OCOI 14 | The Update on AIIB Progress I – Environmental and Social Framework

intro Intro

By the end of October, 54 countries have formally signed the AIIB Articles of Agreement (Agreement)(more follow-up Alerts on AIIB: The Environmental and Social Responsibility of Development Finance; Asia Infrastructure Investment Bank Draws Global Attention ). The AIIB is expected to start its formal operation by the end of 2015. Its lending activities will be started in 2016Q2, with the first batch of projects concentrated on three sectors, which are power, transportation and water supply. In August, 2015, Jin Liqun was selected as the president-designate of the AIIB. On the press conference in Georgia, Jin vowed to set up enlightened mechanism, make high-standard policies and, besides ensuring the investment efficiency, abide by strictly the environmental and social policies in various investing countries. In order to respond to the concerns of international community on the lending standards of this new investment bank, the AIIB released Environmental and Social Framework (Framework) on its official website and launched a consultation process of stake-holders in September. The consultation of stakeholders on the draft of Environmental and Social Framework came to an end on Oct. 23.

Regarding to the framework content of this version of AIIB Opinion Solicitation, the public and civil organizations have voiced their opinions at the first moment by participating in the consultation of stakeholders which was launched subsequently. According to some civil organizations, although AIIB had promised for several times to adopt high-standard governance rules, whether the promise could be honored remains unknown from arrangement of consultation process and draft of framework. In regard to the Agreement, some organizations have noted that some articles of the Agreement on the Framework are vaguely elaborated. The consultation process adopted means of video conference with English as the sole language for consultation has put a damper on the participation of the local communities. In regard to the contents of the Framework, the civil organisations have highlighted that ambiguous wordings or weaknesses in the draft could make it unable to point out the possible impacts of AIIB operation on community and environment.They have also noticed that an accountability mechanism should be established to address complaints from the affected. The international organisations have also called on AIIB to reduce its investment on coal industry to support the development of global clean energy, which is shadowed by the annuncement that AIIB is going to invest $1b to Finance Coal Development in Indonesia.

This Alert is to introduce the latest development of AIIB, present opinions and suggestions raised for AIIB “Framework” by various stakeholders and civil organizations and provide brief analysis on differences and similarities of safeguards among the current representative development financial institutions.

Key Point

Currently, except Kuwait, the Philippines and the South Africa, 54 prospective Founding Members have signed the Asian Infrastructure Investment Bank Articles of Agreement. In the Agreement, the AIIB purpose, membership, capital, voting rights, business operation and governance structure, etc., have been determined. In early November, the Agreement was approved during the 17th session of the 12th Standing Committee of the National People’s Congress. Now Burma, Singapore and Brunei also approved the Agreement. By the end of 2015, after approval of the legitimate number of countries, the “Agreement” shall come into force and the AIIB shall be formally established.

Mr. Jin Liqun was selected by consensus as President–designate of AIIB on August, 2015. He delivered a statement at a Press Conference in Tbilisi. He is committed to manage AIIB led by China as a lean, clean and green organization. He further elaborated that” Lean is cost effective; clean, this bank will have zero- tolerance on corruption; green means it's going to promote the economy," . The principles of transparency, openness, independence, and accountability underpin the Bank's governance. Jin Liqun has set himself two overarching priorities: The first is to develop a strong institutional culture that is grounded in the highest principles and ethical standards. The second is to deliver financing and services to clients that is catered to their needs. Sustainable development is the key. The AIIB's assistance to its clients should be technically, financially, economically, environmentally and socially sustainable; its operations should be cost-effective and should be delivered in a timely manner.

AIIB released its consultation draft of Environmental and Social Framework(Framework), opens consultations at the beginning of September. This draft, prepared for consultation purposes, is divided into three Parts: Part 1, which outlines AIIB’s Framework for addressing environmental and social management in its Operations, and sets out AIIB’s vision in this regard; Part 2, which sets out AIIB’s overarching environmental and social policy, comprising the Environmental and Social Policy and the three associated Environmental and Social Standards applicable to Operations; and Part 3, which sets out a Procedure elaborating on certain mandatory aspects of the overarching policy; the Procedure will be further developed to elaborate on other aspects of the overarching policy over time.

