The Co-Benefits of Stakeholder Engagement: Environmental and Social Safeguards, Infrastructure Investment, and Deforestation in the Andean Amazon, 2000-2015

Since the turn of the 21st century, South America’s Western Andean nations have adopted some of the world’s most ambitious environmental and social protections surrounding infrastructure investment, including most notably the right to prior consultation for affected Indigenous communities. These reforms have been matched by the adoption of equally ambitious environmental and social safeguards (ESS) by the international development finance institutions (DFIs) who provide project financing, including prior consultation and the establishment of formal grievance mechanisms for affected communities.

A new working paper by Rebecca Ray tests the relationship between two major environmental and social safeguard (ESS) reforms––prior consultation and grievance mechanisms––and the environmental impact of infrastructure projects in Colombia, Ecuador, Peru and Bolivia. Through an analysis of satellite imaging, tracing tree coverage change around 84 infrastructure projects financed by DFIs from 2000-2015, Ray found that prior consultation regimes have a strong, positive and significant impact on the relative tree cover change near the site of the project. While grievance mechanisms did not have a significant relationship, Ray argues they may be crucial in avoiding other risks. According to Ray, DFI and country safeguards appear to act as a mutually-reinforcing network, acting as an insurance policy against the other failing or disappearing altogether.

Main findings:

• Between 2000-2015, the 84 projects studied were associated with the loss of 5,663 km2 in tree cover within 10 kilometers of the projects, or 14.2 percent of the total nearby tree cover. This rate of tree cover loss is much higher than the overall rate of deforestation in the four countries over this time period, 3.9 percent, which is equivalent to 25.4 kilotons of new CO2 emissions. 
• The presence of prior consultation mechanisms appears to be associated with a sizeable reduction in tree cover loss. Having a prior consultation process appears to raise the average relative tree cover change from a median level of -0.8 percent +1.8 percent and from a mean of -12.3 percent to -0.5 percent, compared to the remainder of the territory in the nations where the projects occurred.
• Regardless of whether national governments proposed the projects or transnational development banks financed them, the impact of prior consultation is consistently positive. According to Ray, governments and banks form a system of productive redundancy, whereby each serves as an insurance policy for affected communities, so that even if one institution rolls back its protections, prior consultation will be preserved. 
• Although the establishment of formal avenues for communities to pursue grievances against projects in case of damages, did not have the same impact as prior consultation, Ray argues it is likely that the impact of grievance mechanisms is felt in other avenues, such as the prevention of social conflict or reputational damage.