International Environmental Oversight: U.S. Agencies Follow Certain Procedures Required by Law, but Have Limited Impact
Published: 2008-11-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The World Bank Group lends about $40 billion annually to developing countries. Critics have claimed that some projects have harmed the environment and the local population. Title XIII of the International Financial Institutions Act of 1977 outlines in part the U.S. government's requirements for reviewing potential environmental and social impacts of proposed multilateral development bank projects. GAO was asked to assess the U.S. government's international environmental oversight efforts by examining (1) how U.S. agencies implement legislative requirements to review the potential environmental concerns associated with proposed World Bank Group projects, and (2) agencies' ability to identify and address these concerns. GAO reviewed Title XIII, World Bank Group reports, and U.S. agency documents and met with representatives from U.S. government agencies, the World Bank Group, and nongovernmental organizations.
section_title: What GAO Found
paragraphs: U.S. agencies take various approaches to meet legal requirements for reviewing World Bank Group proposals likely to have significant adverse environmental impacts. The Treasury Department (Treasury), which leads these efforts, generally focuses on fulfilling the law's largely procedural requirements, such as ensuring that the project's environmental assessment is made publicly available by the project sponsor 120 days before it is voted on by the Group's board. The reviews usually occur from 1 to 3 weeks prior to such a vote. Treasury also engages in required consultations by leading a weekly interagency working group. Some participants stated that, because of limited time and the volume of proposals, they rely on Treasury to identify proposals of concern to facilitate the discussions. However, Treasury has not routinely done so. For a selected few projects, Treasury and the U.S. Agency for International Development analyze in more depth a proposal's potential environmental and social impacts. Both agencies learn about many such projects through regular interaction with nongovernmental organizations. Time constraints limit the U.S. government's ability to identify environmental and social concerns associated with World Bank Group projects before a vote on the proposal, and projects with potentially significant adverse impacts proceed with or without U.S. government support. The compressed review time frame makes it difficult for U.S. officials to examine proposal documentation and solicit information from knowledgeable parties. In addition, by the time of the vote, a project is often already in its final design stage or even under construction, which limits U.S. agencies' ability to identify ways to mitigate the concerns. Furthermore, proposals with potentially significant adverse impacts proceed with or without U.S. government support. The board consistently approves proposals that lack U.S. support; between January 2004 and May 2008, all 34 of the proposals the United States did not support because they did not meet legislative requirements were still approved by the board. Finally, the U.S. government occasionally supports proposals with significant environmental impacts, due to competing priorities, including economic and other considerations.

section_title: Letter
paragraphs: The World Bank Group lends about $40 billion annually to developing  countries, and while its projects can provide significant benefits, some,  particularly those involving natural resource management, rural  development, energy, and other infrastructure projects, can adversely  impact the physical environment and the lives of indigenous people in the  project area. Critics of the World Bank Group, as well as oversight entities  within the World Bank Group, have claimed that many of these projects  have harmed the environment and the local population. For example,  some road projects have led to deforestation caused by clear-cutting, and  artificial lakes created by large dam projects have forced thousands of  local inhabitants to leave their homes and communities and resettle  elsewhere. In 1989, the World Bank established policies that require  project sponsors to prepare assessments that would identify  environmental and social impacts associated with the projects it finances.  The World Bank Group also established policies guiding the disclosure of  this information to the public. However, concerns persist about the  implementation of these policies as well as the quality of the  environmental assessments associated with the projects. For example,  according to a 2008 World Bank Group Internal Evaluations Group report,  World Bank Group staff have not consistently applied its environmental  assessment standards across regions and countries, partly due to unclear  guidance.
