the areas of climate change and biodiversity, the preceding analysis has illustrated that its Environ- mental and Social Practices Handbook lacks clarity and comprehensiveness relative to the operational policies of other multilateral lenders, and even some private lenders as well. Based on this, the EIB is not currently in a posi- tion to effectively promote EU policies and commitments in the area of development cooperation. • The EIB should represent an important standard- bearer of the norms and values shared by EU member states when financing projects in non-EU countries. To facilitate this, the EIB should draft a set of clear and comprehensive operational policies that identify the standards it is prepared to follow in developing countries in the policy areas analysed in this report. • To clarify its obligations as an EU institution, the EIB should produce a comprehensive list of its existing legal obligations under EU law and international statute in the policy areas considered in the preceding analysis. • The EIB should introduce an external accountability mechanism similar to the World Bank’s Inspection Panel, to which affected communities from developing countries and European citizens can address their concerns. Such a mechanism would allow for possible sanctions in cases where the EIB is in clear violation of its own policies, thereby providing EIB staff with a real and vital incentive to honor environmental and social commitments in project assessment, implementation and monitoring, particularly in cases where competing interests provide incentives for not doing so. Promoting sustainable development, “Where appropriate” 13 The EIB’s structure and activities The EIB was established in 1958 under the Treaty of Rome as the long-term lending institution of the Europe- an Union (EU). Similar to the World Bank, each EU Member State’s share in the Bank’s capital is based on its econom- ic weight within the European Union. In 1994, an EIB Board decision created the European Investment Fund (EIF), which is dedicated to financing small-and medi- um-sized businesses in the EU. In 2000, the EIB and the EIF were formally constituted as part of the EIB Group. In terms of ownership, the EU Member States are sole owners of the EIB and are represented on its Board of Governors and the Board of Directors. Meanwhile, the EIF is owned jointly by the EIB (62 percent), the European Commission (EC) (30 percent), and several European fi- nancial institutions (8 percent), including the European Bank for Reconstruction and Development (EBRD). Box 1: The EIB and the MDGs “Investments through the European Investment Bank and the EU-Africa Partnership for Infrastructure should support sustainable development objectives. The EIB should assess its l lending against the contribution to achieving the MDGs and sustainable development.” The EU’s Renewed Sustainable Development Strategy, p.21. In broad terms, the EIB is mandated to provide long- term investment in support of the policy objectives of the EU, including EU environmental policy.2 Acting out- side of the EU, the EIB is charged with implementing EC policy in the sphere of development cooperation. (see Box 1) Accordingly, the EIB’s own policies and strate- gies “shall be complementary to the policies pursued by the Member States.”3 This formal institutional relation- ship between the EIB and the EU is its most important 1 According to the EIB, its policies and strategies on the environment are supposed to be directly derived from those of the EU. (see European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.1). It also reaffirmed its close, institutional relationship with the EU as a signatory of the European Principles for the Environment in June 2006. 2 The notion that “community policy in the sphere of development cooperation shall be complementary to the policies pursued by the Member States” is embedded in Article 177 of Treaty to the European Union, and was affirmed most recently in the European Consensus for Development, a Joint Statement by the Council and the representatives of the Governments of the Member States meeting within the Council, the European Parliament and the Commission on European Union Development Policy. Date of Access: August 25, 2007. http://www.dfid.gov.uk/eupresidency2005/eu- consensus-development.pdf 3 This is a requirement under Article 21 of the EIB’s Statute. See Corporate Operational Plan 2007-2009, European Investment Bank (EIB), January 29, 2007, p.3. Date of Access: August 21, 2007. http://www.eib.org/cms/htm/en/eib.org/attachments/strategies/cop_2007_en.pdf CEE Bankwatch Network 2007 14 distinguishing characteristic as a multilateral develop- ment bank. According to the EIB, it engages in close and continuous consultation and cooperation with the Eu- ropean Commission, Council and Parliament, in order to maintain coherence between EU priorities and its own operational objectives.4 And by its own accord, its over- all responsiveness to EU policy change serves as an im- portant criterion for measuring its credibility as an EU institution.5 Therefore, its effectiveness and legitimacy as a public lender in developing countries hinges on its capacity and commitment to promote EU policies, laws, and norms in its financing operations. While the EIB’s operations and lending commitments focus on investments in EU Member States, it is also mandated to finance projects in prospective member countries, and increasingly, developing countries in the global south. In December 2006, the EIB was given a new mandate that called for up to 35 percent growth in financing, includ- ing sizeable increases to Latin America, Asia and Africa.6 In 2006 alone, it distributed EUR 5.9 billion to projects outside of the EU, exceeding the total lending volume of several other multilateral lenders, including the EBRD and the International Finance Corporation (IFC). While the World Bank and the IFC operate with a single overarching mission in all their countries of operations, the EIB operates with distinct regional mandates defined by the European Council. Specifically, financing in Africa, the Caribbean and the Pacific (ACP) should further objec- tives outlined in the Cotonou Agreement, notably poverty eradication, whereas EIB lending in Asia and Latin Ameri- ca (ALA) aims to support “viable public and private sector projects in infrastructure, industry, agro-industry, mining and services”, in which “special emphasis is given to the improvement or protection of the environment.”7 To fulfill the former, the Bank manages the Cotonou Investment Facility (IF), which is a EUR 2 billion risk-bearing and re- volving instrument established to “promote the develop- ment of the private sector and commercially-run public enterprises.”8 In addition, the IF has an interest rate sub- sidy appropriation, similar to the World Bank’s Interna- tional Development Association (IDA), aimed at providing appropriately concessional lending to the Bank’s public sector Promoters in low-income countries.9 In Asia and Latin America, the EIB has been mandated to finance projects since 1993, including over EUR 2.5 billion in the latest commitment period (2000-2007). While focusing on promoting private sector investment in industries strategically important to EU energy secu- rity and resource needs, the EIB’s mandate in Asia and Latin America requires it to place special emphasis on “the improvement or protection of the environment.”10 Yet, based on publicly disclosed information, it is unclear how this commitment influences project selection and appraisal. But perhaps more controversial, the EIB’s man- date in these regions contains a “mutual interest clause” in which the EIB should prioritise projects that benefit both the EU and the host country, by for example en- hancing the market positions of European exporters or banks, or promoting the sale of European technology and know-how.11 By being required to overtly promote Eu- ropean interests in such a way, the EIB operates in Asia and Latin America with objectives similar to those of ex- port credit agencies. 