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Latin America and the Caribbean


IFC Response to CAO Audit of Investment in Corporación Dinant


 

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Update on Dinant (Consultation Draft) Enhanced Action Plan – October 2014

 

 

October 2014

 

Following IFC’s most recent update of July 3, 2014 on implementation of Dinant’s Enhanced Action Plan, we are providing an update below.

 

IFC continues to work closely with Dinant to ensure continued progress regarding implementation of its commitments reflected in the April 2, 2014 Draft Enhanced Action Plan. In July 2014, IFC retained the Consensus Building Institute (CBI) to provide support for a conflict mapping and consultation process that will help inform and finalize the Enhanced Action Plan.

 

CBI is now facilitating an ambitious multi-stakeholder engagement effort to build a constructive dialogue. So far, CBI has traveled to Honduras on three separate occasions in pursuit of these objectives. Trips to conduct further meetings for the second stage of this process are expected from October 2014 through February 2015.

 

In September 2014, IFC also hired law firm Foley Hoag, LLP as an external advisor on security and human rights. Experts from Foley Hoag will help IFC with the monitoring of Dinant’s new security management plan and procedures to ensure compliance with IFC’s Performance Standards and alignment with the Voluntary Principles on Security and Human Rights. They will also help to guide the audit process, which will look into past incidents involving Dinant's security personnel. A summary of the terms of reference for this work are available here.

 

In addition, since the last update, Dinant has completed and initiated a formal vetting process for the use of internal and third-party security guards. Training by the International Committee of the Red Cross on the proportionate use of force for all Dinant security staff has also been completed. Dinant guards in the Aguan Valley, Comayuga, San Pedro Sula and Lean facilities and plantations have been disarmed. Dinant’s grievance mechanism has been completed and a pilot version is being refined through discussions with community focus groups in Comayagua. It will soon be finalized and implemented throughout the Corporation.

 

A more comprehensive update on the status of other actions in the Draft Enhanced Action Plan is available here.

 

Based on feedback from CBI, Foley Hoag and other stakeholders, the timing and sequence of some elements of the Enhanced Action Plan may be revised. IFC will continue to provide regular updates on our website on any such revisions and progress related to the implementation of Dinant’s Enhanced Action Plan.

 

 

Update on Dinant (Consultation Draft) Enhanced Action Plan – July 3, 2014

 

 

July 3, 2014

 

Following the April 8 release of the Consultation Draft Enhanced Action Plan, IFC continues to engage regularly with Dinant regarding implementation of its commitments. IFC is currently putting in place our own external advisors to provide support and monitor actions related to the action plan as well as a broadened consultation with stakeholders.


IFC has retained the Consensus Building Institute to provide support for a more robust conflict mapping and consultation process associated with building out and finalizing the Enhanced Action Plan. The first step will be to gauge stakeholder interest in undertaking a participatory assessment process to develop a shared understanding of root causes, issues, challenges and opportunities. The terms of reference for this work are available here.


IFC is also in the process of retaining an external advisor on security and human rights to help IFC with the monitoring of the client’s new security management plan and procedures to ensure compliance with the Performance Standards and alignment with the Voluntary Principles. This advisor will also help to guide the audit and inquiry process into past incidents involving Dinant's security personnel. We will also post the terms of reference for this work once available.


We will continue to provide regular updates on our website on progress related to the implementation of Dinant’s Enhanced Action Plan.

 

 

 

Dinant Consultation Draft Enhanced Action Plan 

 

 

April 02, 2014

 

Following IFC Management’s Response to the CAO Audit of IFC’s Investment in Corporación Dinant (January 3, 2014), IFC received substantial feedback from stakeholders, including civil society and its Board of Directors, with respect to the Action Plan presented in the response.


After taking this feedback into account, and with additional engagement with Dinant, the CAO, Board members, and other stakeholders, the Action Plan has been further enhanced as elaborated here.

 

 

Posted on April 08, 2014

 

IFC Statement on Next Steps Related to CAO Audit of IFC’s Investment in Corporación Dinant

 

 

January 21, 2014


IFC is listening carefully to the statements and feedback we have received since the release of the CAO Audit of our investment in Corporación Dinant and IFC Management’s response.


