Will Safeguards Survive the Next Generation of Development Finance?

Kirk Herbertson
Thursday, July 12, 2012

Governments depend on a variety of international institutions to advance development goals, ranging from the multilateral World Bank and United Nations, to the aid agencies and national banks of individual countries. Each year, these international institutions invest in activities that contribute to broader goals – such as economic growth, food production, or greenhouse gas emission reductions – but that carry significant environmental and social risks. To reduce these risks, many international institutions have adopted policies called “safeguards” to help ensure that their investments do not have unintended consequences on people and ecosystems. While far from perfect, safeguards have played an important role in ensuring that public funds are used in an environmentally and socially responsible way.  

Yet international institutions are changing the ways they channel public funds to developing countries, by promoting greater country ownership over the development process. To do so, many international institutions increasingly rely on the local laws and institutions of recipient countries, rather than requiring governments to follow a specific set of procedures designed by the international institution itself. This trend is altering the way we think about safeguards.

This paper reviews the history of safeguards and changing trends in the way that international institutions apply safeguards. The case studies include:

Uganda’s energy sector. For many years, the World Bank and other international institutions supported the growth of Uganda’s energy sector. The Bank’s safeguards provided an important avenue for civil society organizations to raise and resolve concerns with development projects such as the Bujagali Dam. Five years ago, Uganda discovered oil and gas reserves and is developing this resource without financing from traditional international institutions. Many protections brought by safeguards have been lost, leading civil society organizations to seek new avenues of accountability within the government.

China’s investments in Cambodia. In 2011, construction was completed on the Kamchay Dam, Cambodia’s first major hydropower project. The project was built and financed by a Chinese state-owned company that relied almost entirely on Cambodia’s local laws and institutions to resolve environmental and social concerns. Implementation of environmental, human rights and land laws remains a challenge in Cambodia. Because the Chinese investors did not have their own safeguards in place, conflicts that arose with local communities had to be resolved in an ad hoc manner. While some conflicts were successfully resolved, many of the poorest community members lost half of their income as a result of the project and have not had their livelihoods restored. 

Large-scale hydropower development in Brazil. As Brazil’s economy grows, it has become a net donor to international institutions and has been able to self-finance its own infrastructure development. Brazil’s recent efforts to build the Rio Madeira and Belo Monte dams illustrate the complexities of applying national safeguard systems even in a country as developed as Brazil. The national development bank BNDES has started to develop safeguards in recent years, but still faces challenges in applying these safeguards to the conflicts around indigenous people’s rights that have emerged. 

Indonesia and REDD+. Indonesia has abundant forests that are not only important locally but globally as a counterforce to the greenhouse gas emissions that are causing climate change. As such, Indonesia has actively sought financing to conserve its forests from international institutions through Reduced Emissions from Deforestation and Forest Degradation (REDD+) initiatives. Meanwhile, tens of thousands of local communities in Indonesia depend on the forests for their livelihoods. Hundreds of conflicts exist over competing titles to land in Indonesia, and REDD+ initiatives must carefully navigate these conditions to be successful. As such, Indonesia faces the challenge of designing its own national safeguard systems for REDD+ initiatives, while coordinating among the different – and sometimes contradictory – safeguard demands of donors.

Safeguards will survive the next generation of development finance, but the new form they will take remains unclear. We hope that this paper can contribute to meaningful and participatory reforms, so that international institutions can find an approach to safeguards that will lead to better development outcomes.