4 This is a requirement under Article 21 of the EIB’s Statute. See Corporate Operational Plan 2007-2009, European Investment Bank (EIB), January 29, 2007, p.3. Date of Access: August 21, 2007. http://www.eib.org/cms/htm/en/eib.org/attachments/strategies/cop_2007_en.pdf 5 Corporate Operational Plan 2007-2009, European Investment Bank (EIB), January 29, 2007, p.1. Date of Access: August 21, 2007. http://www. eib.org/cms/htm/en/eib.org/attachments/strategies/cop_2007_en.pdf 6 In November 2006, the European Council decided to augment EIB’s financing ceiling to EUR 27.8 billion over the period 2007-2013, compared to EUR 20.7 billion under the 2000-2006 mandates. See “EU clears European Investment Bank to loan €27.8 billion until 2013”, International Herald Tribune, November 28, 2006. Date of Access: October 2, 2007. http://www.iht.com/articles/ap/2006/11/28/business/EU_FIN_EU_ European_Investment_Bank.php 7 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.12. 8 Activity Report 2006, Message from the President, p.76. Date of Access: September 26, 2007. http://www.eib.org/cms/htm/en/eib.org/ attachments/general/reports/ar2006en.pdf 9 The IF and the subsidy endowment are both funded out of the Cotonou Agreement’s first financial protocol of EUR 13.5 billion contributed by the Member States from the 9th European Development Fund (EDF), alongside EUR 11.3 billion in grants channeled through the European Commission. 10 See European Investment Bank loans in Asia and Latin America, the EIB, March 2005, p.5. Date of Access: October 2, 2007. http://www.eib.org/ cms/htm/en/eib.org/attachments/country/ala_en.pdf 11 See European Investment Bank loans in Asia and Latin America, the EIB, March 2005. Date of Access: October 2, 2007. http://www.eib.org/cms/ htm/en/eib.org/attachments/country/ala_en.pdf Promoting sustainable development, “Where appropriate” 15 The EIB’s Lending Policies in Developing Countries According to its new overarching strategy announced in 2005, the EIB’s financing outside the Union should “implement the financial aspects of the Union’s aid and cooperation policies towards its partner countries.”12 In another source, this is specified as financing projects in support of the EU’s policy objectives on development co- operation and sustainable development, and in particular, the Millennium Development Goals (MDGs).13 In the EIB’s own language, supporting the realisation of the EU’s so- cial and development policy objectives is one of its own “value-added objectives.”14 Given that EU policy differs by region, the EIB’s development strategy is regionally based, dependent on ongoing EU mandates. The EIB’s approach to managing environmental and social risks is identified in its Environmental and Social Practic- es handbook, disclosed in August 2006, as well as oth- er previously released documents (see Box 2). Despite the substantial differences between regional mandates, the EIB’s Environmental and Social Practices Hand- book states that standards applied to developing coun- try projects should be “informed by the same principles, core values and good practices that govern operations within the Union.”15 This declaration of intent is under- scored by the fact that the commitments outlined in the Handbook are “applicable to all EIB projects irrespective of region and type.”16 The EIB has further stated that in regions where EU and/or national environmental and so- cial standards do not exist or are inappropriate, the EIB states that it “minimally” takes into account the IFC Safeguard Policies on indigenous peoples, involuntary re- settlement and cultural property.17 Meanwhile, the EIB in the Handbook also notes that its projects in developing countries are “guided by recognised good international practices, such as those laid down by the World Commis- sion on Dams (WCD) and the Extractive Industries Trans- parency Initiative (EITI)” (emphasis in original).18 Box 2: EIB’s Environmental and Social Commitments External observers frequently note how the EIB’s environmental and social policies and procedures lack specificity, and lag behind those of other lenders. Perhaps in response to such claims, the EIB has in recent years undergone a slow maturation as a development institution, particularly in the area of environmental protection. In 2004, it released an Environmental Statement, which affirmed its commitment to comply with EU environmental policies and standards, promote good environmental management practices, and notably, “accord with internationally recognised social safeguard measures, including labour standards”, when financing projects in developing countries. In 2006, the EIB negotiated and signed up to the European Principles for the Environment, and thereby committing itself to a set of constitutive EU principles on environmental protection, including the precautionary principle, the prevention principle, the principle that environmental damage should as a priority be rectified at source, and the polluter pays principle. In August 2007, the EIB released an Environmental and Social Practices Handbook, the most comprehensive document on the subject it has published to date. The Handbook follows the sequence of its internal project cycle, and identifies the due diligence procedures that apply to the pre-appraisal, appraisal and monitoring stages, and the allocation of responsibilities between the EIB and so-called ‘Promoters’. It includes an annex with guidance notes on how internal staff should assess and manage a variety of social issues in non-EU projects. To access documents, see www.eib.org Notwithstanding such references to well-recognised pol- icy frameworks, there is still a notable discrepancy in the Handbook between the standards the EIB is prepared to 11 See European Investment Bank loans in Asia and Latin America, the EIB, March 2005. Date of Access: October 2, 2007. http://www.eib.org/cms/ htm/en/eib.org/attachments/country/ala_en.pdf 12 Activity Report 2006, Message from the President, p.7. Date of Access: September 26, 2007. http://www.eib.org/cms/htm/en/eib.org/ attachments/general/reports/ar2006en.pdf 13 The EU’s Renewed Sustainable Development Strategy states that the EIB should ”assess its lending against the contribution to achieving the Millennium Development Goals and sustainable development.” (EC 10917/06, p.21) 14 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.119. 15 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.9. 16 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.8. 17 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.103, fn 104. 