OBSERVARE

Universidade Autónoma de Lisboa

ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

TWO DECADES AFTER THE RIO EARTH SUMMIT:

SUSTAINABLE DEVELOPMENT QUO VADIS?

Korinna Horta

email : korinna.horta@gmail.com

Korinna Horta completed her Ph.D. in development studies at the University of London (SOAS),

holds an M.A. in Latin American Studies and International Economics from Johns-Hopkins-

University (SAIS) in Washington, D.C. and a degree in social science from the Universidade Nova

de Lisboa, Lisbon. She has been a Yale University Stimson Fellow and a guest lecturer at

universities in the U.S. and Europe. In addition to being a consultant to the United Nations

Research Institute for Social Development and other international organizations, she served from

1990-2009 as a senior scientist at the Environmental Defense Fund in Washington, D.C.. At

present she works on international finance, environment and human rights at Urgewald, a

German organization. Since 2010 she also serves as a member of the Compliance Review Panel

at the Inter-American Development Bank in Washington, D.C.. Among her publications are

articles in the Yale Journal for International Affairs, the Harvard Human Rights Journal, the New

Scientist and other journals. In addition, she published a book on international financial

institutions and biodiversity and co-authored a book on East Timor. She has also written op-ed

pieces and contributed several chapters to books on human rights, global environmental politics

and international financial institutions.

Abstract

The world’s most influential development agency, the World Bank Group (WBG), is the

leading actor in development finance and plays a central role in global efforts to protect the

environment. Following the Rio Earth Summit in 1992, the institution was responsible for all

investment projects of the Global Environment Facility (GEF), which was then newly

established to serve as the interim financial mechanism for the United Nations Conventions

on Climate Change and Biodiversity. The promise that the GEF would lead to the “greening”

of development finance remains largely unfulfilled.

More recently the United Nations Framework Convention on Climate Change appointed the

WBG as the interim trustee of the new Green Climate Fund which plans to mobilize an

estimated US$ 100 billion per year by 2020.

While the World Bank Group plays this critical role in global environmental efforts, its main

business continues to be lending for development. This includes the financing of large-scale

infrastructure projects, agribusiness, large dams as well as investments in gas, oil and

mining. This regular lending portfolio for development is often at odds with environmental

sustainability. For example, despite the growing area of climate finance, support for fossil

fuel projects continues to be dominant in the institution’s lending for the energy sector.

Another climate-related area is the World Bank’s pioneering role in advancing REDD+, an

initiative designed to reduce the emission of global green house gases by integrating efforts

to protect forest areas into global carbon markets. Ultimately, its success will depend on

addressing sensitive questions such as land ownership, forest governance and the equitable

sharing of benefits. In conclusion the paper considers the underlying corporate culture and

the difficulties in reconciling environmental and social sustainability with the institution’s

supply-side driven focus on meeting lending targets.

Keywords

International Finance; Development and Environment; World Bank; Rio + 20

How to cite this article

Horta, Korinna (2011). "

Two decades after the Rio Earth Summit: sustainable

development Quo Vadis

?”. JANUS.NET e-journal of International Relations, Vol. 2, N.º 2,

Autumn 2011. Accessed [online] on date of last visit,

observare.ual.pt/janus.net/en_vol2_n2_art2

Article received on July 2011 and accepted for publication on August 2011

JANUS.NET, e-journal of International Relations

ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

TWO DECADES AFTER THE RIO EARTH SUMMIT:

SUSTAINABLE DEVELOPMENT QUO VADIS?

Korinna Horta

The Rio Earth Summit in 1992, also known the United Nations Conference on

Development and Environment (UNCED), promised to inaugurate a new era where

economic growth and environmental sustainability would be closely intertwined and

mutually reinforcing. The hope was that the 108 heads of state gathered in Rio would

launch a new regime of international cooperation to transform our approach to

development and protect the world’s climate and biodiversity.