Title XIII of the International Financial Institutions Act of 1977, as  amended (Title XIII) outlines the U.S. government’s basic requirements for  reviewing the potential environmental and social impacts of proposed  multilateral development bank projects, including those of the World Bank  Group. This legislation was enacted to strengthen the environmental  performance of multilateral development banks, which includes  promoting the use of environmental assessments to identify and address  harmful environmental and social impacts of multilateral development  bank projects. It requires, in part, that the U.S. government review  proposed World Bank Group and other multilateral development bank- funded projects with the potential for such impacts. To do so, U.S.  government agencies examine project-specific environmental assessments  prior to project approval and ensure that these assessments were made  available to the public by the project sponsors at least 120 days before the  project is voted on by the World Bank Group Board of Directors. The  Department of the Treasury (Treasury) instructs the U.S. Executive  Director on the U.S. position for each proposed project based on its  review; the legislation specifically precludes the U.S. Executive Director  from supporting projects that do not meet the 120-day public disclosure  requirement.
For this report, you asked us to assess (1) how U.S. agencies implement  their legislative requirements to review the potential environmental and  social concerns associated with proposed World Bank Group projects, and  (2) agencies’ ability to identify and address these concerns. Although this  legislation applies to all multilateral development banks, we have limited  the scope of our review to the World Bank Group organizations because  their environmental policies are generally considered to be international  good practice among multilateral organizations and private-sector entities.  Also, this report is the first in a two-part review: it focuses on U.S.  government oversight of the World Bank Group’s environmental  assessment processes; the second report will focus on World Bank Group  environmental assessment policies and their implementation.
To address these objectives, we reviewed portions of Title XIII and its  relevant amendments, as well as agency documents such as periodic  reports to Congress and position papers. We also interviewed U.S.  government officials from the Council on Environmental Quality, the  Environmental Protection Agency (EPA), the U.S. Agency for International  Development (USAID), and the Departments of Commerce, State, and the  Treasury. In addition, we reviewed World Bank Group reports and studies  and interviewed relevant World Bank Group officials from the  International Bank for Reconstruction and Development (IBRD), the  International Development Association (IDA), the International Finance  Corporation (IFC), and the Multilateral Investment Guarantee Agency  (MIGA), as well as environmental experts from nongovernmental  organizations, and the private sector.
We conducted this performance audit from October 2007 to November  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Appendix I provides  detailed information on our methodology.
subsections: section_title: Background
paragraphs: The World Bank Group’s member countries collectively determine policy  and make investment decisions. Its board of directors is made up of 24  executive directors who represent all 185 member countries. The U.S.  Executive Director is the main liaison between the United States and the  World Bank Group. Treasury has the lead role in working with the U.S.  Executive Director to determine the U.S. position on proposed World  Bank Group projects. As a member country of the World Bank Group, the  United States may support, abstain from voting, or vote against a proposed  project. However, no single member country can veto a proposed project.
In 1989, the World Bank established social and environmental guidelines,  or Safeguard Policies, to identify and address potentially significant  negative environmental and social impacts. In 2006, IFC developed its own  distinct performance standards for assessing the environmental and social  impact of its projects, and MIGA introduced its own standards, which  were largely based on IFC’s, in 2007. The World Bank, IFC, and MIGA have  also established policies guiding the disclosure of project information to  the public. IFC and MIGA guidelines state that proposed project  documents, including environmental assessments, should be released 60  days prior to a board vote on projects with potential, significant adverse  impacts. The World Bank disclosure guidelines do not specify a number of  days.
World Bank Group entities screen project proposals for potential  environmental impacts and assign one of four categories to determine the  type of environmental assessment needed. See table 1.
Title XIII outlines the U.S. government’s basic requirements for reviewing  the potential environmental and social impacts of proposed multilateral  development bank projects, including those of the World Bank Group. The  overall purpose of the legislation is to ensure that U.S. assistance to  multilateral development banks promotes sustainable use of natural  resources and the protection of the environment, public health, and the  status of indigenous people in developing countries. In 1989, Congress  amended Title XIII to include Section 1307, commonly referred to as the  Pelosi Amendment. The Pelosi Amendment directly affects whether the  U.S. government will support a proposed project. It directs the U.S.  government to ensure that a proposed project with potentially significant  negative impacts meets certain requirements, such as making publicly  available an assessment of the project’s environmental impact 120 days  before the World Bank Group’s Board of Directors votes on the project. If  the World Bank Group’s project sponsor does not make the assessment or  a summary of the assessment publicly available within this time frame, the  law instructs the U.S. government not to vote in favor of the proposal. The  law also requires that the assessment include an analysis of the project’s  cumulative and associated impacts, as well as alternatives to the proposed  project. As a result of the Pelosi Amendment, the World Bank Group and  other major multilateral development banks began requiring project  sponsors to prepare environmental impact assessments and make them  available to affected groups, according to representatives from U.S.  government agencies and nongovernmental organizations, as well as a  1998 U.S. Congressional Research Service report determining the impact  of the Pelosi Amendment.