18 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.29. CEE Bankwatch Network 2007 16 adhere to inside and outside the EU.19 Whereas projects in the former are required to “comply” with EU laws and standards, those in the latter are only “benchmarked” against them. And curiously, while the EIB declared it would “subscribe” to the Equator Principles when oper- ating outside the EU, this commitment is not included in the more recent Handbook. More specifically, for projects outside of the EU and the Western Balkans, the EIB only requires compliance with “national law” and “the obligations of relevant multilat- eral environmental agreements to which the host coun- try is party to.”20 This seemingly omits international laws and conventions that deal with social issues to which host countries may be signatories. Furthermore, the ap- plication of EU standards “is subject to local conditions (such as affordability, local environmental conditions, in- ternational good practice, etc) and with reference to such factors as the costs of application.”21 In some cases, the EIB notes that compliance may be “phased”, with- out divulging on what basis such decisions are made, or whether they are publicly disclosed. It also argues that “it can only confirm compliance with Community policy and with legislation to the best of its knowledge”, and “it cannot give assurance about the behaviour of the pro- moters once equipment is installed.”22 Such discretionary, vague and convoluted language fails to clearly identify for clients, stakeholders and EU public officials which standards the EIB is prepared to honour and promote in its non-EU investments. From a risk perspective, the ap- proach directly contradicts the approach taken by the Equator Principles banks, which apply higher environmental and social risk management standards in countries with weak govern- ance precisely because their risk exposure is higher. Notwith- standing these limitations, the EIB has in recent years made important strides in defining and implementing commitments towards environmental protection, notably in the area of cli- mate change and biodiversity, as an aspect of conforming to evolving EU policies in these areas23 (see Box 3). Box 3: Commitments to mitigating climate change and biodiversity loss In the area of climate change, the EIB has stated “all Bank projects are assessed for their expected impacts in terms of greenhouse gas emissions the scope for improvements in energy efficiency and the need for measures to adapt to climate change are also reviewed.” (See the Handbook, p.28, para 67) Furthermore, it has introduced and supported a variety of carbon finance mechanisms, most of which focus on helping European companies make climate-friendly investments and technology upgrades. They include the Climate Change Finance Facility (CCFF), Multilateral Carbon Credit Fund jointly with the EBRD, the Carbon Fund for Europe co-financed by the World Bank, and the Carbon Programme in cooperation with KfW. In terms of protecting biodiversity, the EIB has signed a Memorandum of Understanding with the World Conservation Union (IUCN), in which it committed to, among other things, strengthening its screening of biodiversity issues in projects, and maintaining regular contact with the IUCN on biodiversity and conservation matters. In turn, the IUCN committed to helping the EIB build internal capacity to assess and mitigate biodiversity impacts in projects. For example, the EIB claims that “climate change con- siderations are systematically included in the Bank’s in- ternal appraisal procedure, so that all projects are now routinely screened for their potential to mitigate climate change and generate carbon credits.”24 While it is unclear how such screening influences the selection and man- agement of emission-intensive projects, its commitment to mitigating climate change is significant in multilater- al finance, and no doubt pushed by the EU’s own policy commitments in this area. As the EU released a Renewed Sustainable Development Strategy (EU SDS) in 2006, the EIB recently signalled 19 In this report, “the EU” is used to refer to EU Member States, and in addition, countries which the EIB refers to as Candidate Countries and Potential Candidate Countries. As of June 2007, Candidate Countries refers to Croatia, Turkey, Former Yugoslav Republic of Macedonia (FYROM), whereas Potential Candidate Countries refers to Albania, Serbia, Montenegro, Kosovo and Bosnia Hercegovina). (See “European Investment Bank – Environmental and Social Practices Handbook”, August 2, 2007, p.1, fn. 1) 20 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.9. 21 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.10. 22 European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.22. 23 For more information, see http://www.eib.org/projects/topics/environment/climate-change/index.htm and http://www.iucn.org/en/news/ archive/2006/09/20_eib.htm). 24 See EIB Climate Change Facilities, EIB website. Date of Access: October 2, 2007. http://www.eib.org/projects/topics/environment/climate- change/index.htm Promoting sustainable development, “Where appropriate” 17 its intention to refine its project identification, apprais- al and monitoring techniques “to ensure that sustain- ability is sufficiently and consistently considered when the value-added aspects of a project are assessed.”25 As part of this effort, it released the Environmental and Social Practices Handbook, a document intended to de- scribe the “internal processes and practices of the Bank, particularly the work carried out by its Projects Directo- rate (PJ), to ensure that all financing activities are con- sistent with its environmental policy.” Thus, its primary target is internal staff members who are charged with managing environmental and social issues in projects fi- nanced by the EIB. Thus, unlike the operational policies of other multilateral lenders, the Handbook seems not to be intended primarily for external audiences, which is re- inforced by the existence of hyperlinks directing readers to the EIB’s intranet site, but exclusively reserved for EIB staff.26 More broadly, for an external observer, the Hand- book comes across as guidance notes for internal staff that could be a supplement to a set of operational poli- cies that currently do not exist. Report objectives This report aims to inform the ongoing review of envi- ronmental and social practices within the EIB by exam- ining the standards endorsed by the EIB in a variety of social policy areas, and identifying ‘international best practices’ against which the EIB’s new framework will invariably be judged. Specifically, it will focus on five dif- ferent social policy areas in which EIB policy remains un- clarified and underdeveloped; social assessment, human rights, communities’ participation and consent, labour rights, and gender equality. By surveying key publicly available documents issued by the EIB, the report in- tends to identify the gaps between the EIB’s existing social policies and the standards embedded in EU laws, conventions and mandates that inform its relations with developing countries, as well as the policies and proce- dures of both public and private financial institutions that 25 See “Corporate Operational Plan 2007-2009”, January 29. 2007, p.3. Date of Access: August 22, 2007. http://www.eib.org/cms/htm/en/eib. org/attachments/strategies/cop_2007_en.pdf 26 For example, the specifics of the Development Impact Assessment Framework (DIAF) are hidden behind such a link, even though the information is of interest to the wider public. On another page, a similar link to a document describing the DIAF on the EIB web page does not work. See European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.31, fn 35, and p.60, para 226, respectively. (Date of Access: October 2, 2007) 27 Under its new external mandate, the EIB can lend up to € 27.8 billion over the period 2007-2013, compared to €20.7 billion under the 2000- 2006 mandates. (see “EIB Annual Report 2006 – Volume 1 Activity Report”, January 29. 