As the 20

anniversary of UNCED approaches and delegates from all over the world will

once again gather in Rio, it is critical to attempt a better understanding of what has

been accomplished to date. Here the focus is on the World Bank Group (WBG), the

world’s most preeminent development institution with a membership of 187 countries

and a large bureaucracy running its day-to-day business. The WBG has played a central

role over the past two decades in financing efforts intended to promote sustainable

development and address global environmental problems such as climate change and

the loss of biodiversity.

Following the publication of its seminal report on “Environment and Development”

in the year of the Rio Conference

, the World Bank Group adopted a mission

encapsulated in the twin goals of promoting poverty reduction and sustainable

development. The new mission statement was based on the recognition that fighting

poverty is inescapably linked to environmental protection and improved management of

natural resources.

Considered to be a global knowledge center, World Bank Group thinking wields

considerable influence over other public financial actors in the arena. Institutions, such

as the regional development banks and bilateral aid agencies tend to follow its lead.

More recently, some of the world’s largest private sector banks, the so-called Equator

Banks, have committed to adopting the environmental and social Performance

Standards of the International Finance Corporation (IFC), the World Bank Group’s

branch that lends directly to the private sector.

This paper reviews the WBG’s commitments to environmental policies and initiatives as

the leading global actor in this arena. It briefly considers the institution’s role at the

center stage of financing for global environmental goals. This is followed by considering

the WBG’s main business in development finance and a review of the WBG’s framework

of environmental and social safeguards. The costs of exempting entire areas of lending

from scrutiny of their environmental and social impacts are briefly sketched. Given the

WBG’s growing role in climate finance, the paper then considers lending for investment

projects in the energy sector and reviews the opportunities and risks associated with

WBG support for REDD+, an initiative designed to reduce greenhouse gas emissions by

The World Bank (1992). World Development Report, Development and Environment. Washington, D.C.

JANUS.NET, e-journal of International Relations

ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

integrating the protection of tropical forests into global carbon markets. Finally, it will

consider the underlying corporate culture and the difficulties in reconciling

environmental and social sustainability with the institution’s supply-side driven focus on

meeting lending targets.

A Manager of Global Environmental Funds

Prior to UNCED in 1992 and again now in the context of the United Nations Framework

Convention on Climate Change (UNFCCC), the World Bank Group positioned itself as a

key institution in environmental finance. It is central to both The Global Environment

Facility (GEF) and the Green Climate Fund (GCF), which were established two decades

apart in the early 1990s and in 2010. Both are mechanisms of financial transfers from

North to South to meet the challenges of international environmental cooperation.

Two decades ago, as preparations for the Rio Earth Summit were underway, most

developed countries were eager to demonstrate their commitment to finance

developing country efforts in addressing globally important environmental problems

such as climate change and the loss of biodiversity. Most developing countries, on the

other hand, saw themselves confronted with too many other needs and did not consider

global environmental problems as a major priority. They wanted, however, to make use

of environmental preoccupations in countries of the North and the possibility of

additional financial transfers to support their own domestic economic and

environmental priorities (Fairman, 1996: 69).

Perhaps even more importantly, Northern and Southern governments did not see eye-

to-eye on the governance structure of a fund designed to address global environmental

problems. Developing country would have preferred to create a new institution with

equal voting rights for all state members.

But developed countries in the early 1990s and again in the present decade insisted on

using existing institutions to channel environmental finance. Their clear preference was

and continues to be the WBG where voting shares are proportional to a country’s

financial contributions to the institution, which ensures the predominance of developed

countries. In anticipation of the Rio Summit, the World Bank’s Board of directors

passed a resolution in 1991, which established the Global Environment Facility (GEF)

and put the G7 countries clearly in the driver’s seat in decisions on North-South

financial transfers for the environment.

