E&E News reports on the IFC's review of palm oil investments. Marcus Colchester of the Forest Peoples Programme is quoted as saying that the review will be extended to soy and cocoa.

20/11/2009 (Bank Information Centre) - A complaint filed by Indonesian community groups in response to practices by one World Bank-funded corporation has spurred a major re-examination of how the International Financing Corp. (IFC) -- a major lending arm of the World Bank to the private sector -- conducts its lending.

The controversy is raising questions of whether the branch has a serious review process to ensure that its projects are socially and environmentally responsible and that such projects actually benefit the communities the IFC aims to help.

"The question must be: What can we do to develop projects and investment that actually help the poor and protect their livelihoods? Not: How do we protect the industry?" said Susanne Breitkopf, a forest campaigner with Greenpeace, in an interview.

It is the first time such a complaint has spurred the World Bank to enact an industrywide moratorium on investment, said Henrik Linders of the Compliance Advisor Ombudsman (CAO), the World Bank's internal auditing agency that fielded the complaint.

Now the IFC is figuring out what to do next.

Investment stops, as lenders rethink
In August, in response to an internal audit, World Bank President Robert Zoellick ordered a complete moratorium on investment in palm oil -- an industry that has been a leading cause of deforestation in Indonesia, according to Marcus Colchester of the Forest Peoples Programme, the chief organization that brought the Indonesian complaint to the CAO.

Indonesia is the third-largest greenhouse gas emitter in the world, next only to the United States and China, according to a World Bank study from 2007. More than 80 percent of the country's greenhouse gas emissions come from land-use change, Colchester said.

What eventually led to the moratorium were complaints that had been raised by local communities that Wilmar, a palm oil company in which the IFC had invested, had been adopting practices that led to widespread deforestation and did not take indigenous peoples' rights into account, among other things.

After that, the IFC said it would examine the practices of the worldwide palm oil industry, focusing on Indonesia, in a process that would involve an examination of the industry's entire supply chain, which begins with tearing down jungles to create palm oil plantations.

Now the IFC is planning to extend its review to the soy industry, with a focus on Central America, and the cocoa industry, with a focus on Africa, said Colchester. He said the IFC announced the change in plans, saying that what was originally going to be a six-month review process is now looking to take 18 months, at a roundtable on sustainable palm oil in Kuala Lumpur two weeks ago.

Making a new plan
Full details of what the review will entail were not available, but Oscar Chemerinski, director of the IFC's agribusiness department, said a report slated to come out in about eight weeks will present a more detailed picture of what will be examined.

Palm oil production, along with production of paper pulp, in Indonesia often involves clear-cutting forests or converting peatland, both of which lead to increased greenhouse gas emissions, he said.

Colchester and representatives from the IFC and the CAO spoke on a panel about the issue at the World Resources Institute yesterday.

The IFC's Web site says the lending arm "fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments."

"Our shareholders are encouraging us, at the expense of sometimes having cases which don't go that well, to try to push the envelope," said Jyrki Koskelo, an IFC vice president. "So this is one of the reasons why you see that we are trying to move towards the more difficult areas. ... Our role is to maximize development impact. Our role is not to maximize the return for our shareholders."