Analysis of the Export-Import Bank of Japan's (JEXIM) September 1999 "Environmental Guidelines" in Comparison to Mesum I Declaration and Internationally Recognized Environmental Goals, Guidelines, Standards and Principles

In March 1998, 163 Non-governmental organizations (NGOs) from 46 OECD and developing countries gathered in Mesum, Germany to advance the international campaign to achieve environmental and social reforms for bilateral export credit, finance and insurance agencies (ECAs). As an outcome, the Mesum Declaration was established, providing important benchmark goals and principles to set the direction for the growing ECA reform campaign.

In September of 1999, JEXIM released "Environmental Guidelines." The Environmental Guidelines were apparently developed in response to growing controversy surrounding its environmentally problematic projects and to domestic and international legal and political pressure for reform. JEXIM is or has been associated with several environmentally controversial projects including the Three Gorges Dam in China, the San Roque Hydro and Irrigation in the Philippines, the Ocensa Pipeline in Colombia, the Urucu Gas & Oil Project in Amazonas, Brazil, the Ilisu Dam in Turkey, and the Ok Tedi Copper and Gold Mine in Papua New Guinea.

This analysis compares JEXIM's Environmental Guidelines with the goals and principles of the Mesum Declaration, augmented by internationally recognized standards of the World Bank Group, United Nations Environment Programme (UNEP), Organisation for Economic Co-operation and Development (OECD) and counterpart organizations

JEXIM has taken a first step towards environmental assessment standards and can be congratulated for moving faster than most of their ECA counterparts in the direction of reform. However, this analysis demonstrates the following fundamental shortcomings of the new policy:

  1. Consideration but not implementation of environmental protections and internationally accepted standards and safeguards. Checklists of issues to consider but no international standards to be met.

  2. Ambiguous language, inadequate assessment process, weak standards and lack of transparency preclude it from being an international model meeting non-governmental, governmental and intergovernmental organizations' standards;

  3. Arbitrary and inconsistent application of environmental policy is likely, providing no certainty of procedures for JEXIM users and stakeholders and no assurance that the environmental problems of JEXIM's past will be prevented in the future.

  4. Too much reliance on subjective borrower information and not enough objective analysis by JEXIM and civil society.

We support Japanese NGOs' position that JEXIM should declare its environmental guidelines subject to revision following full adequate consultation with all relevant stakeholders. The process of merging with OECF to form JBIC provides the clear opportunity for further reform.

ANALYSIS

1) MESUM DECLARATION INTRODUCTION:

(following informational background statements)..."Therefore, we call upon governments and the OECD to engage in a frank and constructive dialogue with civil society in our countries and in countries that are recipients of export finance on the following critical issues":

Relevant JEXIM Provisions(s)

Objective of Environmental Guidelines: "These Guidelines describe the principles for the procedures and methodologies employed by JEXIM to confirm that environmental considerations are integrated in every project financed. The purpose of JEXIM is to facilitate Japan's external trade and overseas economic activities, and to contribute to a stable international financial order."


Comment

While JEXIM has engaged in some informal dialogue with non-governmental organizations in both Japan and internationally, there is no recognition of a broader set of stakeholders than Japanese industry. This assertion is reflected in the development of the Guidelines to date. There was no formal stakeholder consultation process in the development of the Guidelines. Rather, the Guidelines have been presented to the public as a done deal. We support the request of Japanese NGOs calling for significant upward harmonization and development of these guidelines in a clear and transparent process pursuant to the merger with OECF to form JBIC. As one of the leading and largest financial institutions in the world, JBIC must begin to include all relevant stakeholders in its decision making process.


2) MESUM DECLARATION: CALL FOR ENVIRONMENTAL SCREENING AND ASSESSMENT

"...Environmental screening procedures prohibiting financial support for particular toxic substances and environmentally harmful projects, as well as transparent, independently prepared, participatory impact assessments are common practices in OECD countries to help insure proper use of public funds and guarantees. These procedures need to be applied to the activities of export credit and insurance agencies."