But in view of developing countries misgivings about a structure in which most of them

had a very limited voice, the GEF invited the United Nations Development Program

(UNDP) and the United Nations Environment Program (UNEP) to join the GEF in a

tripartite arrangement. It also innovated by creating a GEF Council in which the

representation of developing countries was strengthened and decisions would require a

‘double majority’, that is a majority of both Northern donor and Southern recipient

countries. In practice, however, twice yearly GEF Council meetings and their

proceedings moved along by consensus. The real power, at least in the GEF’s first

decade, lay with the WBG. It was the trustee, provided the secretariat and was

responsible for all of GEF investment projects making up the bulk of GEF funding, while

the UNDP and UNEP were limited to carrying out technical assistance or environmental

studies. The GEF bolstered the World Bank’s s credentials as an environmentally

JANUS.NET, e-journal of International Relations

ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

responsible institution and helped it establish leadership in an area of increasing

interest to the public in its main donor countries (Fairman, 1996: 72).

For its entire first decade, the GEF had funding of about US$ 4 billion, a paltry sum

when compared to the demands of developing countries or to the average annual

lending of over US$ 20 billion a year by the World Bank. To rationalize their limitations

on funding, donors promoted the GEF as an environmental “Trojan Horse”, a means to

integrate or “mainstream” environmental priorities into all activities of the WBG and its

two junior partners. Mainstreaming was seen as a way to make the GEF’s small sums

go further by “greening” development work more broadly.

But mainstreaming did not take place (Fairman 1996: 82). With GEF funding, the World

Bank has tackled the symptoms of selected environmental problems but GEF funds

have not contributed to shaping lending in sectors such as energy, forestry and

agribusiness that are central to climate and biodiversity protection (Young, 2002: 215;

Horta 1998: 3). An official evaluation commissioned by the GEF in 1998 came to the

same conclusion. Its one priority recommendation was the need to mainstream global

environmental goals into the WBG’s overall lending portfolio by, for example, shifting

away from financing conventional power loans to a new role in financing sustainable

energy technologies (Garrett et al., 1998: xv).

Both the United Nations Convention on Climate Change and the United Nations

Convention on Biodiversity adopted the GEF as their interim financing mechanism in

1992. But the GEF was never directly accountable to the Conventions and despite its

early celebrations as being the one concrete outcome from the 1992 Rio conference, its

importance has diminished over the past years.

Similar to its initiative in establishing the GEF, the World Bank more recently positioned

itself as a major financial actor in the area of climate change. At stake are an estimated

US$ 100 billion per year by 2020 from both public and private sources to assist

developing countries in mitigating or adapting to climate change. In anticipation of

substantial new money flows, the World Bank launched its Strategic Framework on

Development and Climate Change in 2008. It was designed to serve as a model for

channeling large-scale financing to developing countries to cover the added cost and

risks to development posed by climate change

. Once again, the World Bank’s

anticipation of donor sentiment seems to have paid off. At the Conference of the Parties

(COP) summit on climate change in Cancun in December 2011, the World Bank was

appointed to serve as the interim trustee of a new Green Climate Fund (GCF). The

exact working modalities of the GCF and the role of the World Bank Group as interim

trustee are still to be determined in on-going international negotiations.

Developed country governments continue to consider the World Bank Group to be the

institution most suited to managing large scale funding flows with fiscal prudence. How

exactly the World Bank as interim trustee of the GCF will transcend traditional donor-

recipient relationships and become an instrument of the UNFCCC principle of common

but differentiated responsibilities which recognizes the ecological debt of Northern

countries to the South is still open to question. An additional open question is the

impact of China’s growing role on the WBG’s Board of Directors. While the G 7’s role on

this Board is still predominant, China has recently replaced Germany as the third

The World Bank (2008). Development and Climate Change – A Strategic Framework for the World Bank

Group. Washington, D.C.

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ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

largest shareholder of the institution after the United States and Japan.

Given the post-financial crisis difficult economic situation in the traditional donor

countries, the expectation is that public funding from donor governments for the GCF

will leverage larger funding contributions from private sources. The use of carbon

markets, hedge funds and a variety of other more or less opaque financial instruments

will be under consideration in order to meet the US$ 100 billion per year transfer target

by 2020.

While the World Bank’s exact role is still being debated and questions of whether GCF

funds will be comingled with World Bank lending are yet to be answered, the World

Bank will have an influential role both as the interim GCF trustee as well as through its

leadership role in development finance. The next sections of this paper will consider in

more detail how the World Bank Group addresses environmental concerns in its

regular business as the world’s most influential lender for development.

