GEI Newsletter Issue No. 5

The World Bank’s Struggle to Integrate the Environment
Robert Wade

Also in this issue:

Editorial
Wanted – A Vision for the World Bank

The World Bank’s Struggle to Integrate the Environment
Robert Wade

The burgeoning awareness of environmental limits over the last quarter century represents a genuine turning point in world history. When 500 years of ignorance ended in the early 1970s with recognition of the environmental costs of economic activity, and conviction spread that waste, pollution and natural resource depletion had become a collective problem that could no longer be ignored, an economic ‘problematique’ took shape. Comprising a set of interdependent problems, places and policies, it dictated that tough measures be inroduced into public policy everywhere to discourage economic agents from choosing environmentally damaging options.

We now have a growing international environmental regime of environmental norms and standards, public environmental policies, environmental treaties, intergovernmental environmental organizations, non-governmental environmental organizations (NGOs), environmental firms, and resource transfers from richer to poorer countries for environmental purposes.

The World Bank forms one element of this emerging international environmental regime. Indeed, it was the first multilateral development bank explicitly to introduce environmental considerations into development strategy, appointing an environmental advisor in 1970 and issuing environmental guidelines to its staff in the years thereafter. But as public concern about environmental problems grew in the West during the 1970s and 1980s, the Bank itself became the target of a high-profile international campaign by environmental NGOs based on the premise that its projects were causing large-scale environmental destruction. Critics judged its efforts to ‘green’ its loans as token, for shop-window display

In 1987, the Bank undertook a major environmental reform, greatly increasing the environmental specialists on its staff and laying down mandatory environmental assessment procedures. And the momentum has continued, with rapid increases in environmental staff, in lending for environmental projects, and in attention to the environmental effects of macroeconomic policies.

While these steps undoubtedly put distinctively new environmental considerations onto the agenda, how well integrated are they into the Bank’s core lending activities?

Organizational integration of environmental considerations has been strangely neglected in the literature on environmental regimes, particularly because it relates to the basic distinction between what an organization says it does and what it actually does. Perhaps the neglect stems from the fact that most of the literature focuses on organizations or treaties that are themselves primarily environmental in scope (organizations such as the Global Environmental Facility and treaties such as the Montreal Protocol on Substances That Deplete the Ozone Layer) and where the question of organizational integration is less pressing, because environmental values and criteria do not have to be injected into an organization with a distinctly different orientation. Yet the acid test of an environmental regime has less to do with the environmentally-specialized organizations than with the much larger number and more powerful set of organizations whose work impacts on the environment but whose mission is not primarily environmental. Here the issue of organizational integration is crucial.

1. The Bank’s Environmental Inputs and Outputs

Since 1987 no other field of Bank operations has shown such fast growth as environment. The environmental staff rose from about 50 in mid-1987 to about 300 by the mid-1990s, budgetary resources devoted to environmental work grew at the rate of about 90% p.a. between 1986 and 1995 (from a very low base), while those devoted to agriculture and forestry shrank at 1% p.a. (from a high base). These resources have helped to produce four main kinds of environmental ‘products’:

• environmental assessments of projects – costing between $100,000 and $1 million, and taking 12–24 months to prepare;
• environmental projects - primary purpose is to benefit the environment (e.g. reduce air pollution in a city, for example) rather than expand income or production;
• national environmental action plans – identifying environmental problems and solutions for borrowing countries;
• research papers on development-environment interactions, most notably the World Development Report 1992, titled Development and the Environment.

2. Environmental Integration

How well integrated into the Bank’s operational work are these products? The Bank’s own evidence was assembled in a report [Operations Evaluation Department, ‘Effectiveness of Environmental Assessments and National Environmental Action Plans: A Process Study’, Report 15835, 28 June 1996, World Bank]. This suggests that all is not well.

2.1 Environmental Assessments

EAs tend to emphasize comprehensiveness at the expense of focus on major risk factors, and hence tend to be unproductively bulky and expensive.

EAs tend to give little serious attention to alternative designs, instead of mitigating damage within the existing design.

‘Very few EAs actually influence project design’.

The environmental components of projects tend to get less supervision than other components, or be supervised by people less qualified in environmental supervision than is typical for the other components. Indeed, OED visits to project sites found that EAs were often ‘not available’ at the site: inattention to supervision of environmental components tends to undercut any emphasis on environmental aspects in project preparation.

Three-quarters of the staff interviewed said that they thought EAs were not having the desired impact on the ground. A road engineer with decades of experience as a Bank project officer commented bitterly that EA procedures had given ’the power of life and death [over us] to an army of bureaucrats....They are all about administration, about making us jump through hoops, and only in exceptional circumstances... do they make any difference to the substance. For all the attention to EAs you would think that we [civil engineers] had done nothing to mitigate environmental damage. As a civil engineer I feel strongly that we are a responsive profession. We can and do take account of society’s evolving concerns and put them into the specifications. We don’t have to be forced to do it by some PhD in biology‘. A division chief in a water and sanitation division wrote a memo to his superior in 1993 in which he complained that, ‘The environmental establishment at the Bank... is increasingly seen as a policeman, not as a unit assisting our staff and borrowers to do better’.