IFC is deeply saddened by the loss of life as a result of the conflict in the Aguan Valley, and the violence that has affected all sides. The World Bank Group continues to urge the government of Honduras, and to press Dinant, to ensure that crimes highlighted in the CAO Audit are investigated and that remedies are available where wrongdoing is found.


IFC takes the CAO Audit and its findings very seriously. IFC will continue to work with Dinant to refine and flesh out the Action Plan in IFC Management’s response, in consultation with the CAO. IFC will report Dinant’s progress in meeting these actions to our Board. CAO will monitor and report on IFC’s actions in response to the audit.


IFC has not disbursed funds to Dinant since 2009, and will not disburse further funding until Dinant fulfills its commitments in the Action Plan, including strengthening its community engagement and environmental and social standards, and reviewing its security practices. Should Dinant fail to meet these commitments, IFC stands prepared to exercise all remedies available, including canceling the loan.


Environmental and social sustainability is core to IFC’s business. IFC has strong policies. Implementation must be equally strong. We understand that implementation in fragile and conflict-affected countries is particularly challenging, requires keen attention from management, and adequate tools for staff to deliver strong development impact in an environment of high risk.

 

IFC acknowledges that there were shortcomings in how we implemented our environmental and social policies and procedures in the Dinant investment, and accepts the recommendations made in the CAO Audit. As noted in the audit, IFC must take a broad view of the country and sector risks when considering projects. Additionally, we need to pay more attention to a client's security practices and preparedness in fragile country situations. As we continue to analyze the audit and its findings, IFC will reflect on what we could have done differently and how this should inform our work going forward. We will ensure that these lessons are shared with staff and other stakeholders.

 

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Statement from IFC Executive Vice President and CEO, Jin-Yong Cai
 

Re: CAO’s compliance audit report dated December 20, 2013 regarding IFC’s investment in Corporacion Dinant S.A. de C.V.

 

January 3, 2014

 

IFC is committed to ensuring that the projects we finance are implemented in an environmentally and socially responsible and sustainable manner. We have carefully reviewed the CAO’s compliance audit report regarding IFC’s investment in Corporación Dinant S.A. de C.V. This document, as well as other CAO reports, can help improve our ability to manage environmental and social risks, particularly in countries dealing with conflict and fragility.

 

We have worked with Dinant to enhance the company’s policies and practices. Moving forward, we will continue to monitor the implementation of Dinant’s Environmental and Social Action Plan, and look to bolster our procedures in relation to environmental and social risks in fragile and conflict-affected areas. Additional steps, to be carried out by Dinant under IFC guidance, have been identified and, moving forward, we will also monitor their implementation.

 

Working in fragile and conflict-affected states is challenging, due to the multiplicity of constraints and scarcity of resources and capacity.  However, IFC can help advance sustainable development and have an impact by virtue of continued engagement in these areas. IFC remains committed to helping create the conditions for economic growth and job creation in these regions in a way that will benefit the poor.

 

 

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IFC Management Response to CAO Audit

 

 

January 3, 2014


Ms. Meg Taylor
Compliance Advisor Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue, N.W.
Washington DC 20433

 

Dear Ms. Taylor,

 

Thank you for sharing the CAO’s compliance audit report dated December 20, 2013 regarding IFC’s investment in Corporación Dinant S.A. de C.V. (hereafter “Dinant”) in Honduras. IFC is committed to ensuring that the projects it finances are implemented in an environmentally and socially responsible and sustainable manner. Although we do not agree with some of the findings in the report, we acknowledge that CAO audits help strengthen our policies and procedures and lead to improvements in managing environmental and social risks, including in the context of fragile and conflict-affected states. The lessons from this report can help us as we increase our work in fragile and conflict-affected areas, where we can play an important role in helping companies create the conditions for economic growth and job creation.

