The World Bank's New Safeguards: A Step Forward or Back? – Scott Morris

Summary

Podcast Summary: The World Bank's New Safeguards — A Step Forward or Back?

Podcast: The CGD Podcast
Host: Rajesh Merchandani, Center for Global Development (CGD)
Guest: Scott Morris, CGD expert on multilateral development banks
Date: August 8, 2016

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Main Theme & Purpose

This episode explores the World Bank’s newly approved set of social and environmental “safeguards”—rules governing the conduct of Bank-funded projects worldwide. Host Rajesh Merchandani talks with Scott Morris, who analyzes these landmark changes: the shift from Bank-imposed standards toward reliance on country-level regulations, the tension between progress and potential risks to vulnerable communities, and the impact of the Bank President’s separate directive on non-discrimination, particularly relating to LGBT rights.

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Key Discussion Points and Insights

1. What Has Changed? — The Nature of the Safeguards Overhaul

• Shift in Approach: The World Bank moves from imposing its own rules on each project to evaluating and working with countries’ own regulatory systems.
  • “The shift itself is one from a set of rules that police how the bank itself operates to one that is trying to work with countries on their own rules and regulation in these areas, these vital areas of environmental and social protections.” (Scott Morris, 01:48)
• Broader Goal: The ambition is no longer limited to project-by-project compliance, but aims for systemic regulatory improvement across developing countries.

2. What Does This Mean for Individual Projects?

• More Responsibility (and Work) for Bank Staff:
  • Bank staff must assess if countries have both adequate laws and capacity to enforce them.
  • Projects in “low risk” countries rely on local standards; higher-risk or lower-capacity contexts trigger the Bank’s direct involvement.
    • “They will have to do as they approach a project … make a determination about the rules of the country and the capacity of the country to implement its own rules.” (Scott Morris, 02:41)
• Distinction by Risk Level:
  • Example: Hydroelectric dam projects are considered higher risk than standard road construction, impacting how safeguards are applied. (03:50)

3. Critics’ Concerns: Rollback or Progress?

• Risk of Weaker Protections: Critics argue that countries with weak laws/protections could expose citizens and environments to harm, “rolling back” hard-won safeguards.
  • “This approach … introduces a level of risk when it comes to the protections that I think in principle there's broad agreement on.” (Scott Morris, 05:36)
• Aiming Higher:
  • Morris acknowledges risks but urges viewing the new system as a path to stronger, country-wide regulation, not just better-managed Bank projects.
    • “We really are looking for stronger regulatory regimes across the board in the developing world, not just in a project by project basis for the bank.” (Scott Morris, 06:42)

4. Safeguards, Value, and the World Bank's Strategic Leverage

• Comparative Advantage:
  • The Bank must offer more than loans; it seeks to add value by helping countries strengthen their own systems.
    • “They just can't be a source of cheap financing. They have to deliver other things of value to their country clients.” (Scott Morris, 06:58)
• Competition from Other Lenders:
  • New financial alternatives (AIIB, Chinese banks) mean client countries can bypass cumbersome Bank rules if they’re too strict; necessity to find a balance.
    • “If they view the rules as too onerous, as it takes too long to do a project, they will walk away.” (Scott Morris, 08:09)

5. The Unresolved Challenge: The Presidential Directive on Discrimination

• Nature of the Directive:
  • World Bank President Jim Yong Kim issued a directive banning discrimination (including for LGBT people) in Bank projects. The Board did not formally adopt this as policy.
    • “This has been a controversial issue amongst a set of controversial issues.” (Scott Morris, 10:11)
• Board Resistance:
  • Many borrowing-country governments oppose such measures, citing non-interference in domestic politics.
    • "Right here in the articles of agreement that founded the World Bank, it says that the bank will not interfere in domestic politics.” (Scott Morris, 11:03)
• Practical Impact:
  • The directive compels Bank-managed projects to uphold non-discrimination and take action if, for example, LGBT teachers are dismissed in funded schools—even in countries where homosexuality is illegal.
    • “Non discrimination for … sexual minorities is a standard that the bank will hold itself to, but on a project by project basis.” (Scott Morris, 13:01)
    • “If we think about a country where being gay is outlawed, but the bank encounters the practical effects of that ... under this directive, they have to take action.” (Scott Morris, 13:22)
• Limits:
  • The directive does not impose non-discrimination as a universal standard on all Bank operations, only project-specific.

