Assessing the Potential Impact on Extractive Industries of IFC's Revised Social Standards

Abstract

Abstract The International Finance Corporation (IFC) adopted its Policy on Environmental and Social Sustainability and Performance Standards in April, 2006. These standards are aimed at encouraging better management of environmental and social risk in major capital investments. They are often used as de facto benchmarks or regulatory guidelines in oil, gas and mining projects, even where IFC is not directly involved. The eight Performance Standards cover key operational areas: environmental and social management systems, including risk assessment and evaluation (PS1); labor and working conditions (PS2); resource efficiency and pollution prevention (PS3), community health, safety and security (PS4); land acquisition and involuntary resettlement (PS5); biodiversity conservation and sustainable management of living natural resources (PS6); indigenous people (PS7); and cultural heritage (PS8). In January, 2012, IFC issued revised standards based on three years’ experience with them. This paper focuses on IFC’s revised social performance standards (PS 1, PS5 and PS7, with reference to others) and analyzes their potential impacts on the oil, gas and mining industries. These standards introduce broad-based concepts that will require many companies to modify their existing development strategies. Such concepts include a defined hierarchy of stakeholder engagement; access to natural resources as a potential impact on land acquisition and resettlement; the importance of ecosystem services to human communities; and "Free, Prior and Informed Consent" during project development (FPIC). For each social standard, we focus on (a) new requirements or significant modifications of existing requirements; (b) expected pathways for implementation; (c) desired outcomes; and finally, (d) how compliance with new requirements might be assessed. Potential implications for extractive industries are significant because new requirements are likely to increase the complexity of social risk assessment and management – for example, by providing broadly expanded access to communities, ethnic minorities, local leaders and NGOs. In turn, increased complexity often translates into greater uncertainty and extended timelines for project design and implementation. In an era of growing resource nationalism, global advocacy and more empowered stakeholders, the consequences of uncertainty – and the need for better management systems – will fall heavily on private companies. This paper will outline broad strategies to meet such challenges.