How the World Bank overlooks human rights, why lenders favour green firms and how to conduct better workplace audits

World Bank and human rights

Sixty million dollars isn’t much when you’re the World Bank, and even less when it is investment in South America’s largest mine. Newmont, the owners of Peru’s Yanacocha mine, could and did find financing elsewhere. But what the World Bank brings more than cash is an official stamp of approval. Without it, the project risk profile would escalate and credit on the international market would be harder to come by. With it, commercial banks also gain a green light.

Activists know this and have campaigned hard against dozens of large-scale infrastructure projects in recent years. In some cases, like the Ilisu Dam in Turkey, the Three Gorges Dam in China and the Yadana natural gas pipeline in Burma, the bank pulled out. In many others, including Peru’s Yanacocha mine, it gave its endorsement and signed the cheque.

This discussion paper assesses the major criticisms directed at the World Bank’s private sector projects and asks what such criticisms reveal about the protection of human rights.

The authors are not at a loss for material. The initial phase of the research turns up some interesting observations: the larger the project, the more criticism it’s likely to receive; most criticism comes when the local populations are not consulted; and, critics tend to focus on construction projects or privatisation programmes but not both.

As stated, the World Bank is no stranger to opposition. What’s surprising, though, is the “fleeting” use of human rights language by both the World Bank’s critics and its defenders. This failure to link debates about projects’ immediate impacts with a broader argument around human rights handicaps the bank’s ability to respond effectively to its critics, the paper maintains. The World Bank needs to show itself as a defender, not abuser, of human rights.

By way of conclusion, readers are treated to an analysis of the bank’s direct engagement with international human rights law regimes, as well as its indirect liabilities through the legal obligations placed on its public and private partners. The latter is a novel and important point as it raises the question of “vicarious responsibility”. If Newmont is contaminating water supplies through the use of cyanide heap leaching, as Yanacocha’s critics claim, then the World Bank as financier is tarnished with the same brush as the company.

International law may only be edging its way towards such a conclusion, but edging that way it is.

“Human Rights Criticism of the World Bank's Private Sector Development and Privatisation Projects”, by David Kinley and Tom Davis, University of Sydney, Research Paper no 08/53, May 2008.

Risk, reward and the environment

The business case for environmental responsibility to date has centred on how going green can save a company money. The supermarket chain that reduces packaging and cuts its production costs by double digits. The postal firm that shifts from road to rail and takes a chunk out of its transportation overheads.

But there is an important piece missing: the response of the financial markets. Lenders reward leading environment performers by providing finance more cheaply and more readily, Sharfman and Fernando argue. Their argument rests on an empirical study of 267 US firms. Those with advanced environmental risk management systems were shown to obtain a reduction in the cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt.

In terms of practical applications, corporate managers making strategic financial choices should include the potential for reductions in costs of capital – particularly those who finance primarily with equity.

“Environmental Risk Management and the Cost of Capital”, by Mark Sharfman and Chitru Fernando, University of Oklahoma, in Strategic Management Journal, forthcoming.

Ditching the clipboards

It used to be enough to send in a junior factory inspector with a clipboard to tick and cross the necessary boxes. But the global labour market has changed. Regulatory schemes on health and safety, discrimination and basic labour conditions regularly cover millions of workers, located in thousands of workplaces across widespread geographic settings.

Inspectorates should respond accordingly, this paper argues. More resources and better training aren’t enough. A new strategic approach to workplace inspection is required. David Weil provides a comprehensive framework for drawing up such a strategy, based around the principles of prioritisation (ranking industries and workplaces from worst to best), deterrence (the threat of inspection spurring on changes in compliance), sustainability (the long-run compliance impact of inspections), and systemic effects (the impact of geography, industry sector and product market).

The author devotes the last part of the paper to applying these four principles to the enforcement of labour regulations. The discussion brings to light the phenomenon of low complaint rates alongside high non-compliance levels – an issue explained in part by cultural factors and worker knowledge.

While Weil’s focus falls primarily on public compliance officers, companies with voluntary labour enforcement schemes will find valuable lessons here too.

“A Strategic Approach to Labor Inspection”, by David Weil, Boston University, Working Paper, May 2008.

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