Both the Pelosi Amendment and other sections of Title XIII specify the  responsibilities of several U.S. agencies in monitoring proposed  multilateral development bank projects with the potential for significant  environmental and social impacts. As the lead U.S. agency interacting with  the multilateral development banks, Treasury is to take the following  actions:    ensure that an environmental impact assessment or a comprehensive  summary accompanies project proposals,   consult with and consider recommendations from other federal agencies  and interested members of the public regarding this assessment,   determine whether an environmental assessment has been made publicly  available at least 120 days prior to the board vote on the proposal,  instruct the U.S. Executive Director on the U.S. position for each proposed  project,    consult with other U.S. agencies to develop environmental impact review  procedures for proposed multilateral development bank projects and  assist in implementing these procedures, and   provide an annual report to Congress on the environmental sustainability  of multilateral development banks’ operations and the efficacy of U.S.  efforts in this process.
Title XIII also requires USAID to work with Treasury and the Department  of State (State) to analyze, where feasible, the environmental, social, and  other impacts of proposed multilateral development bank projects “well  in advance” of the projects’ board vote date, and to ensure that  investigations are undertaken for proposals that are likely to have  substantial adverse impacts. USAID is also required to provide its own  report to Congress that identifies proposals likely to have adverse impacts  on the environment, natural resources, public health, or indigenous  peoples. State and Treasury are to work with USAID to vigorously  promote mechanisms to strengthen the environmental performance of  multilateral development banks.
section_title: U.S. Agencies Take Various Approaches to Meet Legal Requirements for Reviewing World Bank Group Proposals Likely to Impact the Environment
paragraphs: Treasury addresses Pelosi Amendment requirements for assessing World  Bank Group projects by conducting reviews that focus on procedural  requirements such as whether the project’s environmental assessment is  made publicly available by the project sponsor 120 days before the World  Bank Group’s board vote date. Treasury also engages in required  interagency consultations by leading a weekly interagency working group.  However, Treasury does not always identify projects with potentially  significant environmental and social impacts in advance of the interagency  meetings, making it difficult for participants to provide effective input.  Because they have different responsibilities and flexibility within their  statutory requirements, USAID and Treasury take different approaches to  analyzing in more depth the environmental and social impacts of a few  controversial projects. The agencies learn about many such projects  through regular interaction with nongovernmental organizations.
subsections: section_title: Treasury Addresses Pelosi Amendment Requirements by Conducting Procedural Reviews and Engaging in Interagency Consultations
subsections: section_title: Treasury Reviews of World Bank Group Projects Generally Focus on Procedural Requirements
paragraphs: As required by the Pelosi Amendment, Treasury conducts reviews of  environmental documentation for World Bank Group proposals that could  have significant environmental or social impacts. Treasury’s efforts  generally focus on fulfilling the requirements of the legislation, which are  largely procedural; specifically, Treasury staff review documentation on  World Bank Group projects to ensure that procedural requirements  specified in the legislation are met. These requirements include ensuring  that an environmental impact assessment or a comprehensive summary of  the assessment is made publicly available 120 days prior to the World  Bank Group’s Board of Executive Directors vote date and that the  summary contains items such as discussions of alternatives to the  proposed project and the project’s direct and indirect environmental  impacts. A Treasury Department official who reviews project  documentation stated that the review process involves attempting to  ascertain the actual disclosure date, which is not necessarily the date or  dates listed on the documents. The Treasury reviews generally take place  once the World Bank Group’s Board of Executive Directors schedules a  vote for the proposed project. In practice, this can be anywhere from 1 to  3 weeks prior to the scheduled vote date. In calendar year 2007, Treasury  officials estimated that they reviewed over 95 projects that they  determined could have significant environmental or social impacts.
