IFC Issues Broad Guidelines for New Disclosure Policy

7 September 2004

The International Finance Corporation, the World Bank’s private sector lending arm, has issued a "concept paper" on disclosure policy, outlining "principles," "objectives," and "frameworks," but providing few specifics and making few changes in current policies.

For relevant documents click here.

The generality is intentional, in part because the document is meant to provide the basis for an upcoming round of consultations, but also because the authors envision that the final policy, too, will not define exactly what documents will be disclosed.

The latitude afforded by the proposed principles — which suggest the balancing of different interests — would appear to offer the IFC substantial discretion over what to disclose.

In this the IFC may be seeking to differ somewhat from the policies of other international financial institutions, in which it is common to state a "presumption of disclosure" but also to detail the documents that will and won’t be disclosed. The IFC approach, at least so far, appears to leave open to interpretation the competing weights of the stated principles. However, hints in the document and conversations with IFC officials suggest already that access to certain core information will be restricted.

Another relatively unique feature of the IFC document is the responsibility placed on "clients," the private sector borrowers, for making certain disclosures and consulting with affected communities.

Consultations Planned

The concept paper is intended to form the basis for consultations over the next four months. The IFC simultaneously is seeking input on proposed new "performance standards" to apply to the social and environmental aspects of its lending.

The IFC plans to hold four regional invitation-only consultations – in Rio de Janeiro Sept. 27-29; (just changed from Buenos Aires); Manila Oct. 27-29; Nairobi Nov. 29-Dec. 1; and Istanbul Dec. 13-15. Five were earlier mentioned, with the fifth to be in the United States, the United Kingdom or France; but now there will be four. The Asian Development Bank held 13 regional consultations.

After the consultations, in early 2005, the IFC plans a 30-day comment period on a "final draft disclosure policy" before the board takes action in "early 2005."

Laying Out Principles

Conversations with IFC officials, and their responses to a Japanese nongovernmental organization, indicate that the IFC is not inclined so far to discuss how the general concepts outlined might affect particular IFC documents, even major ones involved in the project cycle.

An earlier indication of this tendency came when Yuki Tanabe of the Japan Center for a Sustainable Environment and Society in March asked the IFC to release a list of all documents produced by the IFC. This request was rejected in May in a letter from an IFC official who said the institution hoped to form a principle-based policy, not a document-driven policy.

The Asian Development Bank, also undertaking a disclosure policy review, has agreed to produce such a list of ADB documents.

The IFC’s "principles-based approach" is described in a paragraph that begins: "As a development institution, the IFC must balance stakeholder expectations against the obligations of a financial institution operating in the private sector."

The paragraph goes on to identify the shareholders (member countries) and taxpayers as those who "should be informed as to how effectively IFC is using the resources it has been given." For those affected by projects and the countries in which they are located, the IFC document continues, a disclosure policy "must ensure access to timely, comprehensive and accessible information so that they may understand potential risks and benefits from a project, and may engage in the process of designing risk mitigation and/or enhancing benefits."

The document proceeds to lay out the "roles and responsibilities" of IFC clients, the borrowers, indicating they have disclosure and consultation responsibilities, particularly at the early stages in the life of a project, and also later, while the project is in operation. The IFC says it will provide "support and oversight."

Disclosure During Project Cycle Unclear

Moving from these principles to a discussion of the cycle for approving projects, the concept paper is by turns fairly specific and opaque.

The principles are amplified or amended by a four-point "framework of client disclosures." These get into some considerable detail as they follow the project cycle.

First, the IFC says that the client "would disclose the social and environmental assessment (SEA) as soon as it is in a comprehensive form and prior to its full analysis by IFC." The disclosure would be in the local language and be updated, as necessary, as the project is amended.

Second, the IFC indicates that once the IFC has determined that it is "likely to proceed and commit resources" to a project, the IFC would post the client’s SEA through its own disclosure mechanisms, such as on the IFC web site.

