IFC’s Performance Standards Need Community-Led Accountability

This year, the International Finance Corporation ("IFC") intends to review and update its Sustainability Framework, which includes the Performance Standards on Environmental and Social Sustainability (“Performance Standards”), Sustainability Policy, and Access to Information Policy. IFC's Performance Standards matter not only because they establish the environmental and social safeguards that govern IFC investments, but also more than 120 financial institutions globally have adopted the IFC’s Performance Standards as their own environmental and social rules, meaning that the Performance Standards govern billions of dollars of global financing.

IFC's current Performance Standards have been in place since 2012, and therefore the IFC should be able to assess their effectiveness over the past 12 years to inform an updated version. The problem is that IFC does not know whether or how well its rules have worked because the institution has never measured the net impact of its projects– that is unless IFC is keeping the results a secret.

As the IFC updates its Performance Standards, it should: (1) listen to communities impacted by IFC projects to ascertain what aspects of the existing Performance Standards are and are not effective; and (2) launch a new measurement system for the new Performance Standards that accurately assesses whether they are implemented and the impact of doing so.

IFC is unaccountable for noncompliance with its Performance Standards and harm related to its projects

IFC has financed over $180 billion of infrastructure, energy, regulatory, agribusiness, and other development projects since 2012. Over that time, it has not published the net impact of its investments, and it has not disclosed whether its clients have complied with its Performance Standards on a project-by-project basis. This is alarming because IFC projects risk contributing to–and indeed have contributed to–serious negative human rights and environmental impacts, and manifestation of those risks go largely unaccounted for.

1. IFC’s projects contribute to environmental and human rights harm.

Communities living near and working at IFC project sites bear the most risk when projects contribute to negative environmental and social impacts. Local communities have raised alarms about these harms over the years, and once IFC established an independent accountability mechanism in 1999, called the Compliance Advisor Ombudsman ("CAO"), there was an office to respond to and substantiate those harms. Therefore, CAO cases can serve as a proxy for some of the negative impacts of IFC projects on local communities and the environment.

Communities impacted by IFC projects have raised 406 complaints to the CAO since 1999. They allege that projects contributed to serious harms, including physical and economic displacement, loss of livelihoods, pollution, and negative health and safety impacts. Impacted communities also raised noncompliance with IFC's rules on consultation, disclosure, and due diligence.

Once communities allege that an IFC project contributed to negative environmental and human rights impacts, then the independent mechanism either investigates the allegations or oversees a dispute resolution process. Of the 58 complaints that have been investigated, the CAO has found non-compliance in 54 (93% of complaints). It has facilitated a mediation and negotiated agreement to address issues in 52 other cases. Some harms stemming from noncompliance are particularly serious– including death, irreversible biodiversity destruction, and forced displacement of communities.

2. IFC’s evaluation of its investments largely ignores negative impacts.

Even though there is independently verified harm stemming from IFC projects, IFC's flagship impact measurement tool mostly omits negative impacts on local communities and the environment. Per IFC's own accounting, the worst case scenario is that IFC projects had minimal to no benefits, when in reality, we know the worst case scenario is much more dire– projects contribute to biodiversity destruction, health degradation, loss of livelihoods, and violence. By focusing on potential positive impacts and ignoring negative ones, IFC not only fails to capture whether its clients are implementing the Performance Standards adequately, but it also fails to capture whether its projects are doing any harm. 

IFC developed its current primary impact assessment tool in 2017, called the Anticipated Impact Measurement and Monitoring ("AIMM") system and describes the tool as enabling the institution to "better define, measure, and monitor the development impact of each project." Accountability Counsel raised concerns in 2018 about how AIIM will fail to accurately measure impact if it does not adequately consider negative as well as positive impacts of IFC projects, and our concerns have proven correct.

IFC classifies what the AIMM system measures into two buckets: project outcomes and market outcomes. For both, AIMM measures positive–not negative–outcomes. For example, one project outcome IFC aims to assess is "environmental effects," which it describes as "relat[ing] to environmental and social sustainability outcomes such as the reduction or avoidance of greenhouse gas emissions, improved water efficiency, reduced pollution, biodiversity effects, and/or improvements in social welfare." Another project outcome, called "stakeholder effects," also selectively focuses on positive impacts, as they “[a]ssess the incremental benefits that accrue from an IFC intervention.”

IFC spotlights a "notable project" in one of its materials explaining AIMM that reveals the very inadequacy of its methodology: the Nachtigal Hydropower Plant in Cameroon. In 2020, IFC lauded its largest power investment on the African continent as a "proactive approach to development" that will "bring clean, affordable power to millions." Less than two years later, impacted communities told a different story and raised allegations of environmental and social harms to the accountability mechanisms of the IFC, World Bank, and African Development Bank. As of today, the project disclosure page for the Nachtigal project only includes the ex-ante analysis and does not include any monitoring information on actual implementation or any  mention of environmental and social noncompliance raised by communities. So while the IFC heralds certain expected impacts, it fails to disclose that inadequate implementation resulted in actual negative impacts or how its and other IAMs helped improve the project by facilitating a dispute resolution process. 

