CAO Audit of IFC Investment in Corporación Dinant (Honduras)
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.
IFC and Corporación Dinant (Dinant) signed a loan agreement for $30 million in April 2009 to fund expansion of Dinant’s snacks and edible oils processing facilities, in order to generate employment opportunities for the local community and promote economic growth in Honduras. IFC disbursed $15 million in November 2009, but additional disbursements were put on hold following an increase in violence in the Aguan Valley, where Dinant operates. IFC’s Compliance Advisor Ombudsman (CAO) launched an audit of IFC’s investment after becoming aware of potential environmental and social issues around the Dinant investment in November 2010, when the then-President of the World Bank Group received a letter of complaint. That CAO audit has now been released.
Where we stand now
Strong and effective safeguard policies and accountability mechanisms have benefited the World Bank Group, our client countries, affected stakeholders, and the development community for over two decades. IFC’s Compliance Advisor Ombudsman (CAO) plays a critical role in ensuring accountability for development practitioners and for citizens.
IFC Management has carefully reviewed the CAO’s compliance audit report regarding Dinant, and we take its findings very seriously.
IFC has already made several changes that address the CAO’s findings. For example, under the 2012 version of IFC’s Sustainability Framework, we now consider inherent environmental and social risks in a given sector and the sensitivity of the local context in addition to specific project impacts when determining a project’s risk category.
One of IFC’s key strategic priorities is to work with companies in conflict affected areas and help them improve their policies and practices.
This investment and IFC’s decision to remain engaged after the coup sought to support employment in a volatile part of Honduras where land conflict and drug-related violence have become intermixed.
Job creation is important in Honduras, one of Latin America’s poorest countries.
IFC could not have foreseen the military overthrow of President Zelaya in June 2009, which took place nearly a year after IFC’s appraisal and two months after the loan was approved, and which escalated the violence that continues today.
IFC does not question the fact that implementation of the Environment and Social agreements has been slow. There were delays due in part to the security situation after the coup, which did not allow IFC specialists to travel to the project.
IFC reviews and updates its operational procedures and practices on an ongoing basis to capture lessons from our projects, including Dinant, and has developed new screening tools that flag—earlier in the appraisal process—potential environmental and social risks associated with agro-commodity production.
IFC is committed to helping create the conditions for economic growth and job creation in challenging environments.
We are deeply saddened by the loss of life that has taken place as a result of the Aguan Valley conflict. It has affected campesino associations, security guards, police, military, staff of Dinant, journalists, and civilians. It is very difficult to get to the bottom of allegations, as official investigations have not been completed. The CAO makes no findings as to whether the allegations are true. In its 2012 annual report, the Honduran National Commission of Human Rights noted the complexity of the situation in Aguan, as violence has touched all sides of the conflict.
IFC has worked with Dinant on a robust Action Plan to further address the CAO report’s findings. This Action Plan includes the following steps:
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 will develop a more comprehensive vetting process for security personnel.
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 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.
In addition, the following measures are underway:
Dinant has hired a security and human rights consultant, who has provided comprehensive security training for the company’s management team. Dinant is adopting new security protocols that define and clarify the appropriate use of force.
Dinant’s contracted security company has formally agreed to work to be compliant with Voluntary Principles on Security and Human Rights. This is a first in Honduras.
Dinant’s managers have received intensive training on the Voluntary Principles on Security and Human Rights.
Dinant itself has developed 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.
Following IFC’s recommendations, Dinant has hired consultants with extensive community engagement experience to conduct a stakeholder mapping and socio-economic survey of 43 communities surrounding its facilities. This is expected in Jan 2014.
IFC 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.
IFC will review, and if necessary strengthen, its policies and practices as they relate to the management of environmental and social risks in fragile and conflict-affected areas.
IFC will review its experience, and that of other DFIs, related to clients’ use of security forces in very high-risk environments.
IFC Management has committed to monitor the implementation of Dinant’s Environmental and Social Action Plan, as well as the Action Plan noted in Management’s response to the CAO audit. Should Dinant not meet its obligations under these plans, Management reserves the right to exercise all remedies available, including cancellation of this investment and accelerated repayment.