Standardizing Sustainable Development

• Author: Fei Yuan,Kevin P. Gallagher
• Date: 01 September 2017
• DOI: 10.1177/1070496517720711
• Published date: 01 September 2017
• Subject Matter: Articles

Article

Standardizing Sustainable

Development:

A Comparison of

Development Banks

in the Americas

Kevin P. Gallagher

1

and Fei Yuan

2

Abstract

There is a sense of urgency in emerging market and developing countries in general,

and Latin America in particular, for international development banks to generate a

pipeline of infrastructure projects in order to reboot lagging economies and to meet

broader sustainable development goals. In meeting those goals, it is important to also

ensure that such efforts are socially inclusive and environmentally sustainable. To

draw lessons for this new wave of development finance, this article conducts a

comparative analysis of social and environmental safeguards across international

development banks. We find a significant divergence in safeguard policy across devel-

opment banks operating in the region, with Western-backed development banks

requiring that borrowers harmonize to developed country standards to others

such as China’s and Brazil’s banks deferring to host country standards. On the

basis of this research, we develop a framework that allows analysts to better empir-

ically examine the impact of different safeguard regimes on environment, social, and

development outcomes.

Keywords

development banks, environment and social safeguards, Latin America, green

finance, sustainable development

Journal of Environment &

Development

2017, Vol. 26(3) 243–271

!The Author(s) 2017

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DOI: 10.1177/1070496517720711

journals.sagepub.com/home/jed

1

Boston University, MA, USA

2

World Bank, Washington, DC, USA

Corresponding Author:

Kevin P. Gallagher, Boston University, 121 Bay State Road, Boston, MA 02155, USA.

Email: kpg@bu.edu

To mitigate the risks associated with environmentally sensitive projects, many

development banks have established their own environmental and social polices

for various aspects of the project cycle. Commonly referred to as environment

and social safeguards (ESS), they have been def‌ined as ‘‘rules or institutions that

help ensure that investments meet minimum social, environmental, and govern-

ance standards. These rules and institutions can come from a recipient country

or the investor’’ (Larson & Ballesteros, 2014, p. 16).

Based on our analysis of ESS across international development banks (IDBs)

in Latin America and the Caribbean (LAC), it is not clear that development

f‌inance is adequately safeguarded in the region. While virtually every bank in

our sample is engaged in projects with relatively high-potential social and envir-

onmental impacts, ESS across development banks range from a required set of

international standards to complete deference to the national country systems of

borrowing nations. The most stringent ESS have been criticized as greenwash-

ing, on one hand, to bogging down the project cycle and turning potential bor-

rowers away from certain multilateral development banks (MDBs), on the other

hand. Over reliance on country systems has also been criticized for raising

uncertainties about compliance with local law and has also resulted in costly

delays, project shutdowns, and tainted reputations for IDBs.

A major increase in infrastructure and energy f‌inance is essential for Latin

America’s continued prosperity. However, as articulated in the sustainable

development goals to ‘‘ensure access to af‌fordable, reliable, sustainable and

modern energy for all’’ and to ‘‘develop quality, reliable, sustainable and resili-

ent infrastructure, including regional and trans-border infrastructure, to support

economic development and human wellbeing, with a focus on af‌fordable and

equitable access for all’’ (United Nations, 2015), it is also imperative that such

f‌inance be directed in a manner that is socially inclusive and environmentally

sustainable.

To accelerate the scale of development f‌inance, it is paramount that IDBs

have systems in place to help anticipate and mitigate adverse impacts of such

projects. A study by the World Bank (2010) found that large energy and infra-

structure projects were 37% more likely to pose signif‌icant environmental and

social risks in developing countries. Not only do well-safeguarded projects

promise to help IDBs fulf‌ill their ultimate goals of sustainable and inclusive

development, but they also can help identify risk and ensure better project

outcomes.

According to our analysis given here, more than 40% of IDB development

f‌inance between 2007 and 2014 went into energy and infrastructure projects, of

which, 80% were fossil-fuel intensive and conventional infrastructure projects

that will accelerate global climate change, urban air pollution, and land-use

change, as well as impact local livelihoods. Yet, even ‘‘green f‌inance’’ can be

associated with signif‌icant social and environment risk—including but not lim-

ited to wind and hydroelectric power plants.

244 Journal of Environment & Development 26(3)