Third, "as soon as it has reasonable confidence that it will proceed with the investment, and no less than 30 days prior to board consideration of the project," the IFC would release a "Summary of Project Information" (SPI).

Fourth, both the clients and the IFC would be expected "to monitor and publicly report against their Action Plans on a regular basis."

Unanswered Questions

Much of this resembles existing policy.

Walking again through the project-approval sequence, however, reveals that the concept paper does not answer questions about disclosure of certain major documents developed within the IFC.

Take, for example, a key internal decision memo about projects, the Internal Review Memo (IRM), a staff-prepared document. The IRM is part of the "decision book" that goes to committees of senior staff. These bodies make the crucial decision on whether to forward the project to the board. IRMs are not released now, and their status under the concept paper principles remains unclear. IFC officials are concerned particularly with protecting confidential business information.

Asked if other portions of the IRM might be released, such as the analysis of whether the project meets the IFC’s development goals, an IFC staffer said that such a partial release would depend on the way the policy is defined. The staffer also noted that the IFC has had little experience with partial release of documents.

Instead, the concept paper suggests that after consultation with a client, the IFC’s assessment of a whether a project meets IFC development goals could take place "in the context of an expanded SPI."

The SPI will usually be released as it is now, after the decision by the IFC top management to bring the project to the board for approval, and no later than 30 days before the board meeting.

Similarly, the "Action Plan" developed during the process — the IFC-approved guide for the project’s operation – is not disclosed currently (except partially in limited circumstances involving energy projects). The concept document does not indicate that Action Plans, or parts of them, will be disclosed.

Social, Environmental Disclosures

Subtle changes are contemplated for the disclosure of social and environmental evaluations of projects.

The IFC does not contemplate any earlier official deadlines for social and environmental disclosures than now exist – 60 days board action for larger projects (Category A) and 30 days for smaller ones (Category B). These time limits are normally met or exceeded now. The concept document predicts that these disclosures will come earlier as a result of the "framework" and the performance guidelines, which together seek to clarify the responsibilities for disclosure by the clients and the IFC, which now are ambiguous in some situations.

Under current procedures for Category A projects, the client produces an Environmental Assessment (EA). Then the IFC prepares an EA summary, signifying staff-level approval, which either the client or the IFC releases in-country and the IFC posts to web site. Under the contemplated changes, a Social and Environmental Analysis (SEA) is to be written by the client and released locally before being fully cleared by the IFC.

The changes are being made in tandem with a related review; of the IFC’s Policy on Social and Environmental Sustainability and Performance Standards.

Other Issues, Ambiguities

Regarding the disclosure of key information about IFC-funded infrastructure services ventures, such as the contracts detailing prices that users will pay for services, the concept document suggests reasons for their disclosure but pledges only that the IFC "will work to facilitate such disclosure by its clients and to allow some disclosure by host government."

The IFC says little about its plans for disclosure by financial intermediaries, who make smaller loans for the IFC, except to say that some new policies will have to be developed.

While making regular references to the need to protect confidential business information, the IFC lays out no principles to guide such decisions. The IFC now signs and follows confidentiality agreements with prospective borrowers.

Making clear that it has no intention of reporting on the financial or economic rates of return for individual projects, the IFC proposes "to report publicly on aggregate development results in greater detail and in a more systematic manner" than it does now with an annual review of a sample of its portfolio.

The IFC document suggest that the institution will begin releasing its decision papers on policy matters, such as sector or regional strategies, but only after board consideration, as it does now with an annual Strategic Directions paper. The IFC concept paper does not mention the possibility of release prior to board consideration.

The IFC indicates it is interested in releasing minutes of the meetings of the Board of Directors, excepting "sensitive" information and the minutes of "executive session" meetings.

By Toby McIntosh

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Filed under: IFTI Watch

ABOUT IFTI WATCH

In this column, Washington, D.C.-based journalist Toby J. McIntosh reports on the latest developments in information disclosure in International Financial and Trade Institutions (IFTI).
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