IFC Releases Audit of Financial Sector Investments
5 February 2013: The Compliance Advisor/Ombudsman (CAO) of the International Finance Corporation (IFC) has released an audit of IFC's financial sector investments, together with IFC's official response.
The audit was undertaken in light of the fact that a growing portion of IFC financing is provided to private sector projects in developing countries and emerging markets through third-party entities, while a number of reports outside the World Bank Group have questioned how IFC's environmental and social standards are applied and monitored in financial sector investments. The audit was completed in October 2012, and the IFC issued a response in January 2013.
In conducting the audit, a CAO panel compiled the results of interviews with clients, sub-clients and IFC staff, and reviewed a sample of investments. The audit concludes, inter alia, that IFC "does not have a structured approach to assess and address two key elements of a successful Environmental and Social program (E&S): client commitment at the highest levels of the organization; and client capacity to implement an effective E&S management system using internal and/or external resources." The audit also notes that, despite an increase in IFC resources to comply with safeguards, certain intractable investments continue to lie outside IFC's control. The audit indicates that around 60% of cases at the sub-client level showed no improved performance.
Responding to the audit findings, the IFC recognized "scope for improvement" and proposed to "enhance its engagement with external experts, civil society and other stakeholders," based on which it would “make the necessary course corrections.”
According to a World Bank "Approach Paper" on the safeguard review, the process "may benefit from assessing the value and extent of aligning the Bank's approach to environmental and social sustainability with the IFC Sustainability Policy and the Performance Standards, and the other initiatives that refer to them." [CAO Press Release] [Publication: CAO Audit of a Sample of IFC Investments in Third-party Financial Intermediaries] [IFC Response] [Publication: Approach Paper: The World Bank's Safeguard Policies: Proposed Review and Update]