2007, p.7. Date of Access: August 22, 2007. http:// www.eib.org/cms/htm/en/eib.org/attachments/general/reports/ar2006en.pdf) 28 See “EIB Accuses Chinese Banks of Undercutting Africa Loans”, Financial Times, November 29, 2006. Date of Access: October 2, 2007. http:// www.ft.com/cms/s/0/added3c2-7f4e-11db-b193-0000779e2340.html. For commentary and additional sources, see Bank Information Center (BIC) website on the matter. Date of Access: October 2, 2007. http://www.bicusa.org/en/Article.3180.aspx provide loans to developing countries. In doing so, it hopes to identify and clarify for the EIB, its sharehold- ers and clients, civil society organisations and the wider investment community, which areas of lending policy re- quire additional attention, either because of lack of clar- ity, or because they do not adequately fulfill the EIB’s current mandates and responsibilities as an investment arm of the European Commission. The report comes at a critical time in the evolution of the EIB as a development institution. As noted above, the EIB is embarking upon a major expansion of financ- ing operations in developing countries with weak govern- ance systems, increasing the importance of having strong social safeguards in place.27 Some of this increase will be channeled to private sector projects in Africa, in high-risk sectors such as mining and infrastructure. To facilitate this expansion, it has in recent years introduced new fi- nancing mechanisms, notably the Cotonou Investment Facility and the EU-African Infrastructure Partnership. In order for its augmented funds to make investments that are consistent with the Cotonou Agreement, the EU’s de- velopment cooperation mandates, and ‘international best practice’ in development finance, it is important that the EIB accelerates the further development of its operation- al policies as an urgent matter. In this regard, statements made by the EIB president that seemingly call into question the rationale for applying ‘international best practices’ given growing competition from Chinese lenders in Africa are disconcerting, as they not only conflict with those of other multilateral develop- ment banks (MDBs), but also many private lenders.28 This wavering risks encouraging a ‘race to the bottom’ in environmental and social standards among financial institutions which strongly conflicts with its mandate to further EU development cooperation policy in devel- oping countries. Promoting sustainable development, “Where appropriate” 19 1. Social assessment Social assessments are management tools for achiev- ing a variety of social development objectives, includ- ing those considered in this report.29 The scope of social assessment policies across multilateral and bilateral de- velopment agencies is informed by principles, norms and values embedded in constitutive law and framework agreements. In the EU, a number of recent directives, agreements and initiatives provide the normative and legal framework for EU institutions, including the EIB, to develop their own operational objectives and policies.30 A critical and lasting objective of EU development co-op- eration since the establishment of the EU has been the fostering of “sustainable economic and social develop- ment of the developing countries, and more particularly the most disadvantaged among them.”31 To realise this objective, the recent EU SDS declared that, “all EU institutions should ensure that major policy decisions are based on proposals that have undergone high quality Im- pact Assessment (IA), assessing in a balanced way the social, environmental and economic dimensions of sustainable de- velopment and taking into account the external dimension of sustainable development and the costs of inaction.”32 The recent European Consensus on Development, agreed upon during the UK EU Presidency in 2005, states that the primary and overarching objective of EU develop- ment cooperation “is the eradication of poverty in the context of sustainable development, including pursuit of the MDGs.”33 As a means to “strengthen the impact and sustainability of [development] cooperation”, the European Community has committed to “a strengthened 29 As an example, one source defines social impact assessment as “a process of evaluating the likely impacts, both beneficial and adverse, of a proposed development that may affect the rights, which have an economic, social, cultural, civic and political dimension, as well as the well-being, vitality and viability, of an affected community - that is, the quality of life of a community as measured in terms of various socio-economic indicators, such as income distribution, physical and social integrity and protection of individuals and communities, employment levels and opportunities, health and welfare, education, and availability and standards of housing and accommodation, infrastructure, services.” (see The Akwé: Kon Voluntary Guidelines for the Conduct of Cultural, Environmental and Social Impact Assessment regarding Developments Proposed to Take Place on, or which are Likely to Impact on, Sacred Sites and on Lands and Waters Traditionally Occupied or Used by Indigenous and Local Communities Montreal, Secretariat of the Convention on Biological Diversity (CBD Guidelines Series: Montreal 2004), p.7, section 6j. 30 The fact that these EU initiatives are directly relevant to, and should inform the social assessment policy of the EIB, has been recognized by the EIB itself. See The Social Assessment of Projects outside the European Union: the Approach of the European Investment Bank, October 2, 2006, p.2. 31 This objective is also enshrined in the EU’s institutionalized commitment to Fundamental Rights, as stated in the European Convention for the Protection of Human Rights and Fundamental Freedoms and the individual national constitutions of Member States. See Treaty Establishing the European Community, as Amended by Subsequent Treaties, Part 3, “Community Policies”, Title XVII, “Development Cooperation”, Article 130u. Date of Access: August 25, 2007. http://www.hri.org/docs/Rome57/Part3Title17.html#Art130u 32 The EU’s Renewed Sustainable Development Strategy, EC 10917/06, p.7, para 11. CEE Bankwatch Network 2007 20 approach to mainstreaming cross-cutting issues”, in- cluding the promotion of human rights, gender equal- ity, democracy, good governance, children’s rights and indigenous peoples, conflict prevention, environmental sustainability and combating HIV/AIDS.34 For the EIB, a systematic and expanded use of social assessments in its financing operations in developing countries can be seen as a way to fulfill its own operational mandate, and as a critical element of promoting policy coherence among and between EU development institutions (see Box 4). Box 4: Policy Coherence ”We reaffirm our commitment to promoting policy coherence for development, based upon ensuring that the EU shall take account of the objectives of development cooperation in all policies that it implements which are likely to affect developing countries, and that these policies support development objectives.” The European Consensus for Development, p.6, para 9. November 25, 2005. On the operational level, numerous multilateral and bilat- eral aid agencies have developed methodologies and pro- cedures for undertaking social assessments of projects in developing countries, differing in scope, analytical focus and rigor. (see section 1.2) Overall, their purpose is to mit- igate and prevent adverse impacts on local communities and vulnerable groups, and to foster an inclusive, trans- parent and accountable decision-making process. As with Environmental Impact Assessments (EIAs), the outcomes of these processes can dramatically and fundamentally influence management plans that will determine the im- pact on the livelihoods of vulnerable groups. By extension, the extent to which social assessments are undertaken in a transparent, inclusive and independent fashion is an important benchmark for determining whether they are likely to achieve their intended results. In the EU, the EIA and Strategic Environmental Assess- ment (SEA) Directives inform impact assessment and planning legislation within EU Member States. And in a recent significant decision, the EU has endorsed the Akwé: Kon guidelines, designed by the secretariat of the Convention on Biological Diversity (CBD) for assessing developments in areas traditionally occupied or used by indigenous and local communities.35 The guidelines aim to facilitate the implementation of the CBD, notably the avoidance or mitigation of adverse impacts on biodiversity (Article 10) and THE PROMOTION OF traditional sources of knowledge, innovation and practices. (Article 8j).36 While directed at governments, the guidelines “invite” international financial and development agencies to take into consideration the need to incorporate and implement the guidelines. They recommend that “proposed develop- ments should be evaluated in relation to tangible benefits to [indigenous or local communities], such as non-haz- ardous job creation, viable revenue from the levying of ap- propriate fees from beneficiaries of such developments, access to markets and diversification of income oppor- tunities.” As such, baseline studies should incorporate traditional knowledge, and the project management and monitoring plans should be based on those developed by the affected communities themselves. 