The Nachtigal Hydropower Plant project is not an outlier; IFC does not disclose net impact for any projects. IFC's most current reporting in its Annual Report for 2024 does not list one negative impact. Instead, it defines impact as including people provided with water, sanitation, and hygiene, people and business using financial services, and people using digitally enabled services, and reports on results, such as jobs supported, students reached, farmers reached, and gas distributed. 

Notably, omitting reporting on negative impacts puts IFC out-of-step with its own Operating Principles for Impact Management, which it launched in 2019 and heralds as "the market standard for impact investors." The Operating Principles state that investors should "[a]ssess, address, monitor, and manage potential negative impacts of each investment." IFC’s most recent Impact Principles disclosure lists ways it identifies risks before making an investment and that the CAO exists for responding to environmental and social concerns, but it does not disclose how it addresses, monitors, or manages actual negative impacts that arise.  

IFC has faced criticism for inaccurate reporting before and so far failed to address it, with civil society organization, EarthRights International, raising the alarm after reviewing IFC's AIMM documentation in 2023 and concluded that IFC "only evaluates positive impacts but does not consider unintended or expected negative impacts on project hosts. This selective accounting undermines IFC's ability to assure it is producing positive development outcomes." Civil society organization, Bank Information Center, also called attention to IFC projects that did not comply with the Performance Standards and recommended that "IFC disclose its final development impact analysis including full details from its Anticipated Impact Measurement and Monitoring (AIMM) assessment system for all projects." 

Even if AIMM indicators were adequate, the transparency of its monitoring is not. IFC states that “monitoring of outcomes is an essential component of the AIMM system,”but in reality, IFC only discloses AIMM ratings in the aggregate per fiscal year and by region, not per project. This lack of transparency makes it impossible to tell whether IFC has any idea what its negative impacts are and how to manage them.

3. By not measuring net impact, IFC externalizes responsibility for harm onto people and the planet.

By not properly accounting for its impact, IFC and its clients are able to evade responsibility. Even when the CAO finds noncompliance or facilitates an agreement to address environmental and social issues, remedy to impacted communities and their environment is not guaranteed. 

The CAO has resolved 103 complaints with a compliance investigation report substantiating some harm or a dispute resolution agreement attempting to redress harm. Publicly available data on those 103 cases, however, reveal that commitments to bring a project into compliance or redress harm were made in 92 of them. And, there is only public documentation of any remedial action being taken in 61 of the cases (i.e., at least one commitment being completed). 

IFC has long resisted contributing to remedial actions, and it has yet to even adopt a policy on remedy, despite stating it would since 2021. The fact that remedy is rare is not only an indicator that IFC is shirking responsibility, but it also is an indicator of unsustainable financing. What impacted communities seek as remedy would make IFC projects better, and more inline with its Performance Standards. 

Recommendations for the IFC

The bottom line is: IFC does not know what its development impact is or whether its projects comply with its E&S policies. We have recommendations for how to change that. Because IFC either has not measured or is unwilling to disclose how well its projects implement its current Performance Standards, we must look outside the institution to determine the environmental and social impact of past IFC investments to inform better policy language and implementation of future projects. 

1. IFC should listen to and learn from people impacted by its investments.

IFC's new Performance Standards should learn from the mistakes of its past. Community-driven complaints to IFC's independent accountability mechanism, the CAO, and its non-independent IFC-led complaint portal, alert IFC to where the Performance Standards or their implementation are falling short. The CAO analyzes and publishes lessons from its caseload, including recent advice that the current Performance Standards are insufficient for reducing GHG emissions in IFC-financed projects. It has also issued multiple recommendations on how IFC can better remediate negative impacts and more responsibly exit investments. These lessons should directly inform the next version of IFC’s environmental and social rules. 

IFC does not publish information about complaints submitted to its institutional-level grievance mechanism; making the issues raised to it publicly available would provide valuable insights and community-driven data on implementation of Performance Standards. 

2. IFC should reform its impact measurement criteria to govern new Performance Standards.

No matter how strong any new Performance Standards appear on paper, they are meaningless if not implemented well in practice. Good implementation requires stronger due diligence, oversight, governance, and monitoring– in other words, actual accountability. 

To this end, IFC’s current impact measurement and management practices need a fundamental overhaul. They should be designed to account for net impact, so that harm to people and the planet is ideally prevented but otherwise acknowledged and addressed. And, that net impact accounting should be public. Without this shift, it will be impossible to evaluate whether the new Performance Standards meet their mark.