The Political Economy of World Bank Lending: An Empirical Analysis of Environmental and Social Safeguards at the World Bank

Brasília, Brazil. Photo by Daniel Costa via Unsplash.

After years of policy debate and advocacy, the World Bank and other multilateral development banks (MDBs) have developed a series of policies commonly referred to as ‘Environmental and Social Safeguards’ (ESS) aimed at preventing and mitigating social and environmental harm related to loan projects. In response to global climate change and inequality, the World Bank and MDBs reformed their ESS framework in 2018. However, there is little systemic analysis on the timeliness and effectiveness of ESS in the MDBs.

A working paper by Kevin P. Gallagher and Christopher Kilby examines the incidence and impact of ESS in projects financed by the International Bank for Reconstruction and Development. The authors measure the determinants of ESS project selection, the extent to which ESS are related to delays in project preparation and disbursement and whether projects with safeguards perform differently from projects without safeguards with respect to World Bank development criteria.

Since their introduction almost three decades ago, safeguards have been assigned to more than half of all World Bank investment projects. Consistent with practitioner complaints about the hassle associated with safeguard procedures, the authors find evidence of significant delays for ESS categorized projects and that ESS does not significantly improve project outcomes. Additionally, projects are less likely to have safeguards when the borrower holds one of the geopolitically important nonpermanent seats on the United Nations Security Council. The authors advocate for continued research to unpack the dynamics of why ESS policies have largely fallen short of achieving their stated goals. The utmost emphasis should be put on ensuring that development finance is steered toward projects that enhance social and environmental performance without adverse effects on borrowers, bank staff, communities and the environment.

Read the Working Paper