2.2 Environmental Projects

These do not raise the same questions of integration, because they are intended to be as discrete as any other project, whether in agriculture, forestry, or energy. They treat environment as a sector, not as a cross-cutting discipline on all sectors, and that is part of the reason why they have grown so fast – presently accounting for 5–10% of new lending commitments.

2.3 National Environmental Action Plans (NEAPs)

Even the director of the Environment Department described these as often ‘ritualistic and second-rate’. The Bank’s own research has shown that NEAPs are little integrated into the Bank’s country economic work. An internal review of 25 Country Assistance Strategies (CAS), concluded that, ‘The linkage between environment and the macro situation was not articulated. Most CAS did not assess alternative development strategies in terms of welfare improvement or sustainability related to sound management of environment and natural resources.’ NEAPs were meant to be reports on ’the environmental sustainability of development’, written by country economists, but in practice have tended to be reports on ‘the environment‘ prepared by environmental specialists.

2.4 Research Papers

The integration of research papers on environment and development can be judged in terms of their feedback into operational work. The problem here is that much, and probably most, of the Bank’s research and writing about development-environment interactions is done by consultants, not by regular staff, and to that extent contribute less to the Bank’s intellectual capital than if regular staff were more involved.

Evidence of this sort suggests that there is indeed a problem in the integration of environmental considerations in three of the Bank’s four main environmental products. Environmental projects do not pose the integration question to the same degree.

The reasons for this dis-integration can be told in the form of two stories, one about the macropolitics of why the Bank changed its mind about the environment in 1987, the other about the incentive regime under which the Bank’s task managers operate.

3. The Legacy Of History

The environmental changes that the Bank began in 1987 – the creation of many more positions for environmental specialists, the creation of a central Environment Department and four regional environment divisions, environmental assessment procedures, and the like – were forced upon it. There was almost no internal constituency for such changes, and indeed most of the borrowing countries were strongly opposed. The forcing agents were a coalition of mainly US-based NGOs, operating through the US Congress and the US Treasury. The Congress had to approve the annual release of the US’s share of money for the soft-loan affiliate of the Bank (IDA). Under pressure from the NGOs, the Congress began in the mid-1980s to put environmental conditions on the release of US funds. The Bank, however, largely ignored the conditions and the money was released anyway, thanks to the determination of the Treasury. The Treasury did not seriously support the NGO’s demands that the Bank should greatly expand its environmental capacity, agreeing instead with the staff and the borrowers, that the Bank’s business was development, not environment.

By 1986 it was clear to James Baker, Treasury Secretary, that the World Bank could play a useful role in helping to protect the US banking system from the hazards of Latin American debt default, for which purpose the Bank would need a general capital increase. Congress has to approve a capital increase and given its mood of dissatisfaction with the Bank (for which the Bank’s alleged environmental record provided virtuous justification), it might say no. So the Treasury put its weight behind the Congressional demands for the Bank to improve its environmental act, in order to remove the excuse. At just this time the US administration appointed a new President of the Bank, Barber Conable, with clear instructions to carry out an environmental reform.

The circumstances in which the Bank was forced to engage in environmental issues in a self-conscious way cast a long shadow over the Bank’s subsequent willingness to treat it as more than something that had to be done to satisfy the external critics.

4. The Incentive System

At the level of the task managers and the country economists – the people who make the loans and formulate the strategies – environment is often bad news. The Bank is basically a lending institution, in the sense that its development mission rests upon lending. And lending implies borrowing. For the most part, with exceptions, borrowing countries have not wished to borrow regular World Bank funds (at near commercial rates) for environmental purposes. Injecting environmental conditions into loan agreements may therefore make them less attractive to borrowers, and cause Bank staff more complications, delays, and costs. This matters especially because the primary criteria in evaluating staff performance relate to the speed and efficiency of processing of loans (that may take years to prepare) – not to the performance of the projects or policy reforms carried out with the loans.

For all the public service ethic of many Bank staff, they have strong disincentives to allow environmental considerations to intrude into their work to the point where it appreciably slows up the processing of loans—all the more so when the same senior management that exhorts them to pay more attention to the environment is also cutting project preparation budgets (by 12–15% in 1994–6).

The combination of the Bank’s incentive system, borrowing country opposition, and the legacy of negativism associated with the environment up to the early 1990s helps to understand the pattern of dis-integration reported earlier. Compared to the situation before 1987, environmental criteria are today much more influential in Bank decision-making, and environment has acquired considerable legitimacy. But much of what the Bank does remains a response to external critics, and there has still not been an open internal debate about the proper role of environmental criteria, in which disagreements can be honestly aired. Certainly it cannot be assumed that the more weight given to environmental criteria the better. Indeed there is already some evidence that environmental assessment procedures have crowded out economic analysis of projects in response to declining project preparation budgets – because the NGOs are watching the former but not the latter.

Robert Wade is at Brown University, Rhode Island. His GEI Research Project is ‘Internal Organization and External Pressures in the World Bank: The Case of Environmental ‘Good Practice’’. This work is to be more fully described in a forthcoming GEI Working Paper, and will, in due course, be presented in a book on the role of environmental issues in the World Bank’s practice.

The Newsletter of the GEI programme is published three times annually to inform policy-makers and the academic community of research, meetings, conferences, and Working Papers of the GEI programme.

To receive regular issues of the Newsletter of the Global Economic Institutions programme or to receive copies of back issues send an email containing your address and contact numbers to gei@cepr.org.