 

We believe the key CAO Dinant report findings pertain to how IFC assesses broader contextual risks early in the appraisal process, as well as risks related to the interaction between company security forces and communities. We believe some of these findings have been addressed through the 2012 update to IFC’s Sustainability Framework. For example, in accordance with the 2012 Sustainability Policy, we will consider inherent environmental and social risks of a given sector as well as the project’s location in determining the risk category. We do believe that if a similar project were presented for financing today, it would most likely be categorized as high-risk.

 

We also review and update our operational procedures and practices on an ongoing basis to capture the continuous learning from our projects, including Dinant. For example, we have developed new screening tools that flag—earlier in the project appraisal process—potential environmental and social risks associated with agro-commodity production.

 

Moreover, IFC is committed to the Principles for Responsible Agricultural Investment (developed by FAO, IFAD, UNCTAD, and the World Bank Group), which ensure that agricultural investments support practices that protect the environment and local communities, respect local laws and land rights, and contribute to food security. We will continue to learn from our projects in the agribusiness sector to strengthen our standards and implementation processes.

 

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Project Context and Risk

 

At the time of project appraisal in 2008, IFC believed that the project risks associated with the expansion of Dinant’s existing processing facilities were limited and manageable through an appropriate Environmental and Social Action Plan, consistent with IFC’s policies and practices at the time. Local counsel confirmed that Dinant held clear title to all its plantations. There was no evidence of land claims in the legal system or otherwise. Other international financial institutions also conducted their own due diligence prior to IFC and subsequently obtained approvals from their respective Boards of Directors on that same basis.

 

In June 2009, nearly a year after IFC’s appraisal, the military overthrow of President Zelaya—an event IFC could not have foreseen—ignited social unrest across the country and reawakened a push for land redistribution in the Aguan Valley. The resulting political turmoil undermined law and order, exacerbating the trafficking of drugs and arms in the area. Nevertheless, IFC chose to remain engaged and work with Dinant to deal with the significantly changed circumstances on the ground and to improve its policies and practices, particularly in security and community engagement, in an effort to address the more volatile security environment.

 

 

IFC and Client Actions

 

IFC has worked with Dinant to identify and undertake measures to prevent armed clashes, and has communicated several times with President Lobo to support a peaceful resolution to the Aguan Valley land conflict. The new government of Honduras called for negotiations between campesino organizations and landowners to quell social tensions and find a solution to land disputes. In late 2012, Dinant voluntarily sold nearly 4,000 hectares of its occupied plantations to the Honduran government to facilitate a resolution of the claims of campesino organizations. Dinant transferred its legal land titles to the government and received compensation.

 

In December 2010, in response to the rapidly changing circumstances IFC requested that Dinant hire an international security and human-rights consultant, who traveled to Honduras to assess its security program and thereafter defined an action plan, consistent with the Voluntary Principles on Security and Human Rights. IFC management conducted several visits to Honduras beginning in January 2011. In addition, our environmental and social specialists intensified supervision as soon as practicable with visits in 2011, 2012, and twice in 2013. IFC also recommended a consultant to oversee the Environmental and Social Action Plan implementation process locally and help the company build and manage a team of internal staff and specialized consultants. Working with the support of consultants and IFC, Dinant has taken significant strides forward. The following is a summary of actions taken with IFC’s support, active guidance and monitoring, aimed to improve Dinant’s Environmental and Social Action Plan performance. Several actions also address some of the CAO report findings:

 

Actions Taken So Far

 

Security

 

  • Following IFC’s request, Dinant hired a security and human rights consultant, who has provided comprehensive security training for the company’s management team.

 

  • Dinant is in the process of adopting new security protocols that define and clarify the appropriate use of force. Dinant’s contracted security company has formally agreed to the Voluntary Principles. This is a first in Honduras.

 

  • Dinant’s managers at each major site and facility have conducted detailed risk assessments, including specific mitigation measures. They have received intensive training on the Voluntary Principles on Security and Human Rights.

 

  • Dinant has developed and disclosed a human rights policy that is consistent with the Voluntary Principles on Security and Human Rights.

 

  • Dinant management has met with various stakeholders to discuss security issues, including Honduran public security forces, Honduran Human Rights Commission, representatives from the European Union, the US Embassy, and NGOs.

