How much can be required of the private sector? We have asked ourselves this question during the two years we worked on revising and strengthening the environmental and social standards of the IFC. The current safeguards require our client companies to fulfill certain environmental and social conditions, many of which exceed the national legal requirements of the host country. How much more can we ask them for in the new standards?
How much is enough to ensure that the people affected by projects are treated fairly, are compensated for any loss incurred and have their livelihoods restored? How much is enough to ensure the protection of the environment? And how much is too much and actually drives companies to seek another financial institution to back them up or another country to invest in?
I have one example in mind. The new IFC standards require that people who need to be resettled because of a project be compensated. The company must offer replacement property to people with a claim to land. To those that have no claim to land – ie recent settlers – the company must offer security of tenure and adequate housing so they no longer face the risk of eviction. The company must restore the livelihood of all displaced people.
That is asking a lot of the private sector. More than we’ve ever asked for. But some NGOs claim this is not enough. Recent settlers must be given a title to land, they say.
This is where I draw the line. I disagree. It is unrealistic and irresponsible to expect a private company to buy every recent settler a piece of land. It is the private sector’s role to ensure that the vulnerable are better off – that they have security of tenure and the tools to improve their livelihoods. But it is not the private sector’s role to take care of the distribution of land.
By asking too much of the private sector, we may defeat our very objective: the development of emerging markets through private sector growth.
Update 1: More comment here.
Update 2: Also see this new note by Michael Warner at ODI, ‘The New International Benchmark Standard for Environmental and Social Performance of the Private Sector in Developing Countries: Will it Raise or Lower the bar?’