6. Looking Forward — Ensuring Success

• Adequate Funding is Essential:
  • To improve countries’ capacities, the Bank must assign real budget and staff, not just rhetoric.
    • “When it comes to work in this area, money matters … When you encounter low capacity, make sure you're putting the money and the staff toward doing something about it.” (Scott Morris, 14:36)
• Challenge of Implementation:
  • Recent budget cuts at the Bank endanger sustained commitment; the hope is the spotlight on this reform will translate into actual resources.
    • “I hope that they'll take what is a very good outcome, the attention that's on it right now, and do something with that and sustain it over time with a real commitment of resources.” (Scott Morris, 15:10)

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Notable Quotes & Memorable Moments

• On the significance of the policy shift:
  • “They define to a large degree what the bank is about and how it operates.” (Scott Morris, 01:52)
• On country ownership:
  • “It's no longer about a project by project approach … It's a much broader, more ambitious effort in practice.” (Scott Morris, 02:23)
• On the limits of the Presidential Directive:
  • “In one sense, it doesn't represent the degree of ambition of the broader reforms of the safeguards. On the other hand, we shouldn't sell short what you can achieve through project by project.” (Scott Morris, 13:10)
• On the need for resources:
  • “When it comes to work in this area, money matters, and I think one of the most important elements of this package is a commitment to put some of the bank's budget toward it.” (Scott Morris, 14:36)
• On the hope for systemic change:
  • “We really are looking for stronger regulatory regimes across the board in the developing world, not just in a project by project basis for the bank.” (Scott Morris, 06:42)

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Timestamps for Important Segments

• 00:05 - 01:34: Introduction to the issue; the scope of the World Bank’s new safeguards
• 01:48 - 03:33: Description of the policy shift and practical implications for Bank projects
• 05:16 - 06:48: Discussion of criticisms; risk-based approach and the higher regulatory goal
• 06:58 - 08:09: Value-add and comparative advantage in a changing global finance landscape
• 09:17 - 09:49: The impact of rising competitors and new sources of development financing
• 09:49 - 14:18: Detailed exploration of the Presidential Directive and its effects (esp. LGBT protections)
• 14:36 - 15:31: The vital role of resourcing in making the new safeguards effective

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Conclusion

This episode critically examines the World Bank’s major shift in how it implements social and environmental protections, highlighting both potential for system-wide improvement and substantial risks, especially in countries with weak local standards. The controversial inclusion of anti-discrimination protections via presidential directive signals an incremental, but meaningful, advance on rights issues, with real impact dependent on the Bank’s follow-through with resources and enforcement. Scott Morris concludes with a call for genuine investment in country capacity to make these reforms meaningful in practice.

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Further reading: Scott Morris’s blog post, “Doing More Than Safeguarding the Safeguards at the World Bank,” is available on the CGD website.

Transcript

[A]

Foreign.

[B]

Hello, I'm Rajesh Merchandani and thanks for joining me for this edition of the CGD podcast. Now, a multi year project just came to fruition with the endorsement by the board of the World bank of its new set of safeguards. Those are the social and environmental standards that govern bank funded projects in client countries. There's been a lot of debate about this rewriting of the Bank's own rules. Major changes include new standards on protecting workers rights, indigenous peoples and vulnerable populations. But rather than a government being forced to meet the Bank's own standards, countries will in future use their own laws to test if they're doing enough to protect people. Now, critics say that amounts to the bank rolling back protections because it will be relying on governments that might not have standards as high as they should be. Another major feature of the new safeguards policy is that the World Bank President, Jim Yong Kim has issued a presidential directive committing bank projects to not discriminate against people described as disadvantaged or vulnerable on the grounds of, among other things, gender and sexual orientation. Now, the Bank's board did not adopt this as a policy. And remember, the Bank's board is made up of country governments. So what effect does the directive have? Well, CGD's expert on the multilateral development banks is Scott Morris, who's reacted to the new policies in a blog called Doing More Than Safeguarding the Safeguards at the World Bank. And he joins me on the CGD podcast to discuss. Scott, welcome.

[A]

Thank you.

[B]

First, before we kind of get your take on the safeguards and your response to them, let's just establish exactly what has changed here. What are the kind of major shift or the major things that are just different than you see?

[A]

Sure. Well, first it is important to recognize how important these safeguards are to the institution. They really are really a fundamental part of the fabric and character of the Bank. They define to a large degree what the bank is about and how it operates. The shift itself is one from a set of rules that police how the bank itself operates to one that is trying to work with countries on their own rules and regulation in these areas, these vital areas of environmental and social protections. So it truly is a landmark shift. It's no longer about a project by project approach for the bank in achieving environmental goals. It's a much broader, more ambitious effort in practice.

