1. Managing Environmental and Social Risks Anis Dani Lead Evaluator, IEGCC October 10, 2012

2. E&S frameworks at the World Bank Group World Bank safeguards framework, largely for public sector. IFC and MIGA performance standards, for the private sector. Similar objectives but different strengths and weaknesses: Thematic coverage of World Banks social safeguards is much narrower than in IFC Performance Standards World Banks safeguards emphasize up front mandatory requirements, with mitigation measures designed before project approval. But projects suffer from lack of adequate supervision and monitoring of outcomes, especially in the case of medium-risk (category B) projects. In IFC, supervision and monitoring was more robust but oversight was by private sector partners without third-party verification or adequate disclosure.

3. World Bank Group Portfolio Trends indicate increasing risk profile In the Banks portfolio, Category A increased from 6 to 11%, Category B increased from a third to over half of investment projects In IFC, slight decline in Category A, and FI Projects are 1/3 of portfolio; In MIGA, FI guarantees increased from 1/3 to over half of portfolio Source: Business Warehouse A. WB Lending by Safeguard Category B. Trends in IFC Portfolio

4. Coverage of Safeguards vs Performance Standards

5. Supervision of safeguards in WB- financed projects by Env. Category

6. Supervision in IFC projects improved over time

7. ICR reporting in WB projects Reporting in ICRs is much weaker on environment than social issues ICRs for projects with significant E&S risks (Cat. A and B projects) should report on E&S performance Source: IEG portfolio review: Completed projects, FY99-08 approvals

8. Organizational arrangements at the World Bank and IFC

9. Recommendation - 1 Revise safeguards policy framework: harmonize categorization criteria to assess E&S risks consolidate World Bank policies into one social and one environmental policy, harmonizing thematic coverage across the World Bank Group apply IFCs Performance Standards to financial intermediaries, listed equities, and trade finance increase MIGAs capacity to supervise its projects

10. Recommendations 2-4 Enhance client capacity, responsibility, and ownership Invest more in analytical work, TA/ Advisory Services Assign responsibility for safeguards monitoring to WB clients Revise guidelines, instruments, and incentives to strengthen supervision arrangements, especially at WB Strengthen safeguards M&E and completion reporting enhance transparency and third-party monitoring for higher risk WB projects that use E&S policy frameworks and FI projects at IFC. incorporate E&S effects as essential dimensions of the PDO, as in the XPSRs in IFC

11. Recommendation - 5 Seek greater symmetry in the structure of Bank Group accountability For WB create grievance redress mechanism to complement Inspection Panel investigations For CAO introduce more independent review of audit reports.

12. Backup Slides

13. Supervision of Projects with Policy Frameworks vs Mitigation Plan

14. Strengths/Weaknesses of Safeguards in WB projects Strengths Comprehensive coverage of environmental safeguards Priority to mitigating negative impacts Preparation (85%) Good identification of high risk projects (Cat. A): 11% Supervision of Cat. A (>80%) Compliance ensured through high quality E&S risk assessments Use of policy frameworks for FI, CDD, etc. allows rapid preparation Weaknesses Narrow coverage of social safeguards Less attention to client capacity building Supervision (61%) Over-categorization of medium risk projects (Cat. B): about10% of 51% Weak supervision of Cat. B and FI (50-60%) Poor M&E and reporting instruments lead to inattention to E&S results Poor supervision of projects with frameworks increases E&S risks

15. Strengths/Weaknesses of E&S Management in IFC projects Strengths Balanced coverage of E&S risks in 2006 PS framework Mitigation integrated with E&S sustainability Focus on clients E&S management system Preparation (85%) Clearly specified indicators to track E&S performance Well developed instruments for annual reporting by clients (AMR) Systematic use of indicators allows more accurate supervision and evaluation Better oversight of real sector projects and some improvement in FI projects Weaknesses Weaker staff capacity to address new social areas Area of influence limited to scope of project Undercategorization of high risk projects compared to WB Post-PS supervision improved from 65% to 75% But too soon to evaluate results Uneven quality of client E&S reporting, and no disclosure of E&S results Independent verification of client reports – TPM or community monitoring – needed for higher risk projects Inadequate coverage & supervision of FI projects, listed equities and trade finance