A Framework of Environmental & Social Safeguards

“If the World Bank has been a problem in the past, it can and will be a strong force in

finding solutions for the future”

declared then World Bank president Barber B. Conable

when he announced the establishment of a top-level Environment Department in 1987.

The promise of this new department was that environmental considerations would be

integrated into all of the Bank’s lending and policy activities. Largely spurred on by

public criticism of major World Bank programs, Polonoroeste in Brazil and

Transmigration in Indonesia, both of which became emblematic for the destruction of

tropical forests and the impoverishment of local populations, the Bank had recognized

that it must adopt the environment as its own cause.

At the core of the World Bank’s commitment are ten Environmental and Social

Safeguards Policies as well as a new Access to Information Policy adopted in 2010,

which is based on the presumption that most documents should be made publicly

available to enhance transparency and ultimately positive development outcomes

The Safeguard Policies cover a broad arrange of topics from environmental assessment

and involuntary resettlement to indigenous peoples and forests

. They were designed to

avoid harming people and the environment in Bank supported projects, such as

infrastructure development, power plants and large dams. They require consultations

with project-affected people when assessing environmental impacts, the incorporation

of their views in resettlement plans and the participation of indigenous peoples in the

development of plans meant to benefit them.

Unlike its Environmental Strategy, which is voluntary guidance for Bank staff, the

Safeguards are mandatory. This means that individuals or communities who feel that

Address by Barber B. Conable, President of the World Bank Group, to the World Resources Institute,

Washington, D.C., May 5, 1987.

For detailed information on access to information, please consult

http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTANDOPERATIONS/EXTINFODISCLOSURE/0,,menu

PK:64864911~pagePK:4749265~piPK:4749256~theSitePK:5033734,00.html, Accessed on May 13,

2011.

For a listing of the Safeguard Policies, please see

http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTPOLICIES/EXTSAFEPOL/0,,menuPK:584441

~pagePK:64168427~piPK:64168435~theSitePK:584435,00.html, Accessed on May 13, 2011.

JANUS.NET, e-journal of International Relations

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Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

they are negatively affected by a Bank-financed project can submit complaints to the

World Bank’s Inspection Panel and press for solutions to their problems whenever

Safeguard Policies have not been properly adhered to.

At present the World Bank has embarked on a process to update and consolidate its

Safeguard Policy Framework because the current system is considered to be

cumbersome and time-consuming. This process is to be concluded by 2012. While

updating the policies is inherently a good idea, there is concern among civil society

organizations that under the guise of “unclogging the system”, there is the risk of

undermining the existing regulatory framework instead of strengthening and

broadening it.

The International Finance Corporation (IFC), the World Bank’s important private sector

branch, has a separate Sustainability Policy and Performance Standards for its private

sector clients, which just underwent a major review

Both the Safeguards and the Performance Standards only cover the shrinking area of

traditional project finance. In the case of the IFC, for example, 47% of its current

lending is now channeled through Financial Intermediaries, which are not subject to the

same degree of environmental and social scrutiny. In the case of World Bank public

sector finance, an estimated 50% is now dedicated to providing lending for macro level

policy reforms and direct budget support to developing country governments. Such

lending is exempt from environmental and social impact considerations.

The Cost of Exemptions

The environment is more than a specific sector. It is cross-sectoral since activities at

both the project level and at the macro-policy level have impacts on the environment

and natural resources. While the World Bank had promised to mainstream the

environment by ensuring that environmental concerns be incorporated into the entire

portfolio of Bank activities

, its Environmental and Social Safeguards have only been

applicable to specific investment operations.

Structural adjustment lending, which emerged forcefully in the 1980s when a

combination of falling commodity prices and growing public sector deficits led to

mounting debt service for many countries, is a case in point. The loans were made in

exchange for a government’s adoption of a standard set of economic policy reforms,

which included deregulation, privatization and trade liberalization and became known

as the Washington Consensus. All of these economic reform measures have

environmental and social implications, which were not adequately assessed and taken

into consideration.