A. Principles of Environmental Impact Assessment

UNEP Goals and Principles of Environmental Impact Assessment

"To establish that before decisions are taken by competent authority or authorities to authorize activities that are likely to significantly affect the environment, the environmental effects of those activities should be fully taken into account...Where the extent, nature or location of a proposed activity is such that it is likely to significantly affect the environment, a comprehensive environmental impact assessment (EIA) should be undertaken in accordance with the following principles..." Note: these principles include screening criteria and procedures, determination of relevant environmental issues to assess, minimum EIA components, impartiality, public comment, publicly available written final decisions, appropriate supervision, information exchange, transboundary cooperation and adequate implementation procedures.

International Finance Corporation (IFC)

IFC requires environmental assessment to help ensure that their projects are "environmentally sound and sustainable, and thus to improve decision making." Like the UNEP Goals and Principles of Environmental Impact Assessment, IFC further enunciates principles and components of environmental impact assessment. An environmental assessment evaluates a project's potential environmental risks and impacts, examines project alternatives, identifies ways of improving project selection, siting, design, etc., and includes the process of mitigating and managing adverse environmental impacts throughout project implementation. IFC favours preventive measures over mitigatory or compensatory measures, whenever feasible. IFC also applies the World Bank Pollution Prevention and Abatement Handbook for concrete pollution prevention and abatement measures and emissions levels that should be met. For Category A (the most environmentally sensitive) projects the project sponsor must retain an independent expert not affiliated with the project to carry out the EA.


Relevant JEXIM Provision(s)

General Principles

"If during the course of establishing whether the project meets acceptable environmental considerations, JEXIM finds that environmental considerations for the project are not appropriately addressed and the project carries a significant risk of negative environmental impact, JEXIM will require the project executor to improve the project's environmental consideration. Under certain circumstances, JEXIM may decide not to provide loans or equity contributions."

Section 5: Confirming Environmental Considerations for Each Category
(1) Pre-Commitment Assurance of Environmental Considerations
Category A: Taking into account the characteristics unique to a "Sensitive Area" JEXIM undertakes to confirm environmental considerations on the basis of the BORROWER-submitted "Screening Form", Environmental Impact Assessment (EIA)....." [Emphasis Added].

Category B: [Projects with potential less environmental impacts, although less so than Category A according to JEXIM] "JEXIM confirms that on the basis of the BORROWER-submitted "Screening Form" the project meets environmental and related standards in the countries where those projects are implemented. In the event that such standards are not met or they diverge significantly from the Japanese or international standards, or in the absence of applicable local standards, JEXIM undertakes to confirm environmental considerations on the basis of the "Screening Form" with necessary information (especially EIA) obtained through the BORROWER, including site visits, if necessary."

Category C: [Projects with potential for some limited environmental impact]: JEXIM does not undertake to confirm environmental considerations at this stage.

Comment:

JEXIM indicates that certain environmentally negative projects may not receive support. However, this statement is a bit weak considering nowhere in the JEXIM guidelines are clear quantitative or qualitative standards beyond host country compliance provided nor is a list categorical list of projects it will not support provided (i.e. projects in primary forests, protected areas, national parks, etc.). Instead JEXIM states in vague terms that as long as the issues are considered the projects will go forward, regardless of the on the ground impacts. Basically, JEXIM is saying that as long as it simply "considers" applying international standards, then the project can go forward. Whether such standards are actually applied has no bearing on their decision to fund a project.

In terms of environmental assessment, JEXIM falls short. The language for Category A projects requires a basic EIA in addition to a borrower screening form. However, other basic internationally accepted standards of a resettlement plan, indigenous peoples plans and independent expert site visits are activities for JEXIM to consider not require. There is also the fundamental problem that JEXIM does not require transparency in preparation of the EIA or in their own assessment process therefore undercutting the EIA requirement. Furthermore, JEXIM should be clearer about what standards should be met in an EIA. Transparency is a vital component of internationally accepted EIA standards and therefore JEXIM's guidelines cannot be considered to meet these standards.