The Pelosi Amendment requires that Treasury consider, among other  things, associated and cumulative environmental impacts in its review of  World Bank Group project documentation but does not specify what  criteria should be used to determine these considerations. As a result, one  Treasury economist said she uses professional judgment to determine if  the evidence “seems reasonable” when reviewing environmental  assessments for compliance with the Pelosi Amendment’s requirement  regarding associated and cumulative environmental impacts. Since the  amendment does not require Treasury to review proposals to determine if  they meet the World Bank Group’s environmental and social safeguard  policies, Treasury generally does not evaluate proposals for compliance  with these policies. Treasury officials stated that they do not do this  because the multilateral development banks have their own procedures,  staff, and accountability mechanisms for ensuring compliance with bank  policies. Treasury officials noted that they occasionally may closely review  the analysis contained in the environmental assessment or other project  documentation if they have concerns about the environmental and social  impact of the project. However, these officials told us that they rarely  instruct the U.S. Executive Director not to support a proposal because of  deficiencies with the assessment’s technical analysis.
Because Treasury is only required by law to review proposals on which  the World Bank Group board votes, a subset of proposals, specifically,  umbrella proposals, are not always reviewed by Treasury for compliance  with the Pelosi Amendment. These proposals, which are presented to the  World Bank Group’s board for approval, contain an environmental  assessment that represents a framework for multiple sub-projects.  Although the board must approve the proposal as a whole, future sub- projects—some of which could have significant adverse impacts—are not  subject to board approval. Since the board does not vote on subprojects,  the Pelosi Amendment does not require Treasury to review them. Instead,  Treasury reviews these types of proposals on a case-by-case basis.  According to Treasury officials, they use professional judgment to  determine if the intended sub-projects are likely to have significant  adverse environmental and social impacts and, therefore, whether they  review environmental documents associated with the sub-projects.
Treasury reports its findings to Congress, as required by law, but does not  provide these reports in a timely manner. Federal law requires Treasury to  provide an annual report to Congress summarizing the environmental  performance of the multilateral development banks, including the World  Bank Group. Treasury’s most recent report is for fiscal year 2005. Treasury  officials told us in October 2007 and again in August 2008 that they were  still preparing the report for fiscal year 2006.
section_title: Treasury Engages in Interagency Consultations to Address Pelosi Amendment Requirements
paragraphs: Treasury addresses the Pelosi Amendment’s requirement that it consult  with other agencies by leading an interagency working group on  multilateral assistance that meets once a week for about an hour to  discuss U.S. agencies’ concerns regarding proposed World Bank Group  projects. This group discusses political, economic, environmental, social,  and other concerns related to proposed multilateral development bank  projects, including those of the World Bank Group. The purpose of these  discussions is to solicit agency input as to whether Treasury should  instruct the U.S. Executive Director to support the projects. In addition to  Treasury, State, USAID, and the Commerce Department are regular  participants at the meeting. Other agencies such as EPA have attended in  the past.
