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Thursday Thinkpiece: Torrance on the International Finance Corporation

Each Thursday we present a significant excerpt, usually from a recently published book or journal article. In every case the proper permissions have been obtained. If you are a publisher who would like to participate in this feature, please let us know via the site’s contact form.

IFC Performance Standards on Environmental & Social Sustainability: A Guidebook
Michael Torrance
Toronto: LexisNexis Canada, 2012

Excerpts from the Preface (selected by the publisher and the author)

[Footnotes converted to endnotes]

This Guidebook is intended to provide an introduction and guidance to the International Finance Corporation (IFC) Performance Standards on Environmental and Social Sustainability (the Performance Standards). The Guidebook sets out a practical analysis of each of the eight Performance Standards and related topics including the international legal context, human rights, stakeholder engagement, the World Bank anti-corruption framework and the Equator Principles.

While that objective seems clear enough, it may not be so clear why the Performance Standards are something that legal practitioners like many of the authors should care about enough to write a book like the Guidebook? The Guidebook is the culmination of several years of enjoyable efforts of the authors (most of whom are lawyers specializing in areas of law directly related to environmental and social sustainability) grappling with the relationship between norms like the Performance Standards and legal obligations addressing the same topics: environmental management, labour standards, human rights, health, safety and security, indigenous relations and corporate governance, among others.

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Most obviously, the relevance of the Performance Standards comes from their use by the World Bank (through its investment arm the IFC and its insurance arm the Multilateral Investment Guarantee Agency (MIGA)) in project financing and investment decisions. The IFC is the private sector arm of the World Bank family, which provides loans to private companies for projects in developing countries. The IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. Established in 1950, it oversees a $49 billion portfolio of investments.[i]

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The IFC operates at the crossroad of the private and public sectors, sharing risks with the private sector without government guarantee of repayment.[ii]

The clout of the World Bank and the IFC is unparalleled among investment banks in the developing world. As such, the IFC is highly sought out as a partner and project financier and/or investor for projects taking place in developing countries. In order to qualify for funding from the World Bank, compliance with the Performance Standards and associated due diligence is essential. Any legal counsel advising businesses interested in obtaining investment from the World Bank will therefore need to give close consideration to compliance with the Performance Standards — which operates as a threshold qualifier to World Bank investment.

The relevance of the Performance Standards does not end there however. While the Performance Standards originated in relation to project finance and investment by the World Bank, the reach of the Performance Standards are now much broader. The Performance Standards have become the global benchmark for environmental and social risk management for private sector project financing through the Equator Principles agreement, which now applies to a very substantial amount of global project financing.

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To comply with these terms, lenders must carry out social and environmental assessment and make proposals on how to minimize social and environmental effects of the project, including management and mitigation measures.[iii]

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Arguably, compliance with the Sustainability Framework could be considered a “technical” question, not of primary importance to legal counsel, but rather the bastion of engineers, accountants or technical consultants. The authors would suggest, however, that such treatment of the Performance Standards is simply out of date and ignores the overlap and interrelation between the Performance Standards and legal standards of behaviour touching on the same topics. The content and scope of the Performance Standards includes international best practices and customs as well as laws and regulations relating to issues such as environmental management, health and safety, labour standards and working conditions and community and indigenous community relations. Advice on such matters has typically been squarely within the expertise of legal practitioners. We would posit that ignorance of the Performance Standards within the legal profession likely has more to do with a presumption that any governance framework arising outside of a State legal system is not properly considered “law”. However, contemporary legal scholarship has strongly challenged such assumptions.[iv]


[i] IFC, “IFC’s Development Impact” (2011), online: <http://www.ifc.org>.

[ii] Elisa Morgera, “Sigificant Trends in Corporate Environmental Accountability: The New Performance Standards of the International Finance Corporation” (2007) 18 Colo. J. Int’l Envtl. L. & Pol’y 151 at 153.

[iii] Nigel Clayton, “The Equator Principles and Social Rights: Incomplete Protection in a Self-Regulatory World” (2008-2009) 10 Envtl. L. Rev. 174.

[iv] See M. Torrance, “Persuasive authority beyond the State: A theoretical analysis of transnational corporate social responsibility norms as legal reasons within positivist legal systems” in (2001) 12 German Law Journal 1573.

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