Screening for Category B projects, which can be expected to be the bulk of JEXIM's environmentally sensitive projects, falls short of internationally accepted practice.
Everything JEXIM lists as Category B would fall into Category A pursuant to World Bank Group screening mechanisms. Projects impacting protected areas should not be the only ones defined as Category A. Rather projects that have major and significant environmental, health and safety impacts should all be Category A, but are currently Category B. In addition, the Category B list should be expanded to be harmonized with the list OPIC and the World Bank Group generally use. In addition, EIAs must be required for all Category B projects as defined by JEXIM. For example, the idea that a coal-fired power plant need not provide more than a borrower screening form fails to address the significant health impacts at the local level and global climate impacts.

B. Screening Mechanisms and Prohibitions

International Finance Corporation

IFC conducts environmental screening of any proposed project to determine "the appropriate extent and type of environmental assessment: Category A (significant adverse environmental impacts that are sensitive, diverse or unprecedented). Category A projects must recommend any measures needed to prevent, minimize, mitigate or compensate for adverse impact and improve environmental performance. Category B projects can have adverse impacts but are generally more site-specific and susceptible to mitigation. Category C projects have minimal or no adverse impacts and are exempt from further review.

IFC has a number of prohibitions including commercial logging operations or purchase of logging equipment for use in primary tropical moist forest.

US Overseas Private Investment Corporation

OPIC maintains Categorical Prohibitions that include "projects that OPIC will not support due to negative environmental impacts or siting concerns...Examples of such projects include large dams that disrupt natural ecosystems, infrastructure or raw materials extraction in primary tropical forests and other protected or ecologically fragile areas." This includes a prohibition on projects in or impacting World Heritage Sites. In addition, OPIC also follows IFC principles for screening of projects.

In determining which project environmental standards to apply, OPIC relies "primarily upon guidelines and standards adopted by international organizations such as the World Bank... and nongovernmental organizations with expertise" in a given area. OPIC requires independent third party environmental certification for all of its forestry projects, it requires that projects in or impacting certain lands classified by the IUCN as protected areas to be consistent with the goals of that classification, and it requires independent third party audits in the first three years for Category A projects.

US Export-Import Bank

Ex-Im Bank maintains an "Exclusion List" of 47 prohibited and 7 severely restricted substances that are ineligible for export credit insurance. Ex-Im Bank applies quantitative and numerical guidelines that serve as maximum acceptable concentrations of pollutants in air, water and soil media, and define noise levels. Ex-Im Bank applies qualitative guidelines to assess management of soil, hazardous and toxic materials and wastes, the ability of a project to withstand potential impacts of natural hazards, and the potential impacts on the project's ecological context, socio-economic and sociocultural environment. In so doing, Ex-Im Bank generally applies World Bank Group or stronger guidelines. Ex-Im prohibits support of commercial logging operations in primary tropical forests. In addition, habitats of threatened or endangered species approaching high risk of extinction should not be diminished or harmed according to Ex-Im. Ex-Im has similar screening procedures to IFC but also includes specific screening mechanisms and requirements for nuclear projects.

UNEP Goals and Principles of Environmental Impact Assessment

Principle 4 of UNEP's Goals and Principles of Environmental Impact Assessment states that EIAs should consist of minimum components including an assessment of the likely or potential environmental impacts of the proposed activity and alternatives, including the direct, indirect, cumulative, short-term and long-term effects of the project. Principle 6 of UNEP's Goals and Principles of Environmental Impact Assessment states that information provided to accomplish this should be examined impartially prior to final project decisions. Screening measures are integral to this process.

Relevant JEXIM Provision(s)

-Section 2, Objective of Environmental Guidelines:
"JEXIM aims to confirm that the environmental considerations are addressed through appropriate use of screening criteria, as provided in the Guidelines, and..."

-Section 3, Procedures for Confirming Environmental Considerations:
"JEXIM screens projects on the basis of a BORROWER-submitted ‘Screening Form' (see Appendix), thereby grouping them into three categories, and undertakes to confirm that environmental considerations are addressed for each category. The results will be checked and monitoring needs will be identified by JEXIM's environmental section."