One example would be the shrinking of the role of the state in national economies

promoted by structural adjustment lending. An unintended consequence was the

reduction of national and local capacity to manage environmental problems such as

addressing deforestation and water pollution. The potential impacts of this on local

livelihoods and public health were not considered (Saprin, 2004).

For further information, please see

http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDocument&UNID=0ADE5C1923

DC4CF48525788E0071FAAA, Accessed on May 13, 2011.

The World Bank (1995). Mainstreaming the Environment, Washington, D.C.: 3.

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Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

A World Bank report in 2000 acknowledged that lending for growth-oriented macro-

economic policy reforms had a highly negative impact on national capacity, “The

adjustment decades also saw a substantial deterioration in the quality of public

institutions, a demoralization of civil servants and a decline in the effectiveness of

service delivery in many countries” (The World Bank, 2000:37).

The term structural adjustment was replaced in 2004 by the term development policy

lending which augments the Washington Consensus to include institution-building, a

focus on good governance and warnings about the corrosive forces of corruption.

Has this contributed to greater attention to environmental sustainability? Not so,

according to the World Bank’s own Independent Evaluation Group (IEG). In a seminal

report published in 2008, it found that the Bank lacked a systematic environmental

sustainability perspective across its policy and financial instruments. It adds that the

environment and natural resource management had not been given sufficient priority in

Poverty Reduction Strategy Papers and other Bank analytical and/ or lending activities

(Independent Evaluation Group, 2008: 5).

The area of trade finance represents an illustrative example of the high environmental

and social costs of exempting certain categories of loans from the Safeguards

Framework. For example, the WBG’s International Finance Corporation has provided

trade finance to support corporations that export specific commodities such as palm oil,

which is in high demand given the growing role of biofuels in the energy mix of many

countries.

The environmental and human rights impacts of this type of investment have become

so problematic that World Bank president Zoellick established a moratorium on

investments related to palm oil and other commodities grown in large-scale

monocultural plantations in 2009. This decision was the result of an audit undertaken

by the International Finance Corporation’s Ombudsman’s office following civil society

allegations of massive deforestation and human rights violations linked to IFC support

for a trade facility for the Wilmar Group, one of the world’s largest plantation

companies with vast holding in Indonesia and Malaysia. The audit confirmed serious IFC

negligence and violations of environmental and social standards: “Because commercial

pressures dominated IFC’s assessment process, the result was that environmental and

social due diligence reviews did not occur as required”

The moratorium was lifted in April 2011 with the publication of a new World Bank

Group Framework and IFC Strategy to guide the institution’s future engagement with

the global palm oil sector. It promises to support small holders, share benefits with

local communities and protect forests and biodiversity

. With the expansion of large-

scale agribusiness operations in many of the WBG’s client countries, these

commitments are important. However, what counts is their implementation in practice

and this remains to be tested.

Difficulties in Implementation: Investment Projects

Compliance Advisor Ombundsman (CAO), Audit of IFC’s Investments in Wilmar Trading, Audit Report,

Washington, D.C., June 19, 2009, p.2

For further information, http://www.ifc.org/ifcext/agriconsultation.nsf/Content/Home, Accessed on May

17, 2011.

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Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

World Bank Safeguard Policies and IFC Performance Standards do apply to traditional

project finance, such as investments in infra-structure development and in oil, gas and

mining. In the following we briefly consider investments in the energy sector and

support for REDD+ both of which are particularly sensitive to climate change

considerations.

Energy Lending

The World Bank’s most recent Annual Reports have highlighted the links between

climate change and poverty. Its 2009 report stated that “Climate Change will most

severely affect the poorest peoples and the poorest countries, potentially reversing

decades of development achievements. “

Its 2010 Annual Report again emphasizes

that climate changes puts the gains in the fight against poverty and the lives and

livelihoods of billions of people at risk.