The Framework is a sound beginning of the Jin’s “lean, clean and green” principle. However, compared with overwhelming coverage and discussion at the initial preparation, the releasing of the Framework and launching of the consultation process haven’t drawn attention and discussion from various parties with complete silence in domestic media and think-tanks. On Oct. 23, consultation of stakeholders on AIIB Framework came to an end. In April of this year, NGO Forum on ADB (NGO Forum) wrote to the AIIB jointly with several civil organizations, making requirement and expectation on AIIB’s environmental and social safeguards, and received reply from the AIIB. However, when they wrote two letters to the AIIB regarding to the consultation plan of the Framework draft in September, but received no reply. On Oct. 12, NGO Forum wrote another open letter, jointly signed by 66 civil organizations, to the AIIB regarding to several to-be-resolved issues in the Framework draft. Global civil organizations hope that on environmental and social safeguards, the AIIB, when doing no better than other international financial institutions, should at least be as effective and responsible as them.

In the open letter delivered to the AIIB Multilateral Interim Secretariat regarding to the consultation plan of the AIIB environmental and social framework draft in September, NGO Forum mentioned that, given the local social groups which could be affected by the projects, the forum would express concerns on AIIB’s adopted consultation method of video conference and its use of English as the sole language for consultation, urging the AIIB to invite civil organizations to make consultation plan jointly with the AIIB. Besides, NGO Forum also expressed concerns on whether the feedback and suggestions of civil organizations in the previous “consultation” for exchange of views with AIIB (referred to as “effective dialogue” by AIIB) would be reflected and discussed in conference of chief negotiators and conveyed to AIIB founding members.

Besides issues on procedural and technical details, many civil organizations and scholars also proposed opinions and suggestions on content of the Agreement and the Framework. According to Green Watershed, firstly, the Agreement doesn’t make convincing regulation on the formulation of environmental and social safeguard policies as well as the mechanism for implementation; secondly, the Agreement assigned the power of making banking policies to the board of directors without description on participation of board of governors (the supreme power organ) in making banking policies and representative directors would elect their members to vote; thirdly, the establishment of supervisory mechanism is also assigned to the board members. It seems that the members of board of governors would not participate, let alone the participation by other stakeholders. In the Agreement, there are “vacancies” for accountability mechanisms on “project complaint” or “anti-corruption”, etc. From policies and practices of multilateral development banks, environmental and social impact assessment, strong mechanism for project-affected locals to hold lending banks (who would become key players due to loans) accountable (including project complaint, right relief) are critical for development financial institutions to reduce investment risk, ensure long-term investment benefits as well as show their responsibility.

NGO Forum also made feedback to the Framework, raising two questions: 1) which legally-binding requirements are included in the draft to ensure that the bank and its clients would implement and abide by the regulations; 2) which ambiguous wordings or weaknesses in the draft could make it unable to point out the possible impacts of AIIB operation on community and environment.

They also made suggestions on the process for application and implementation of AIIB projects. Firstly, the projects proposed by the AIIB must have at least 120 days for environmental and social assessment. Significant consultation has to be conducted before the project is approved. All conducted assessments need to be disclosed to public before the confirmation of project classification. Secondly, accountability mechanism of the AIIB should be independent from the bank’s management with the personnel directly appointed by the board of directors. The board of directors must promise to ensure the highest standard of environmental and social safeguard policies and its application in the complaint projects. Mechanisms for compliance review and problem solution must make mandatory requirement that consultation would be conducted with civil society and local community at the construction site, civil society would be allowed to participate in investigations at each phase of the project and have right to recommend solutions and compliance strategies. On project review, all the project sites of the AIIB should implement compliance review mechanism with offices set up at project sites. The compensation mechanism should ensure the anonymity and safety of the complainant and ensure the complaint would reach the appropriate department within the bank for sufficient review and assessment. Meanwhile, AIIB needs to ensure the sufficient information disclosure at both policy and project levels by taking the availability of different languages and different formats into consideration. For received complaints, the AIIB should make confirmation in five days and reply in 21 days.

