The International Finance Corporation ("IFC") released its updated Sustainability Framework today, reflecting changes adopted by the IFC's Board of Directors in May 2011. The Framework includes the IFC's Policy and Performance Standards on Environmental and Social Sustainability. The updates reflect a number of important changes, including both the scope of Framework's application and the nature of the substantive requirements for borrowers. The new Framework will be effective on January 1, 2012.
Notably, the scope of application for the Performance Standards has expanded substantially. Previously, the Performance Standards only applied to project financing. Going forward, the Standards will apply to a wider array of the IFC’s financing activities, significantly increasing the types of projects and entities that will need to meet the Standard's requirements.
With regard to substantive revisions, we will address several key updates in future posts, but a number of changes are worthy of immediate note. Specifically, the revised Performance Standards:
- Recognize the responsibility of companies to respect human rights. The IFC also notes that following the Performance Standards will allow companies to address many relevant human rights issues, but also acknowledge that additional human rights due diligence may be necessary to address all human rights risks, especially in high risk circumstances.
- Require companies to develop emergency preparedness and response systems to address potential social or environmental impacts of projects, working with local stakeholders and the government as appropriate.
- Require due diligence to identify gender-specific social and environmental risks and impacts.
- Address migrant workers and trafficked persons for the first time, creating an expectation that migrant workers will receive pay similar to that of other employees, and classifying trafficked workers as a form of forced labor.
- Require “free, prior, and informed consent” when a business activity will affect specified interests of indigenous peoples. When a proposed business activity triggers this requirement, the IFC plans to conduct an in-depth review of the company's efforts to ensure they meet applicable standards. The Performance Standards also call on companies to obtain external expertise in certain circumstances in order to effectively manage issues pertaining to indigenous peoples.
As of May 2013, with regard to extractive sector projects financed by the IFC, the updated Framework will require the public disclosure of the principal contract between a company and the relevant government, with appropriate redactions of commercially sensitive information. In lieu of full contract disclosure, a company will also be allowed to publish a summary of the key terms and conditions of the relevant contract.
Notably, the IFC has not yet released the updated Guidance Notes that will elaborate on the Performance Standards and their associated requirements. The Guidance Notes are expected to be released in October.