Today addressing climate change has become one of the World Bank Group’s banner

activities (The World Bank 2008). Donor governments promoted this development by

committing an additional US$ 6.1 billion for World Bank-managed Climate Investment

Funds in 2008

This welcome shift to a focus on climate change would have provided a unique

opportunity to overhaul the World Bank Group’s portfolio to ensure that all its lending

and non-lending activities are consistent with climate protection goals. However, while

the institution’s new Energy Strategy, which is currently being prepared, contemplates

increasing support for energy access for poor people and low-carbon development, the

World Bank continues to be a major funder of fossil fuel projects. Lending for coal

projects, the most heavily polluting of fossil fuels, has reached record levels in recent

years

. One of the most controversial recent World Bank investments is the Medupi

coal-fired power plant in South Africa, the World Bank’s single largest operation in

Africa in 2010.

The Medupi power plant is financed through a World Bank loan of US$ 3.75 billion loan

for Eskom Holding, Ltd., South Africa´s state-owned utility (The World Bank, 2010:

20). It finances the 4,800 MW coal-fired power plant, one of the largest in the world. It

also includes US$ 200 million for renewable energy, a small fraction of the massive

investment.

The Medupi plant will use super-critical coal, which burns coal more efficiently than

standard coal-fired power plants. But this does not make it a “low carbon option” and it

will lock South Africa into burning coal for decades to come. The Bank itself estimates

that at full output Medupi will release 30 million tons of CO

per year, although it claims

that the net increase in CO

emissions will be considerably lower because the project

The World Bank (2009). Annual Report 2009, Washington: 20

World Bank Press Release, September 26, 2008,

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21916602~pagePK:34370~piPK:34

424~theSitePK:4607,00.html

Accessed on May 19, 2011.

Meinhard-Gibbs, Heike and Bast, Elizabeth (with Kretzman, Steve), World Bank Group Energy Financing

– Energy for the Poor?, Oil Change International, Washington, October 2010, available at

http://priceofoil.org/wp-content/uploads/2010/10/ociwbgenergyaccessfin.pdf

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will provide energy access to the poor and replace diesel generators, candles and

kerosene

But South African NGOs and the affected people remain unconvinced. They have filed a

claim with the World Bank’s Inspection Panel stating that the project will cause massive

pollution and significantly damage their health, livelihoods and the environment

. In

addition, they consider the project to be a subsidy to large corporations that will do

little to provide energy to local populations. According to Bobby Peek, Director of the

NGO GroundWork in South Africa, “This project is to secure uninterrupted electricity for

large corporations, such as smelters and mining houses under secretive special pricing

agreements. It is not for the millions of poor people who cannot afford or do not have

access to electricity. South Africa does not need this loan”

The World Bank’s Inspection Panel undertook an initial field visit and found sufficient

evidence to justify a full-scale investigation of possible violations of Environmental and

Social Safeguards

. The investigation is to be concluded in late 2011.

World Bank Group investments in oil, gas and mining have been controversial for many

years because of their association with environmental degradation, human rights

violations and corruption. In order to address some of these problems, the World Bank

commissioned the Extractive Industries Review (EIR) headed by Emil Salim, a former

Indonesian environment minister, in 2000. The EIR’s mission was to provide a set of

recommendations to guide World Bank Group investments in the extractive sector with

the goal of ensuring their compatibility with poverty alleviation and sustainable

development. The EIR report, published in 2003, recommended an immediate halt to

all investments in coal and a gradual phasing out of investments in fossil fuels more

broadly. In addition, it called for improved dialogue, respect for human rights,

participatory decision-making and sound environmental practices in extractive projects

(EIR 2003). But to date fossil fuel lending, including coal, continue to play a dominant

role in the WBG’s energy portfolio and the EIR’s recommendations remain to be

implemented.

On a broader scale, the WBG’s Independent Evaluation Group (IEG) examined the

environmental sustainability of a WBG investment portfolio of US$ 400 billion covering

the years 1990-2007. The evaluation concluded that while attention to the environment

had grown over those years, the WBG had not put environmental sustainability

considerations into practice when it was lending for large dams, agribusiness, pipelines

and other projects (Independent Evaluation Group 2008).