1.1 The EIB’s current approach to social assessment Annexed to the Handbook is a series of guidance notes for EIB staff on a variety of social assessment topics, first 33 The document is intended to be “a common vision that guides the action of the EU, both at its Member States and Community levels, in development co-operation.” (p.5). See European Consensus on Development, Joint Statement by the Council and the representatives of the Governments of the Member States meeting within the Council, the European Parliament and the Commission on European Union Development Policy. Date of Access: August 25, 2007. http://www.dfid.gov.uk/eupresidency2005/eu-consensus-development.pdf 34 European Consensus on Development, Joint Statement by the Council and the representatives of the Governments of the Member States meeting within the Council, the European Parliament and the Commission on European Union Development Policy, p.29, para 101. Date of Access: August 25, 2007. http://www.dfid.gov.uk/eupresidency2005/eu-consensus-development.pdf 35 The author is indebted to Tom Griffiths for this observation. The EU committed to applying them “both within EU Member States and in Third Countries”, and at the Community Level, “in respect to projects financed by Community public aid.” (See Annex I to European Commission (2006) Communication from the Commission - Halting the Loss of Biodiversity by 2010 – and beyond: sustaining ecosystem services for human well- being Brussels, 22 May 2006 COM (2006)216 final at Section B.3.1.8) 36 Akwé: Kon Voluntary Guidelines for the Conduct of Cultural, Environmental and Social Impact Assessment regarding Developments Proposed to Take Place on, or which are Likely to Impact on, Sacred Sites and on Lands and Waters Traditionally Occupied or Used by Indigenous and Local Communities Montreal, Secretariat of the Convention on Biological Diversity (CBD Guidelines Series: Montreal 2004), p.1. Promoting sustainable development, “Where appropriate” 21 released in July 2006. They identify why and how the EIB conducts social assessments of projects, and which international laws, standards and conventions are used in a variety of issue areas, including population move- ments and involuntary resettlement, labour standards, community and occupational health and safety and mi- norities and vulnerable groups, including indigenous peo- ples and women. It expands on a separate EIB document on Social Assessment Outside of the EU released in Oc- tober 2006, which stated that “a broad social assess- ment has been introduced selectively.”37 As the most recent and comprehensive EIB document on social is- sues in financing operations, the annex represents the primary source of information on EIB social assessment practices for this report. The Handbook contains numerous references to the EIB’s commitments towards conducting social assessments of projects, but its general policy in this area is prima- rily outlined in the introduction of the Guidance Notes on Taking Social Issues Into Account Outside of the EU (Annex 12).38 The EIB claims it has always paid atten- tion to social issues in projects, but not systematical- ly.39 Its current policy is that “social assessment will be carried out for all projects outside EU-27 and on a se- lective basis in projects in Candidate and potential Can- didate countries.”40 In this context, the EIB notes that “investment analysis routinely includes the examination of any significant effects on income distribution and the likely impact on poverty alleviation.”41 According to the Handbook, EIB’s current attention rel- ative to social issues is directed towards “the potential impacts of investment projects on population movements and resettlement, and on vulnerable groups of various kinds.”42 For projects in the ACP region, the EIB has in- troduced a Development Impact Assessment Framework (DIAF), which it describes as “a set of indicators to better assess how operations contribute to sustainable devel- opment in developing countries”, which uses “qualita- tive ratings rather than numerical scores and relies on informed judgement rather than on weighted averages of a series of predefined indicators”43 (see Box 5). Box 5: The Development Impact Assessment Framework According to the EIB, the DIAF (renamed ESIAF) was introduced at an experimental scale in 2005, and applied to 8 small projects in the ACP regions. The purpose was to examine their development performance across seven areas; financial performance, economic performance, social performance, governance, environmental performance, the Cotonou Investment Facility ’s strategic role, and the projects’ contributions to the MDGs. In 2006, the results were in. According to the EIB, five of the projects to which the DIAF was applied had an overall rating of “high” (the highest rating category) and two had a rating of “medium” (the second-highest rating category). No project was rated moderate or low. Following this pilot phase, the Management Committee decided that the DIAF should be applied to all operations in ACP countries. The EIB has disclosed the indicators used for two of the areas. Social performance indicators: - Numbers of affected persons and anticipated impacts. - Impacts of resettlement/migration - Poverty level in region. - Impact on poorest decile. - Quality of labour standards. - Impact on women. - Social and human capital generated. - HIV/AIDS prevention programme. - Impact on disadvantaged/excluded groups. - Contribution to social facilities. Governance/institutional aspects: - Degree of executive board independence. - Standards of information disclosure and reporting. - Standards of financial transparency. - Degree of consultation with affected communities. - Impact on existing legal framework. - Partnerships with public, private and civil society sectors. See EIB Corporate Social Responsibility Report 2005, p.73 , and EIB Corporate Social Responsibility Report 2006, p.54. 37 “The Social Assessment of Projects outside the European Union: the Approach of the European Investment Bank”, October 2, 2006, p.2. 38 See Environmental and Social Practices Handbook, pp.110-112. 39 “European Investment Bank – Environmental and Social Practices Handbook”, August 2, 2007, p.100 40 European Investment Bank – Environmental and Social Practices Handbook, p.11. 