-Section 4, Screening
"Screening differentiates JEXIM -financing projects on the basis of the BORROWER-submitted Screening Form, grouping them into 3 categories, A, B, and C, in accordance with the extent of the environmental impacts(s) and/or JEXIM's involvement in the project. Category A and B projects are deemed to have a significant likelihood of affect the environment, as suggested by JEXIM's experience."

"Category A: Projects undertaken in developing countries that are located inside the area having the following specific characteristics (henceforth the "Sensitive Areas"). Primary forests, tropical rain forests....national parks....World Heritage Sites....large scale involuntary resettlement..."

"Category B: Projects undertaken in developing countries that are in the sectors listed in the ‘Environmental Checklist' except for those classified as Category A or Category C."

"Category C: Projects that fall under the following cases (1) to (4) except, in principle for those classified as Category A.

(1) Projects undertaken in developing countries that are in the sectors other than those listed in the "Environmental Checklist."
(2) Projects undertaken in developing countries that are in the sectors listed in the "Environmental Checklist" but whose impact on the environment is not objectively anticipated or is deemed immaterial under normal circumstances (including but not limited to new or expansionary environmental facility projects, and non-expansionary renovation of the existing production facilities).
(3) Projects undertaken in developed countries for which JEXIM financing is under review.
(4) Projects in which JEXIM is involved only in a minor, or small size projects. (The JEXIM share in the total project cost is less than 5% or the amount of the JEXIM loan is less than US$10 million).

Comment

JEXIM should avoid using scarce public resources in any of the areas listed in Category A unless the project clearly improves the environment. Therefore, JEXIM should transform Category A projects into a list of categorical prohibitions. OPIC provides a useful example. Additionally, Category B projects should then be considered under increased scrutiny of an EIA pursuant to World Bank standards and operational policies. JEXIM states that they apply international or Japanese standards where host country standards are significantly weaker. JEXIM's guidelines need to more clearly define what a "significant" divergence from Japanese and international standards means. At this point they rely on the screening memo and environmental checklist submitted by the borrower to make a subjective determination. This is far too arbitrary a process. Two policies can help. First, transparency of checklists, screening memos and EIAs will put more scrutiny and credibility on the statements of borrowers.

Secondly, requiring World Bank standards as a minimum threshold takes out any subjective determinations as to what is a "significant" impact. JEXIM can apply Japanese or Host Country standards when they are more stringent than World Bank standards.

Following JEXIM's guidelines at face value, whenever a host country environmental standard does not address release of EIAs to any interested party for comment, one could surmise that is a "significant deviation" from internationally accepted practice.

Category C creates a loophole for non-expansionary projects that fall below World Bank standards. For instance there would be no environmental review of an upgraded coal-fired power plant even if it still fails to meet host country or World Bank standards.

3) MESUM DECLARATION: CALL FOR GREATER TRANSPARENCY AND PUBLIC PARTICIPATON IN ENVIRONMENTAL IMPACT ASSESSMENT

"Access to environmental and social impact information, consultation with, and participation of civil society and affected and interested communities and groups is an elemental principle for public agencies supporting investment and economic development. It is a principle recognized in numerous international fora and organizations. Lack of transparency and consultation with affected communities and concerned groups increases project risk, the very thing export credit and investment insurance agencies have been created to mitigate."

UNEP Goals and Principles of Environmental Impact Assessment

"Principle 7: Before a decision is made on an activity, government agencies, members of the public, experts in relative disciplines and interested groups should be allowed appropriate opportunity to comment on the EIA."

"Principle 8: A decision as to whether a proposed activity should be authorized or undertaken should not be taken until an appropriate period has elapsed to consider comments pursuant to principles 7 and 12." Note: Principle 12 involves transboundary consultation.

International Finance Corporation

For Category A and certain Category B projects, the project sponsor must consult project-affected groups and local non-governmental organizations regarding environmental issues and take their views into account, incorporating them into environmental assessment decisions. Consultation should continue as necessary during project implementation. IFC has a Good Practices Manual for consultation and disclosure. Environmental Assessments are also made available in the World Bank Infoshop in Washington, D.C. at least 60 days prior to Board of Directors vote on a project.