[B]

What would it mean for a project, for example?

[A]

Well, it will mean, frankly, a lot more work for the bank staff because what they will have to do as they approach a project, let's say A road project is make a determination about the rules of the country and the capacity of the country to implement its own rules. If they determine that this is essentially a low risk country, that they can rely on their rules, then they take an approach that, that essentially does rely on the country to protect against bad environmental outcomes, to ensure that engagement with local communities has been strong, that all shifts to the country. And both the responsibility for good outcomes and the actual implementation is on the countryside. It is no longer the bank imposing its own rules.

[B]

So the bank staff have to make an assessment of low risk. The risk factor, you said. So the risk being whether a country has the capacity to. Whether it has laws to meet equivalent standards to the bank.

[A]

That's right.

[B]

And whether it can actually impose those laws and police those laws.

[A]

That's right. It's an assessment of risk on that side. It's also an assessment of risk of the project itself. Is this an inherently risky activity? A major energy infrastructure project, a dam, a hydroelectric dam, is going to be considered higher risk than say, a standard road project. So they will be assessing that as well.

[B]

And if the bank staff conclude that the country doesn't have the sufficient laws in place or can't actually impose them, then what?

[A]

Well, the important shift here is that, number one, to some degree, it's business as usual. The bank will use its own rules and standards. But with this new regime, there comes a new commitment on the Bank's part to work with the country to improve the country's own capacity, to ensure stronger rules and regulations are in place, and then that the country is actually implementing them. Frankly, there's been lip service to this agenda for years and years in the bank, but really with not much in the way of progress, no real funding devoted to it, and very little to point to as good outcomes. So this does represent a serious commitment, but it's also the area where we will wait and see just how well they go about it.

[B]

How fair is the criticism that's been levelled at the bank that these new safeguards, by pushing the burden, if you like, onto the country's own laws, are actually tantamount to it rolling back protections that have been hard won over many years because many countries won't have the same level of protection as the bank has had.

[A]

So this approach does introduce. It is a risk based approach and it introduces a level of risk when it comes to the protections that I think in principle there's broad agreement on. It relies to some degree on judgment, the judgment of bank staff and interpretation of country rules. And capacity. And that's where I think the critics have concerns. That said, there is an end goal here that this new regime has in mind, which is it's not that we simply are going to be satisfied with good rules pertaining to a World bank road project. We are looking to a world where the rules across the board are good. In the developing world. That's the end goal. And for the first time, that's what the safeguards regime is aiming for. So I think I understand the concerns of the critics. There are real risks being introduced here. But I would hope they would come around eventually to a view that we really are looking for stronger regulatory regimes across the board in the developing world, not just in a project by project basis for the bank.

[B]

And this has really been the thrust of the blog that you wrote, reacting to this, that sort of talks about the norm setting, responsibility or activities of the bank, right?

[A]

Yeah, that's right. And it also speaks to the bank is doing hard thinking today about what its comparative advantage is in the world. It is a bank, it's a lender, but it's a lender at a time when there's a lot of cheap money in the world, a lot of sources of financing. And I think they are waking up to the fact that they just can't be a source of cheap financing. They have to deliver other things of value to their country clients. And the real challenge with the safeguard reform is to turn something that has been for a long time viewed as a bunch of red tape, sort of a bureaucratic hassle both for the bank staff and the client countries, turn that into a source of value in the relationship that for the client countries, they welcome this as a way to improve their own regulatory regime, as a way to gain from the knowledge that the bank has. So that's what they're aiming for. And that's why I am frankly very positive about this shift.

[B]

The bank in the past has talked about these changes, the new safeguards, as reflecting sort of its diminishing leverage in some places. How does that work?

[A]

Well, I think to some degree there's a view, and perhaps within the bank too, that the bank isn't in a position to tell countries, you must adopt our rules in all of our projects, that again, countries have other options for financing and if they view the rules as too onerous, as it takes too long to do a project, they will walk away. So there has been that concern in recent years. That said, I mean, that could lead one to think that frankly, the bank is simply throwing the rules out the window that their objective is to get the money out quickly, whatever the client wants. And I think that is a distortion of what's going on here, that they're aiming for something that fundamentally is supportive of stronger regulatory regimes when it comes to environmental standards, social standards, standards. But it's really about finding better ways to deliver value to the client countries in these areas, not to ignore the issues altogether.

[B]

So you talked about the comparative advantage. I mean, how much of this, then, do you think is a response to, say, the rise of the AIIB or other challenging banks?