41 “EIB Annual Report 2006 – Volume 1 Activity Report”, p.27. Date of Access: August 22, 2007. http://www.eib.org/cms/htm/en/eib.org/ attachments/general/reports/ar2006en.pdf 42 The Social Assessment of Projects outside the European Union: the Approach of the European Investment Bank, October 2, 2006, p.3. CEE Bankwatch Network 2007 22 According to the EIB, the framework outlines the project’s contribution to the relevant [EU] mandate and the MDGs, and “is currently being piloted for Investment Facility fi- nanced projects in ACP countries.”44 While the Handbook indicates that social issues are sys- tematically assessed in all non-EU projects, the scope of individual assessments is based on the judgement of project officers. On the one hand, the Handbook states that “social issues are always examined by the EIB in the assessment of projects outside the EU”, but “will vary ac- cording to the circumstances, the capacity of the Promot- er and the involvement of other financial partners.”45 In a separate paragraph, it notes that most projects will not require a detailed social assessment either because; • they do not have any measurable negative impacts (most telecom projects for example), or • the social issues fall outside the remit and influence of the Bank as an investment financier (e.g. the Bank cannot be reasonably held responsible for rises in the crime rate in the project area), or • because the Promoter is dealing with social issues appropriately (e.g. has developed a sound Corporate Responsibility policy that is independently verified).46 With regard to gaining assurances from Promoters that projects are compliant with particular standards, the Handbook states that “specific confirmations regard- ing legal compliance should be made where appropri- ate”, leaving the possibility that this requirement can be waived in unspecified cases.47 The guidance notes en- courage EIB staff “to draw the attention of Promoters to international principles such as the Equator Principles, the European Principles for the Environment (EPE), the EITI, the UN Global Compact, and the various internation- al standards frameworks currently being developed.” Yet, it explicitly states that compliance with reporting obliga- tions under these frameworks is “voluntary”, and there- fore not an explicit lending condition.48 With regards to addressing capacity or commitment problems, the EIB states it “will try to assist” Promot- ers in cases where “they do not have the capacity, have not developed adequate standards, or operate in weak institutional environments”, again, “wherever possible.” Yet, the EIB states that even for category A projects, monitoring is in general delegated to the Promoter, and the EIB “will rely on the Promoter’s information for its own reporting on environmental matters.”49 Such discre- tionary language, coupled with a reliance on information produced by the Promoter, makes it difficult to ascertain in which circumstances the EIB is prepared to assist Pro- moters in complying with standards, and is in either case very susceptible to implementation failures. In conclusion, as few details about the pilot phase of the DIAF are publicly available, it is difficult to assess how the EIB assess social issues in investment practices. The prevalence of exceptions and caveats also makes it diffi- cult to determine in which circumstances the guidance notes may be waived. While the guidance notes do iden- tify issues that will be taken into account, their relation- ships with both EU and international law governing social issues remains unclear. 1.2 International best practice in project finance While EIA remains significantly more developed than social impact assessment procedures and methodologies, multilateral development banks, UN special agencies, bilateral aid agencies and some private lenders have in recent years made strides in integrating social con- cerns into project impact assessments. This develop- ment is perhaps a product of a trend (at least rhetorical) in the sustainability missions of lenders to go beyond min- imising harm, to “doing good” when financing projects 43 The DIAF was renamed the Environmental and Social Impact Assessment Framework (ESIAF) in 2006, but yet rather confusingly, the Environmental and Social Practices Handbook uses the two names interchangeably. According to the EIB, the ESIAF is applied to all Investment Loans outside the EU, Candidate and potential Candidate countries. (European Investment Bank – Environmental and Social Practices Handbook, August 2, 2007, p.60) For more on the DIAF, see EIB’s Corporate Social Responsibility Report 2005, the EIB, p.73. 44 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.97. 45 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.98. 46 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.97. 47 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.25. 48 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.104. 49 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.52. Promoting sustainable development, “Where appropriate” 23 in developing countries. Taking this proactive stance is central to the principle of social impact assessment, in particular to ensure that indigenous or local commu- nities directly affected by the project gain a greater share of project benefits. According to guidelines issued by the International Association of Impact Assess- ment (IAIA), social impact assessment should focus on the impact burden on vulnerable groups, and seek to im- prove or reconstruct their livelihoods through stakeholder involvement and directly build on local forms of knowl- edge and expertise.50 In turn, according to the IAIA, this emphasis on equity and social justice entails that prac- titioners need to subscribe to a professional value sys- tem that includes “an ethic that advocates openness and accountability, fairness and equity, and defends hu- man rights.”51 In this regard, both the WCD and the Extractive Indus- tries Review (EIR) made recommendations on improving the legitimacy and effectiveness of impact assessments. Given the political nature of assessments, particularly the weighing of the costs and benefits of different planning options, the WCD report recommended that “impact as- sessments should be carried out independently of the in- terests of the project developer.”52 This recognises that project developers and their financial backers may have conflicting interests when balancing the short-term com- mercial benefits of project implementation and the long- term sustainability of local communities and ecosystems. In a similar vain, the EIR advocated that project moni- toring systems “should involve the public and outside experts to provide early warning of any previously un- foreseen social or environmental impacts”, and “results should be transparently reported to the public.”53 Among multilateral lenders, social assessment is increas- ingly becoming a priority area, evidenced in the inclusion of social as well as environmental assessments as part of a client’s project preparation and respect for all core labour standards in the IFC’s Performance Standards. Similar to the IFC, the AfDB and the EBRD have devel- oped assessment policies and guidelines that include so- cial issues. In terms of the World Bank, although it has developed best-practice guidelines on social analysis, it still confines mandatory requirements for social assess- ment to sub-provisions in specific operational policies on resettlement and indigenous peoples. This runs counter to the recommendations made by the EIR. With regard to the IFC, and many other lenders for that matter, a major concern is the prevalence of discre- tionary language and the absence of required timelines and benchmarks for public consultation and disclosure of information. In relation to the IFC, the performance standards increase reliance on client-generated infor- mation and self-monitoring by the private sector, rais- ing questions about the independence and objectivity of impact reporting and the comprehensiveness of mitiga- tion measures. 1.3 Recommendations for the EIB While social assessment policies will and should be tai- lored to the operations of individual lenders and aid agen- cies, there are some basic elements that feature in those that can be identified as ‘international best practice.’ As a social assessment is meant to help vulnerable groups by protecting and strengthening their livelihoods and the environmental resources they depend on, a neces- sary first step is to identify those communities, record the basis of their well-being, and incorporate their con- cerns into baseline studies and project plans. As recom- mended by the WCD report and the Akwe: Kon guidelines, the project-level assessment process should be preced- ed by a strategic impact assessment in which alternative project designs are carefully assessed and considered, including the “no-project option.” This would place the needs of the poor at the centre of EIB’s project opera- tions, and ensure that the most vulnerable share in the benefits of the project. 