World Bank accused of environment rule violations

Palm oil plantation in Cigudeg, Bogor, Indonesia Photo: Achmad Rabin TaimGreen groups have asked the World Bank’s private sector arm, the International Finance Corporation (IFC), to suspend financing palm oil sector in Indonesia after its own internal audit revealed serious violations by the loan-giving body.

The audit found that IFC allowed commercial interests to override its social and environmental standards in making major loans to the oil palm sector , an internal audit reveals. Oil palm has become synonymous with widespread clearance of forests and peatlands, massive CO2 emissions and the theft of indigenous peoples’ lands.

Although the IFC knew about all these risks, due to its experience with prior projects and the warnings of non-government organisations, it went ahead with loans to the Wilmar palm oil trading group, in violation of its own standards, according to the report.

The IFC failed to assess the supply chains or look into the damaging impacts of the company’s subsidiary plantations that were taking over community lands and forests in Borneo and Sumatra.

The findings have major implications for the IFC: not only must it apply its standards more
carefully but it must check out concerns about where the companies it funds are sourcing their raw materials. Palm oil is only one example of commodities produced in violation of norms.

The audit confirmed that IFC suffers a systemic problem in that the pressure to lend and to support business interests overcomes prudence, due diligence and concern for social and environmental outcomes.

The report further confirmed that from previous projects, IFC staff knew of the environmental and social risks in the palm oil sector, including unresolved land disputes and non-compliance with its social and environmental standards, but chose to ignore the risks.

The report found that IFC investment staff overrode IFC procedures and the warnings of environment staff in order to speed up investments. The staff mis-categorised investments as 'low risk' to avoid safeguards and to avoid applying their own performance standards.

These findings come from a highly critical audit report by the Compliance
Advisory Ombudsman of the IFC which looked into a detailed complaint filed by the Forest Peoples Programme and a coalition of 19 Indonesian civil society and indigenous organisations.