Asia Indigenous Peoples Pact(AIPP) submitted its letter to AIIB, strongly recommending that key officials of the AIIB conduct a regional face-to-face meeting with duly selected Indigenous Peoples’ representatives. This regional consultation should provide for interpretation/translation services to ensure meaningful participation of community representatives as well as sufficient time for discussions and exchange of views. Information on the consultation as well as other necessary information and documents should be shared in advance (at least two weeks) prior to the consultation.
AIIP paid much attention on ESS3: Indigenous people, thus it offered constructive suggestions concerning indigenous people, involuntary resettlement, mechanisms for complaint and supervision, etc. In particular, the requirement for the free prior and informed consent (FPIC) of Indigenous Peoples is not simply a procedural matter, but in fact a substantive process in the exercise of their right to their lands, territories and resources, to self determination and cultural integrity. The UN General Assembly adopted the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) in 2007 as an act of achieving social justice, nondiscrimination, equality and development for all. Thus, States that comprise the AIIB have a clear obligation to respect and implement the rights of indigenous peoples as embodied in the UNDRIP. The AIIB cannot thereby exempt itself from this obligation, and should in fact be a leading institution in abiding by the minimum standards for the respect and protection of human rights as a fundamental foundation for its interventions in sustainable development.

Apart from AIIB, there are several multilateral financial institutions, which are consisted of regional institutions: Asian Development Bank(ADB), African Development Bank(AfDB), European Bank for Reconstruction and Development(EBRD), Inter-American Development Bank(IDB), and global institutions: the World Bank Group(WBG) and International Monetary Fund(IMF). All the institutions above have adopted environmental and social safeguard policies.

Speaking of the structure of MDB Safeguard Systems, World Bank environmental and social safeguard policies are mostly horizontally structured as stand-alone OPs and corresponding Bank Procedures (BPs), without an overarching policy statement. Guidance documents are issued in an ad hoc manner on a need basis. Most other more recent MDB safeguard policies are structured in a more hierarchical and integrated manner with an over-arching policy statement, governing principles and subsidiary operational safeguard requirements, consolidated environmental and social review procedures and corresponding guidance documents.
In general, the MDB safeguard systems comprise the following components:An Over-arching Policy Statement; Operational Requirements; Environmental and Social Review Procedures ; Access to Information Policies; Guidelines, sourcebooks, manuals

In terms of scope, the major difference between the World Bank and its counterpart MDBs is the Bank’s application of different safeguard systems to public and private sector-led projects. It should also be noted that the World Bank Group consists of separate institutions that serve the public (IBRD/IDA) and private (IFC/MIGA) sectors, respectively. Other MDBs, such as ADB, AfDB, EIB and IDB, with substantial private sector lending portfolios, apply the same operational safeguards to both categories of projects, while adjusting their procedural requirements to the particular circumstances of private sector activities.

The Bank and its counterpart MDBs generally cover the following thematic issues as part of their respective safeguard systems: Environmental and Social Assessment and Management; Strategic Environmental Assessment; Protection of Natural Habitats; Pollution Prevention and Abatement (environmental health and safety guidelines, chemicals management, pest management); Physical Cultural Resources; Land Acquisition and Tenure and Involuntary Resettlement; and Indigenous Peoples.

Relative to the World Bank’s existing OPs, other MDBs provide thematic and/or more detailed coverage of the following environmental and social impacts and risks: Biodiversity, ecosystem services and natural resource management (ADB, AfDB, EBRD, EIB, IFC); Climate change (AfDB, EBRD, EIB, IFC); Community Health and Safety (EBRD, EIB, IFC); FPIC and /or reference to the UN General Assembly Resolution on the Rights of Indigenous Peoples (ADB, EBRD, EIB, IDB, IFC); Gender (ADB, AfDB, EBRD, IDB, IFC); Labor and Working Conditions (AfDB, EBRD, EIB, IFC); Stakeholder Engagement (EBRD, EIB); and Resource Efficiency (IFC, EBRD, EIB).

Analysing the differences from the Pespectives of Environmental Assessment and Involuntary Resettlement:
1. Environmental Assessment (EA)
- EA process to incorporate/address (when appropriate):
- more explicit definitions of “associated” and “cumulative” impacts (ADB, AfDB, EIB, IDB);
- use of specific methodology for screening for “climate change risk” to projects (AfDB);greenhouse gas (GHG) emissions monitoring and reporting requirements (ADB, AfDB, EIB, IDB);
- more explicit reference to socio-economic impacts, including vulnerable groups, gender issues, surrounding communities and poverty conditions (ADB, AfDB, EIB);
- explicit framework for consultation with affected trans-boundary parties (ADB, EIB);
- “Free, prior and informed engagement” [FPIE] as a standard for public consultation and participation (EIB);
- EA and EMP must be in full compliance with country laws and regulations (as well as a country’s international obligations) (ADB, AfDB, EIB);
- “Precautionary approach” to all environmental impacts (ADB, IDB, EIB);
- Periodic monitoring report and corrective actions required by EMP documented and disclosed (ADB);
- Affected parties kept informed of project-related environmental and social mitigation measures as defined in the ESMP (IDB);
- Grievance redress mechanism (GRM) during the entire project cycle to facilitate resolution of affected peoples’ grievances regarding the environmental and social performance of the project (ADB, AfDB, EIB, IDB);