Climate Change & Forests: Opportunities & Risks of REDD+

The World Bank (2010). Project Appraisal Document, Report Nº 53425-ZA, Washington, March 19: 49.

The Inspection Panel investigation request is available at

http://siteresources.worldbank.org/EXTINSPECTIONPANEL/Resources/Request_for_Inspection_(PUBLIC).

pdf, Accessed on May 23, 2011.

Bank Information Center (2010). Press Release, South Africans say ‘no’ to Eskom coal“, Washington,

April 6.

Statement by Roberto Lenton, chairman of the Inspection Panel. Available at

http://siteresources.worldbank.org/EXTINSPECTIONPANEL/Resources/Final_Elig_Rpt_for_Disclosure.pdf.

Accessed on May 23, 2011.

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Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

The destruction of tropical forests represents approximately 17% of greenhouse gas

emissions generated by human activity. The initial idea behind REDD (Reduced

Emissions from Deforestation and Forest Degradation).

was that compensating developing countries for slowing their rates of deforestation

represented cost-effective and near-term opportunities to stabilize the world’s climate.

In addition, it would generate other benefits as well, such as the protection of

biodiversity and the generation of income for economic development

Compensating countries for reducing their rates of deforestation from a given baseline

(the deforestation that would have happened anyway) ran the risk of providing

perverse incentives. Some governments might have decided to accelerate rates of

deforestation in their countries in order to qualify for higher compensation payments.

To address this problem, REDD has now been expanded to REDD+ which also considers

compensation for activities that contribute to forest conservation, sustainable forest

management and enhancement of carbon stocks.

REDD+ presents both opportunities and risks. The opportunities are the opening up of

political space to address questions of governance, corruption and land rights as well as

finding solutions to the underlying causes of deforestation. On the risk side are issues

of land speculation, eviction of forest-dependent people, loss of traditional knowledge

systems and outright fraud and corruption as vested interests seek to profit from

lucrative carbon deals. Furthermore, there is the risk that endemic rent seeking in

countries with poor governance systems will lead to REDD+ carbon credits that do not

represent genuine reductions in CO

emissions (Lohmann, 2009).

The World Bank’s Forest Carbon Partnership Facility (FCPF) is the most prominent of

REDD+ related initiatives. It came into effect in June 2008 and consists of two parts: a

REDD-Readiness Mechanism to prepare countries for REDD, and a Carbon Fund to

broker carbon finance transactions

. The Carbon Fund, which is scheduled to become

fully operational in 2011, will enable countries to participate in global carbon markets.

The goal is for countries to sell their Emissions Reductions (ERs) to buyers who find it

more cost-effective to purchase ERs than to meet their own emissions reduction targets

through technological or other means.

The FCPF has established several criteria that should be included in REDD+ Readiness

preparations, including consultations with civil society and indigenous peoples.

According to the FCPF Charter, World Bank Environmental and Social Safeguard apply

to REDD+ initiatives, although there is ambiguity about whether the Safeguards are

already applied at the planning stages or only later during implementation (Forest

Carbon Partnership Facility 2011).

The Congo Basin Forest is the second largest after the Amazon and represents one of

the regions where the FCPF is pioneering REDD+. One of its client countries is the

Democratic Republic of Congo, (DRC) which covers more than half of the Congo Basin

forest. DRC provides a critical example of how difficult preparations for REDD+ are in

practice. Institutions are weak and not present in large swaths of the country.

Questions of land-ownership, resource-use rights and rights to sharing in the benefits

of REDD+ payments all remain to be worked out (Horta, 2009).

Numerous documents on REDD+ are available at the website of the Center for International Forestry

Research (CIFOR) at URL http://www.cifor.cgiar.org.