[A]

Well, it's a response to institutions like aib, among many others, frankly, and sources of financing that have been growing really, in the past 10, 15 years. I mean, China as a financier, bilaterally, through its own development policy banks, just massive flows of funds. And the World bank, as well as other regional development banks, are seeking to distinguish themselves in ways that goes beyond the volume of lending.

[B]

So let's talk a little bit, then, about the Presidential Directive. So this is something that Jim Kim put out. It was not adopted by the board of the bank, and it talks about protection against discrimination, particularly for LGBT people. But it's in a Presidential Directive. What does that tell us that the Board didn't adopt that?

[A]

Sure. It tells us that this has been a controversial issue amongst a set of controversial issues. The. The entire safeguards review took four years. That's an extraordinary amount of time. That's because these issues are challenging. They're challenging politically, not just technically. And it's no secret that within the Board of directors, you have very different views, particularly on issues like sexual minorities, issues like protection of women in society. So an issue like safeguards, broadly social safeguards, really confronts all of these issues. And it takes a while to get the countries to come to a consensus view in the Board of Directors.

[B]

They also traditionally resisted any of what they call domestic political interference. And that's what this.

[A]

Yeah. So broadly, if you are a borrowing country and you have particular political challenges on certain of these issues, your default position is to say, well, right here in the articles of agreement that founded the World bank, it says that the bank will not interfere in domestic politics. So that is sort of the defensive posture of these countries, broadly, that there's an entire set of issues that the bank has no business and no right involving itself in, and they will place these issues in that category. So that certainly was a strong element of the debates around safeguards. I think the outcome and the fact that you have this Presidential Directive reflects the fact that within a small Number of the issues, there was still a strong desire on the part of the World bank management and some faction of the country shareholders to make some progress, but a recognition that to try to do it in the core package of reforms, they simply were not going to get consensus with all the countries. So presumably with the consent of these countries, they chose a path that really put it within the prerogative of the President to move forward.

[B]

And so then again, in effect, what practically does the Presidential directive mean in terms of LGBT rights on projects?

[A]

It means from the standpoint of protection in these areas and the rights of this community, I think it represents some progress.

[B]

The bank will be governed by its own people, its own project, its own side of the deal will be governed.

[A]

By right in a concrete way that frankly hasn't existed before under the Bank's rules or any directives. It makes very clear that non discrimination for this group of people, for sexual minorities, is a standard that the bank will hold itself to, but on a.

[B]

Project by project basis.

[A]

That's right.

[B]

So you could have this. A project could go ahead in a country where homosexuality, for example, is criminalized if that project doesn't contravene the Bank's own rules on it on this duty.

[A]

Right, so that's right. In one sense, it doesn't represent the degree of ambition of the broader reforms of the safeguards. On the other hand, we shouldn't sell short what you can achieve through project by project. So, for example, if we think about a country where being gay is outlawed, but the bank encounters the practical effects of that. So, you know, the bank is funding an education program and they witness a teacher being fired for being gay. Well, under this directive, they have to take action. They have to do something about that. And frankly, to date we've seen very limited willingness on the Bank's part to do that. And we did see it in the Uganda case in the past few years. So you saw the bank moving in this direction and this, you know, I think the directive really is a concrete step forward and a signal that the bank does intend to be more aggressive in this area.

[B]

So, Scott, finally, then, let's just kind of take a step back and look forward a little bit. What would you say to the bank's board, to the bank and to its critics about how to ensure that these new safeguards actually do work in future, do what they're intended to do?

[A]

Well, when it comes to work in this area, money matters, and I think one of the most important elements of this package is a commitment to put some of the bank's budget toward it. I think that's been missing in the past when the bank has talked so much about building country capacity. You, you have to devote resources to that in terms of bank staff. So I think the main message is make sure you're funding this. When you encounter low capacity, make sure you're putting the money and the staff toward doing something about it. That's no small issue. Particularly at a time when interest rates are low, the bank isn't earning a lot of money. There have been budget cuts we've seen in the last few years. It's very hard to prioritize things, things like this. So I hope that they'll take what is a very good outcome, the attention that's on it right now, and do something with that and sustain it over time with a real commitment of resources.

[B]

Okay, Scott, really fascinating how you explain and analyze all this for us. Thanks very much for joining me.

[A]

My pleasure.

[B]

You can read Scott's blog on the CGD website. It's called Doing More Than Safeguarding the Safeguards at the World Bank. And their website address, as ever, is cg. I'm Rajesh Merchandani and please do join me again for the next podcast from the Centre for Global Development.