2. Involuntary Resettlement (IR)

- Application of IR safeguard to both “permanent” and “temporary” displacement (ADB, EIB, IDB);
- Impact assessment of IR to include impacts on cultural sites (AfDB);
- Recognition of “food security,” “morbidity and mortality,” “cultural and psychological” impacts of insufficiently mitigated IR (IDB);
- Borrowers to improve the standards of living of the displaced poor to at least “minimum national standards” (ADB, IDB, EIB);
- “Adequate housing” must meet criteria specified by the UN Habitat, Office of the UN High Commissioner for Human Rights (EIB);
- Social Impact Assessment to include gender disaggregated information (ADB, EIB, IDB);
- Particular attention to gender concerns and gender-based resettlement measures (ADB, EIB);
- Detailed “Impoverishment Risk Analysis” required as an input to the Resettlement Plan (IDB);
- Compensation package to take account of “intangible…social and cultural assets” (IDB);
- Access to safe drinking water and irrigation facilities as part of resettlement assistance (AfDB, EIB);
- Requirement for 120 day pre-Board presentation for disclosure of full Resettlement Plan (rather than prior to Appraisal). (AfDB ISS, OS 2, para. 30);

For further reading: Comparative Review of Multilateral Development Bank Safeguard Systems

actions Alert

key-points View

Vinod Thomas Director-General of Independent Evaluation, Asian Development Bank：”Behind that priority lies the recognition that failed safeguards in accidents or accumulated damages cost far more than sound regulation and enforcement. The vital question for established banks and newcomers alike is twofold: what is a desirable scope of safeguards, and how to get good compliance. There’s a growing consensus on the question of the “what,” but the “how” remains highly problematic.”

Mark Grimsditch Mekong regional coordinator of Inclusive Development International:” In countries with underdeveloped legal and regulatory frameworks and weak governance systems, safeguards provide vital protection for local people and the environment. Even when strong safeguards are in place, things can still go wrong. So it is essential that strong grievance mechanisms are in place.So far the development of AIIB has moved quickly. It is unclear what space will be provided for civil-society consultation as the bank develops or after it becomes operational.”

Michelle Chan Economic Policy Director for Friends of the Earth:"On the other hand, as China assumes more responsibility as a global leader through new institutions like the NDB and AIIB, it will also have to prove that it is willing and able to work with all kinds of stakeholders, not just government or industry groups. While the Chinese government has gained praise for promoting sustainable finance policies, Chinese banks themselves have been gaining an international reputation for being inaccessible, particularly for communities who are negatively impacted by their lending. This has also negatively impacted China’s reputation abroad, and has compounded community concerns that Chinese banks are ambivalent about the well being of host country environments and communities."

Inclusive Development International: “The public consultations were announced only days prior to the commencement of a series of video consultations that took place over a period of two weeks with only a handful of civil society groups… By any measure – including the draft ESF’s own definition of meaningful consultation – this consultation process is woefully inadequate…For all future policies, we strongly urge the AIIB to conduct genuine consultation processes that are inclusive of international and local civil society organizations and the citizens of countries impacted by AIIB activities. Under the AIIB’s Articles of Association, the bank is to establish a policy on the disclosure of information in order to promote transparency in its operations, as well as an oversight mechanism, which according to the draft framework document is currently in process. We urge the AIIB to make the draft documents regarding these important policies and mechanisms publicly available in multiple Asian languages and open the drafts to a thorough process of public review and comment.”

resources Resource

Paper: AIIB Environmental and Social Framework- AIIB
Safeguard Comments: Comments on the Asian Infrastructure Investment Bank Draft Environmental and Social Framework- Inclusive Development International
Report: Who is Safeguarding the Safeguards- NGO Forum on ADB
Report: Understanding the Asian Development Bank's Safeguard Policy- OXFAM
Report: Comparative Review of Multilateral Development Bank Safeguard Systems- World Bank
Critiques: Lessons Learned? The Implications of the ADB’s Review of Safeguard Policy Implementation for the World Bank and the Asian Infrastructure Investment Bank- ULU
Policy Review: Safeguard policy reviews at multilateral institutions- Safeguard Comments

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