50 International Principles for Social Impact Assessment, International Association for Impact Assessment (IAIA), Special Publication Series No.2. Date of Access: August 31, 2007. http://www.iaia.org/modx/assets/files/SP2.pdf 51 International Principles for Social Impact Assessment, International Association for Impact Assessment (IAIA), Special Publication Series No.2, p.3. Date of Access: August 31, 2007. http://www.iaia.org/modx/assets/files/SP2.pdf 52 See Dams and Development, A New Framework, A Report on the World Commission on Dams for Decision-Making, November 2000, p.283. Date of Access: October 2, 2007. http://www.dams.org//docs/report/wcdreport.pdf 53 In this regard, it also noted that “independent and impartial third-party monitors may be appropriate.” See Striking a better balance: the World Bank Group and Extractive Industries, Dr. Emil Salim, Extractive Industries Review final report, December 2003, p.62. Date of Access: Sept 4 2007. http://iris36.worldbank.org/domdoc/PRD/Other/PRDDContainer.nsf/All+Documents/85256D240074B56385256FF6006843AB/$Fil e/volume1english.pdf CEE Bankwatch Network 2007 24 Given that the Cotonou Agreement calls for poverty re- duction to be the overarching objective of development cooperation between the EU and its partner countries, a social assessment process focused on the needs of the poor should be a central element of the EIB’s oper- ational practice. To strengthen its approach and meet its obligations under the EU’s development cooperation mandates, the EIB needs to translate its guidance notes into binding operational policies, so as to communicate to internal staff, Promoters and stakeholders that it is fully committed to well-recognised international laws and norms, notably human rights. Furthermore, to be meaningful, greater clarity is needed as to which EU and international laws the EIB is prepared to honour in its non- EU projects, and how it plans to monitor compliance with these laws. A critical element of doing this, as noted by the WCD report, is to have an assessment and monitoring proc- ess that is independent of the interests of borrowers, and thereby recognises that they may be in a conflict of inter- est in making decisions on behalf of local communities. Promoting sustainable development, “Where appropriate” 25 Box 6: The EU and Human Rights “Respect for human rights, democratic principles and the rule of law, which underpin the ACP-EU Partnership, shall underpin the domestic and international policies of the Parties and constitute the essential elements of this Agreement.” The Cotonou Agreement, p.9, Art.9, November 25, 2005. 2. Human rights The protection of human rights is deeply enshrined in EU constitutive law, and is foundational to EU development cooperation policy. As stated in the European Consen- sus on Development, “all people should enjoy all human rights in line with international agreements”, and “the Community will on this basis promote the respect for hu- man rights of all people in cooperation with both states and non-state actors in partner countries.54 Similarly, the EU SDS identified “the promotion and protection of fundamental rights” as one of the EU’s “policy guiding principles”, which is achieved “by combating all forms of discrimination and contributing to the reduction of pov- erty and the elimination of social exclusion worldwide.”55 Furthermore, in relation to ACP countries, the Cotonou Agreement refers to a multitude of constitutive human rights law and states that “cooperation shall be directed towards sustainable development centered on the hu- man person, who is the main protagonist and beneficiary of development; this entails respect for and promotion of all human rights”56 (see Box 6). Current human rights policy at the Community level with- in the EU builds on the UN Universal Declaration of Human Rights, as well as subsequent treaties and conventions that consider the rights of vulnerable groups. While fo- cused on states and state obligations, the declaration af- firms the need for ‘every organ of society’ to secure the 54 European Consensus on Development, Joint Statement by the Council and the representatives of the Governments of the Member States meeting within the Council, the European Parliament and the Commission on European Union Development Policy, p.26, para 86. Date of Access: August 25, 2007. http://www.dfid.gov.uk/eupresidency2005/eu-consensus-development.pdf 55 The EU’s Renewed Sustainable Development Strategy, EC 10917/06, p.4, para 11. 56 Listed in the preamble, these international laws and treaties include the Charter of the United Nations, the Universal Declaration of Human Rights, the 1993 Vienna Conference on Human Rights, the Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights, the Convention on the Rights of the Child, the Convention on the Elimination of all forms of Discrimination against Women, the International Convention on the Elimination of all forms of Racial Discrimination, the 1949 Geneva Conventions and the other instruments of international humanitarian law, the 1954 Convention relating to the Status of Stateless Persons, the 1951 Geneva Convention relating to the Status of Refugees and the 1967 New York Protocol relating to the Status of Refugees. See The Cotonou Agreement: Partnership Agreement Between the Members of the African, Carribean and Pacific Group of States of the one part, and the European Community and its Member States of the other part., p.46. CEE Bankwatch Network 2007 26 universal and effective recognition and observance of human rights, including economic, political, cultural and social rights.57 This entails that the protection and pro- motion of human rights is not the sole remit of states, as international organisations, business and civil soci- ety are also obliged to respect and them. Crucially, this clause implicates both public and private lenders, which through their financing operations in developing coun- tries can have a strong impact on human rights, par- ticularly in cases where national or regional economic development plans conflict with the rights of vulnera- ble groups, including indigenous peoples, poor commu- nities and women. Furthermore, recent global policy developments have reemphasized the role of business in promoting human rights, in some ways drawing upon the previous work of the UN Centre on Transnational Corporations. For ex- ample, the Voluntary Principles on Security and Human Rights in the Extractive Sector were developed jointly by the governments of the United States, the United King- dom, the Netherlands and Norway, extractive industries and energy companies, and non-governmental organisa- tions. They identify standards for “managing risks relat- ed to security and human rights practices” for companies that conduct business in conflict-prone areas. They de- mand, amongst other things, that companies commu- nicate their ethical and human rights policies to “public security providers”, and “consult regularly with host gov- ernments and local communities about the impact of their security arrangements on those communities.”58 In May 2007, formal participation criteria were adopted, most notably an annual reporting requirement in which participant companies need to disclose how they have implemented or assisted in implementing the Voluntary Principles.”59 While this represents a marked improvement, there are still significant concerns about whether partici- pating companies are in fact complying with them. While voluntary initiatives are often plagued by the lack of