UNEP Statement By Financial Institutions on the Environment & Sustainable Development (signed by EDC in 1999)

"We will foster openness and dialogue relating to environmental matters with relevant audiences including shareholders, employees, customers, governments, and the public." [emphasis added]

OECD Good Practices for Environmental Impact Assessment of Development Projects

Article 7 calls for the involvement and motivation of local institutions and targets groups, pointing out, inter alia, in paragraph 34, that "the participation of non governmental organizations in the recipient country should be encouraged."

Ex-Im and OPIC

Both institutions require public release of environmental impact assessments prior to making a final commitment to an environmentally sensitive project, and recognize the value of input from non-governmental organizations according to provisions in their respective guidelines. OPIC recommends compliance with the IFC Good Practices Manual.

Relevant JEXIM Provision(s)

None. JEXIM's environmental "checklists" ask the "BORROWER" to note how inhabitants are affected, and curiously asks "what moves are being made by NGOs.

Comment

Basic democratic principles of transparency and public participation in activities that impact the public environment are embodied in the Mesum Declaration, UNEP Goals and Principles for Environmental Impact Assessment, World Bank Group procedures and OECD DAC guidance. In contrast, by making public participation discretionary and forbidding access to information locally, in Japan and internationally, JEXIM provides no guarantee of public disclosure of, or public participation in its decision making process on projects with potentially significant environmental impacts.

The JEXIM provisions side-step transparency and consultation with locally affected people and non-governmental organizations that can provide meaningful technical and social expertise to JEXIM. Thus JEXIM is missing the basic underpinnings of internationally accepted EIA standards. JEXIM's policies will likely lead to increased environmental and social problems, increased suspicion and opposition from the public, and therefore increased project risk. Hence, JEXIM has not come to terms with the lack of transparency and consultation with civil society, one of the most fundamental problems associated with most ECA-backed projects. JEXIM need not always agree with the public, but international standards implore it to engage the public on a project-by-project basis.

4) MESUM DECLARATION: CALL FOR SOCIAL SUSTAINABILITY

"Publicly supported private sector investment should serve the public interest in industrialized and developing countries, as the simple quid pro quo for the use of scarce public financial support where there are many alternative uses for such support. Use of public funds, guarantees and risk insurance should not contribute to the environmental and social impoverishment of affected communities and citizens, and should in no case support investments that contribute directly or indirectly to the violation of basic human rights."

International Finance Corporation

IFC will not support projects that use forced or harmful child labor as defined below. Projects should comply with the national laws of the host countries, including those that protect core labor standards and related treaties ratified by the host countries. IFC will incorporate the necessary provisions in its contractual documents to implement this policy. These standards are based in International Labor Organization Convention No. 29 "Concerning Forced and Compulsory Labour," Article 2 (1930) and the United Nations Convention on the Rights of the Child, Article 32.1 (A/Res/44/25; Nov 1989).

In addition, the World Bank Group provides a number of social and environmental safeguards to protect against impoverishment. For instance, IFC operational policies, while certainly not perfect, are a good baseline: OP 4.04 "Natural Habitats", OP 4.09 "Pest Management", OP 4.10 Indigenous Peoples (forthcoming), OP 4.11 "Safeguarding Cultural Property (forthcoming), OP 4.36 "Forestry", OP 4.37 "Safety of Dams", OP 4.12 Involuntary Resettlement (forthcoming), and OP 7.50 "Projects on International Waterways."

As an example of their applicability, given JEXIM's major role in sensitive extractive and infrastructure projects, adoption of World Bank OP's on Involuntary Resettlement and Natural Habitats would help JEXIM to minimize habitat loss and only force resettlement as a last resort that provides adequate compensation that improves livelihoods.

Relevant JEXIM Provisions

-Standards to Confirm Appropriate Environmental Consideration
JEXIM confirms, in principle, that the project will comply with laws and regulations and environmental standards pertaining to natural environments in the country where the project is located. In the event that environmental standards in the country where the project is located diverge significantly from Japanese or international standards (such as those provided in other environmental guidelines of the World Bank and other standards of which appropriateness are recognized internationally) or that local environmental regulations are yet to be established in some areas, Japanese or international standards are taken into account to confirm that appropriate environmental considerations are made.