 

Stakeholder Engagement, Social Assessment and Community Development

 

  • Following IFC’s recommendations, Dinant has hired consultants with extensive community engagement experience to conduct a comprehensive stakeholder mapping and socio-economic baseline survey of the communities surrounding its facilities. The survey is expected to be rolled out to 43 communities in January 2014.

 

  • The aim is to better understand the issues currently impacting communities and to bring strategic focus and overall coordination to Dinant’s existing corporate social responsibility programs, such as funding for school teachers, clinics, and conservation programs.

Environmental and Social Management

 

  • In accordance with the Environmental and Social Action Plan, Dinant has completed a labor audit, and is implementing a corrective action plan that focuses on improvements to its working conditions, occupational health, and fire and life safety. It is investing in upgrades for its processing operations, including wastewater treatment, atmospheric emissions controls for boilers, and occupational health and safety measures.

 

  • Assisted by external consultants and the commitment of substantial internal resources, Dinant has conducted an extensive evaluation of its environmental, health, and safety (EHS) management capacity and procedures and is currently developing the required plans and procedures to achieve certification under the ISO 14001 and OHSAS 18000 international standards. The certification process for all of its manufacturing and distribution activities is expected to be completed in 2014.

 

  • Dinant has completed initial diagnosis of its palm oil production activities in order to meet, and be eligible for, certification under the Roundtable on Sustainable Palm Oil (RSPO), which promotes the production and use of sustainable palm oil. As part of its efforts to meet certification criteria and to improve its environmental and social performance, Dinant is currently mobilizing financing to make necessary improvements to upgrade pollution control measures at its oil mills. This will significantly reduce atmospheric emissions and discharge of industrial effluents. 

 

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Moving Forward

 

We will continue to monitor and supervise the implementation of Dinant's Environmental and Social Action Plan through bi-monthly discussions and, in this connection, consider additional support from external experts.  In addition, we will seek Dinant’s agreement to undertake that the following actions are undertaken over the next 12 months, with IFC’s support and guidance, to further address the CAO report findings. We will adjust these actions and timeline according to developments on the ground.

 

Action Plan

 

Action

Responsibility

Expected Timeline
In accordance with its commitment and ongoing efforts to strengthen community engagement, Dinant will continue to collaborate with proper authorities to investigate any credible allegations of unlawful or abusive acts of its security personnel against communities/stakeholders in the Aguan and take action to prevent recurrence if allegations are found to be true.  As appropriate, Dinant will also refer such allegations to the relevant authorities, and, based on its findings, assess the feasibility of remediation to affected parties Dinant  to implement with IFC guidance Targeting 12 months with estimated completion no later than the next 24 months
Dinant will develop a more comprehensive vetting process for security personnel. Dinant to implement. IFC to supervise and monitor. Targeting 3 months with estimated completion no later than the next 12 months, with quarterly updates to management + CAO

Dinant will train in-house and third-party guards on the new security protocols that define and clarify appropriate use of force, and to ensure a common understanding of its procedures.

 

Dinant to implement. IFC to supervise and monitor. Targeting 3 months with estimated completion no later than the next 12 months, with quarterly updates to management + CAO

Dinant will implement a grievance mechanism to address communities’ concerns and complaints, and provide feedback in a consistent and timely manner, while remaining attentive to the unique needs of each community in which it operates.

 

Dinant to implement. IFC to supervise and monitor. Targeting 3 months with estimated completion within the next 12 months, with quarterly updates to management + CAO and pending   positive political developments and adequate security on the ground.
IFC will review, and if necessary strengthen, its approach to the management of environmental and social risks in fragile and conflict-affected areas. In particular, IFC will review its experience, and that of other DFIs, related to clients’ use of security forces in very high-risk environments. IFC to review and amend as needed. IFC to report back semi-annually to the World Bank and IFC President, the IFC Executive Vice-President and CAO on progress related to these actions. Estimated completion within the next 12 months

                                                  

Sincerely,  

Oscar Chemerinski

Director

Manufacturing, Agribusiness & Services Department 

Sub-Saharan Africa, Latin America & the Caribbean

Morgan Landy

Director

Environment, Social and Governance Department

 

 

 

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