clarity and accusations of ineffectiveness, such decla- rations nevertheless raise public expectations about the conduct of private companies and their financial back- ers, beyond merely complying with host country laws and regulations. For example, the UN Norms on the Re- sponsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights state that “within their respective spheres of activity and in- fluence”, transnational corporations have the obligation “to promote, secure the fulfillment of, respect, ensure re- spect of and protect human rights recognised in interna- tional as well as national law.”60 In addition, John Ruggie, the intellectual force behind the UN Global Compact, has in a series of working papers and publications made the case that “corporate complicity” in human rights violations, such as “deriving indirect eco- nomic benefit from the wrongful conduct of other”, may in fact result in legal liabilities under both international and national law.61 Responding to a draft of Ruggie’s latest report, the NGO network Banktrack argued for a greater scrutiny of banks, noting that many “are routinely com- plicit in violating human rights, yet they operate with impunity and without accountability in the home coun- try where they are based, nor in the country where their transaction / the violations occur.”62 57 The UNDHR comprises of 30 articles, including affirmations of political rights, such as non-discrimination (Art.2), freedom of speech (Art.19) and association (Art.20); economic rights, such as right to own property (Art. 17), access to education (Art. 26) and free choice of employment (Art. 23); political rights, such as the right to take part in government (Art. 21) and freedom from arbitrary interference with privacy, family, home or correspondence (Art. 12); and cultural rights, such as the right to freely participate in cultural life. (Art. 27) 58 The Voluntary Principles on Security & Human Rights. Date of Access: Sept 4 2007. http://www.voluntaryprinciples.org/files/voluntary_ principles.pdf 59 Voluntary Principles Participation Criteria. Date of Access: Sept 4 2007. http://www.voluntaryprinciples.org/participants/participation-criteria.php 60 See Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/ Sub.2/2003/12/Rev.2 (2003). Date of Access: Sept. 4 2007. http://www1.umn.edu/humanrts/links/norms-Aug2003.html 61 For example, John Ruggie, Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts, Report of the Special Representative of the Secretary-General (SRSG) on the issue of human rights and transnational corporations and other business enterprises, Section II, para 19-32. Date of Access: Sept 4 2007. http://www.business-humanrights.org/Links/Repository/948764/ jump 62 Banktrack, The Role of the Financial Services in Respecting Human Rights, December 18 2006. Date of Access: Sept 4 2006. http://www.banktrack.org/doc/File/banks%20and%20human%20rights/banktrack%20on%20human%20rights/061218%20letter%20 to%20ruggie%20on%20banks%20and%20human%20rights.pdf Promoting sustainable development, “Where appropriate” 27 2.1 The EIB’s current approach to human rights The EIB does not have a separate policy on human rights, but its current approach can be principally deduced from its Guidance Note on Dealing with Minority Rights, In- cluding Women, Indigenous People and Other Vulnerable Groups.63 In the Handbook, the EIB states “it is commit- ted to EU policies that uphold and respect human rights in its investment activities” and “aims to ensure that investments support and respect international conven- tions on human rights and that [the EIB] is not complic- it in human rights abuses.”64 In differentiating between standards that “must be met” and those that it would be “desirable to address” or “reasonable to recommend”, the EIB places “specific social safeguard policies and min- imum acceptable human rights standards” among the former, without specifically identifying the policies and standards. It further notes that “some system for reporting on mitigation progress should be written into the loan agreement.”65 And while the EIB has unequivocally stat- ed that “it will not disburse funds in a country declared ‘off-limits’ for EU-financing”, it merely “encourages” ad- herence to the various international conventions, and other laws governing the protection and promotion of human rights in the countries in which it operates.66 Procedurally, the EIB depends on its internal due diligence exercise in the project preparation phase for uncovering potential human rights issues, ensuring that adequate arrangements are in place to mitigate adverse/negative impacts, and guaranteeing minimum human rights stand- ards. For projects in non-EU countries, it explicitly states that human rights “should be addressed as early as possible in the pre-appraisal process”, and “should be an integral part of the ex ante EIA where an EIA … would be required accord- ing to the EU EIA Directive and where stakeholder consulta- tions are required.” (emphasis in original)67 In conclusion, while the Handbook identifies the EIB’s commitment to protecting and promoting human rights, it remains unclear which international laws it will use to govern its engagement with this issue when financing projects in developing countries. Such clarity is critical to enabling both internal staff and external stakeholders to differentiate between acceptable and unacceptable busi- ness practices. While the EIB should be governed by the EU development cooperation mandates when financing projects outside of the EU, the discretionary language used to describe its human rights obligations and com- mitments contribute to blurring this link. As such, much more clarity is needed in how the EIB intends to promote and protect human rights in its financing operations. 2.2 International best practice in project finance While the UN Norms do not explicitly identify the role of the financial sector in promoting and protecting human rights, a UN working group advocated that the document forms “the basis for benchmarks of ethical investment in- itiatives and for other benchmarks of compliance.”68 Ech- oing this call for action, the EIR recommended that the World Bank “adopt a system-wide policy that integrates and mainstreams human rights into all areas of Bank pol- icy and practice”, adding that “adoption of and demon- strated compliance with human rights principles should be a prerequisite for companies seeking World Bank Group (WBG) support for extractive industries.69 More broadly, such statements call on lenders to disburse funds only after they have verified that Promoters are in compliance with recognized international human rights law. 63 Information on the EIB’s policy on Minority Rights can be found in Guidance Note 2, Annex 12, in the Environmental and Social Practices Handbook, pp.113-115. 64 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.103 and p.44 respectively. 65 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.101. 66 See Social Assessment of Projects Outside the EU, October 2, 2006, p.3. 67 European Investment Bank – Environmental and Social Practices Handbook, European Investment Bank (EIB), August 2, 2007, p.44. 68 See Draft Commentary on the Norms of Responsibility of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, by the UN the Working Group on the Working Methods and Activities of Transnational Corporations, U.N. Doc. E/CN.4/Sub.2/2003/XX, E/CN.4/ Sub.2/2003/WG.2/WP.1. Date of Access: October 2, 2007. http://www1.umn.edu/humanrts/links/businessresponsibilitycomm-2002.html 69 Striking a better balance: the World Bank Group and Extractive Industries, Dr. Emil Salim, Extractive Industries Review final report, December 2003. Date of Access: Sept 4 2007. http://iris36.worldbank.org/domdoc/PRD/Other/PRDDContainer.nsf/All+Documents/85256D240074B5 6385256FF6006843AB/$File/volume1english.pdf