(2) Social Environment (particularly Involuntary Resettlement)
"In addition to considerations for natural environments, appropriate considerations including adequate explanation, must be given to the social environment, particularly when local neighbouring populations will be subject to involuntary resettlement, with a view to obtaining their consent. In the event any problem arises, JEXIM will confirm the appropriateness of environmental considerations by referring to internationally recognized principles and procedures.

General Principles

"While confirming the appropriate consideration is given to the environmental aspects of the project, JEXIM has an affirmative policy to finance those projects that are designed to improve the environment, including those that reduce the emission of greenhouse gases."

Comment

JEXIM makes no judgement on human rights and has no requirements for absolutely meeting minimum international social and environmental standards. It just requires they be considered. They must go further to be meaningful standards rather than issues for internal staff to consider but not implement in a transparent and accountable manner.

Reducing greenhouse gases as an affirmative policy is a good step, but JEXIM should be required to transparently develop standards that explain and implement this policy. First, we recommend that JEXIM conduct full greenhouse gas accounting for all relevant projects thereby understanding the "climate footprint" their projects will leave. Second, JEXIM should set targets and goals for sustainable renewable energy and carbon offset projects.

5) MESUM DECLARATION CALL FOR AGREEMENT ON COMMON ENVIRONMENTAL AND SOCIAL STANDARDS

Based on the principles cited above, we urge our governments through the G7, OECD and other fora to call for an agreement on common environmental and social standards for export credit agencies; to set a deadline for reaching such an agreement within two years; to base the agreement on minimal existing standards in other publicly supported agencies subsidizing public and private investment such as those of the World Bank Group or the OECD Development Assistance Committee (DAC); and to extend the mandate for reaching such an agreement to investment insurance agencies not represented in the OECD deliberations but which do have a common forum in the Berne Union, the International Union of Credit and Investment Insurers.

International Finance Corporation

Letter regarding April 12 & April 13 international financial institution meeting from IFC President Peter Woijke: "Participants also felt that IFIs differed in terms of their environmental policies, standards and procedures, which was sometimes problematic given the increasingly complex nature of private sector deals, particularly in infrastructure, and the increasing number of situations in which IFIs were doing joint work. Stakeholders, such as clients, governments and NGOs were already pointing to the desirability of having common standards and procedures."

US Export-Import Bank

US Ex-Im Bank typically follows, at minimum, World Bank environmental standards. Moreover, its Environmental Procedures and Guidelines state that "Ex-Im Bank is continuing to seek agreement among the other export credit agencies within the framework of the Organization for Economic Cooperation and Development (OECD) on appropriate responses to environmental issues associated with financial support of foreign projects."

Overseas Private Investment Corporation

OPIC requires adherence to the World Bank Pollution Prevention and Abatement Handbook and International Finance Corporation operational policies. In addition, OPIC has raised environmental issues at the Berne Union and with individual financial institutions including those in Germany and Canada. OPIC sees financing environmentally beneficial projects as part of these broad issues and has enacted a pilot program entitled the "Asia Environmental Program."

Relevant JEXIM Provisions

-Standards to Confirm Appropriate Environmental Consideration
JEXIM confirms, in principle, that the project will comply with laws and regulations and environmental standards pertaining to natural environments in the country where the project is located. In the event that environmental standards in the country where the project is located diverge significantly from Japanese or international standards (such as those provided in other environmental guidelines of the World Bank and other standards of which appropriateness are recognized internationally) or that local environmental regulations are yet to be established in some areas, Japanese or international standards are taken into account to confirm that appropriate environmental considerations are made.

Comment

JEXIM will only consider internationally recognized environmental standards. As one of the largest and most power Export Credit Agencies, especially pursuant to its merger with OECF thereby forming JBIC, JEXIM needs to immediately assume a vocal leadership role. Recently approved project such as the San Roque Dam coupled with a lack of voice for change within the Export Credit Working Group of the OECD, brings JEXIM's role in finding a transparent and meaningful multilateral solution into question.