Further information on the FCPF’s website http://www.forestcarbonpartnership.org/fcp/

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ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

DRC’s has a very poor record in using the income from its vast wealth in minerals and

other natural resources for poverty reduction purposes. Civil society organizations in

the region are concerned that shifting cultivation is considered to be a primary driver of

deforestation, while industrial-scale logging and mining operations are left out of the

equation. The stage may be set for blaming the poor for deforestation while REDD+

benefits accrue to powerful interests.

In DRC as elsewhere, it will be an enormous challenge to ensure that income generated

by REDD+ will be shared with the populations living in the forested areas (Sunderlin et

al, 2008).

The World Bank’s own record in DRC’s forest sector is not encouraging. In 2007 its

Inspection Panel investigated World Bank forest-related investments in DRC. Its

investigation report concluded that Bank activities had focused on industrial timber

production and had largely ignored environmental and socio-economic issues, including

the needs of the approximately 40 million people in DRC who rely on forest resources

for their subsistence (The Inspection Panel 2007).

A central problem for the World Bank’s FCPF is that its accelerated schedule to assist

countries in getting ready for REDD+ and participating in carbon markets is not easily

reconcilable with the need for broad participation and the strengthening of national

institutions, which require longer-term timeframes.

A Corporate Culture at Odds with Sustainability

As this paper has tried to demonstrate, the WBG’s environmental agenda continues to

be unfinished. The lack of policy coherence is illustrated by the WBG’s growing role in

climate finance and its simultaneous financing of large-scale fossil fuel development,

which locks developing countries into high greenhouse gas emissions for decades to

come.

The World Bank Group’s own Independent Evaluation Group (IEG) has documented a

static and problematic investment program in the energy sector where incentives are

stacked against much needed lending for energy efficiency and renewable energy (IEG

2008: ix). The IEG also has called for much more rigorous environmental and economic

assessments of energy investments as well as for the reshaping of the WBG’s internal

incentive system.

Over the past two decades IEG evaluation reports as well as the findings and

recommendations of both internal and external Panels and Commissions, have provided

valuable contributions with the goal of improving the environmental sustainability of

WBG operations. But the WBG has mainly stuck to a course that has long been subject

to serious criticism (IEG, 2008: xxv).

What explains the lack of coherence between official discourse on the environment and

actual financing decisions?

The central problem was already identified in 1992 by Willi Wapenhans, a former World

Bank Vice-President. He referred to the institutional “culture of (loan) approval” as a

critical obstacle to improving loan quality (Wapenhans, 1992). Internal staff incentives

are based on moving money and not on actual results in terms of reducing poverty or

promoting sustainable development. The lack of attention to actual results has been

JANUS.NET, e-journal of International Relations

ISSN: 1647-7251

Vol. 2, n.º 2 (Autumn 2011), pp. 45-58

Two decades after the Rio Earth Summit: sustainable development Quo Vadis?

Korinna Horta

documented in numerous internal evaluation reports, which have consistently pointed

to serious shortcomings in monitoring and supervision of WBG-supported operations

(OED, 2000; OED, 2002; IEG, 2008). But evaluation findings have not led to significant

changes.

Former World Bank official Steve Berkman describes the situation in vivid language:

“Obsessed with moving money to further our own careers, we had somehow forgotten

our fiduciary responsibilities and just plain old-fashioned logic as we approved loan

after loan, enriching the corrupt while ensuring that the poor would remain in poverty”

(Berkman, 2010: 159).

The present geopolitical shifts at the global level with the growing power of China,

India, Brazil and other developing country powers are also leading to increasing

strength of these countries on the Board of Executive Directors at the World Bank. The

growing importance of emerging powers has already led to new trends such as the use

of country-systems, i.e. the replacement of World Bank Safeguards with environmental

and social regulations in the borrowing countries. This could be positive as long as

public accountability is built into this system. However, if the country-systems approach

impedes the independent monitoring of environmental and social impacts, then it will

serve primarily to move large amounts of money with little accountability.

Sustainable development will remain largely elusive as long as the political and

economic forces driving unsustainable practices are not addressed. Whether developed

country governments or the new powers on the global stage with an important voice at

the World Bank will develop the political will to address the root causes of the

environmental problems engulfing our planet is an open question.

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