According to participants, the volume of proposals and brief discussion  time at the working group meetings has limited the quality of discussion  on proposals with potentially significant environmental and social  impacts. Approximately 1 week prior to each working group meeting,  Treasury distributes an agenda containing a list of all multilateral  development bank proposals that are scheduled for a vote over the next  several weeks. The number of proposals to be discussed in the hour-long  meeting each week varies, averaging about 60, but in some weeks, such as  near the end of the World Bank Group’s fiscal year, it has been about 150.  Treasury officials told us they assume the agencies will review the  proposals in advance and inform Treasury of any concerns they may have.  They said that if an agency does have an issue with a proposal, Treasury  staff will informally discuss the concern with the agency and attempt to  resolve it prior to the meeting. Officials from participating agencies we  met with stated that because of the volume of proposals to review and the  short time span in which to discuss them, they rely on Treasury to identify  in the meeting agenda proposals that it believes to be of concern, to  facilitate the discussion. However, Treasury has not routinely done so. For  example, of over 95 World Bank Group proposals in 2007 considered by  Treasury as being likely to have significant adverse environmental  impacts, the agency identified only 14 in the agendas it sent out in advance  of the working group meetings. Treasury officials stated that, given all  their other responsibilities and limited resources, they had not been  focused on identifying proposals likely to have significant adverse  environmental impact for the weekly working group meeting agendas.
section_title: USAID and Treasury Analyze a Selected Few Controversial Projects in More Depth, and Learn about Many Such Projects through Regular Interaction with Nongovernmental Organizations
subsections: section_title: USAID and Treasury Are Governed by Different Statutory Responsibilities for Analyzing the Impacts of Controversial Projects
paragraphs: Title XIII does not specify a particular process that USAID and Treasury  should use when considering environmental assessments, and the  agencies use different standards when assessing the sufficiency of  environmental impact assessments. Though USAID and Treasury are  charged with different statutory responsibilities, each agency may evaluate  environmental impact assessments on proposed projects during its review  process. Neither federal law nor agency regulations specify one standard  to be used across the federal government when considering proposals or  environmental impact assessments.
Section 1303 of Title XIII requires USAID to ensure that other U.S.  agencies and overseas USAID missions analyze, where feasible, the  environmental impacts of multilateral development loans well in advance  of the loans’ approval to determine whether the proposals will contribute  to the sustainable development of the borrowing country. USAID is also  required to ensure that investigations of proposed projects with  “substantial adverse impacts” are conducted. Because the law contains no  prescriptive requirements for how to ensure that investigations of projects  with likely substantial adverse impacts are conducted, USAID has taken  various approaches to fulfilling this requirement. In previous years, the  agency conducted a brief annual review of a large number of proposed  projects; in contrast, its current approach is to conduct a thorough  analysis of a much smaller number of proposed projects. For example,  USAID’s 1999 report to Congress briefly highlighted environmental  concerns in 29 projects. In contrast, the latest report, from April 2008,  provides an in-depth analysis of nine projects.
According to the official responsible for conducting the investigations,  USAID reviews the project’s environmental assessment, as well as related  studies, such as the environmental management plan. To perform its  analyses, USAID employs a technical expert, who evaluates proposals’  environmental and social impacts against USAID standards as well as  other guidance, such as that developed by the Council on Environmental  Quality (CEQ). This technical expert told us she uses certain criteria  when determining whether a proposed project should be investigated and  applies them at her discretion. These criteria include, among others, the  significance and potential of adverse cumulative impacts, the ability of the  proposal to serve as a model for similar proposals within a particular  sector, and the potential for the proposal to undermine USAID’s  sustainable development activities. USAID may also perform site visits to  the proposed project location. During these visits, USAID and other U.S.  government officials, including those from Treasury and State, may meet  with stakeholders such as the project sponsor, World Bank Group staff,  host-country government officials, and local communities affected by the  proposal. In addition, USAID may continue to monitor and report on the  project if the World Bank Group board approves it once financing and  construction begin.
Treasury, in determining the U.S. position on proposed actions to be taken  by the World Bank Group, is required to develop and prescribe procedures  that consider environmental impact assessments, the interagency and  public review of these assessments, and other environmental reviews and  consultations required by law. Treasury issued regulations in 1992 to fulfill  this requirement; however, the regulations do not specify criteria to be  used in the interagency process that measure the sufficiency of the  environmental assessments. While these regulations address how Treasury  will instruct the U.S. Executive Director to proceed at the World Bank  Group when an environmental analysis is determined to be insufficient,  the regulations do not identify a set of criteria or standard against which to  measure sufficiency. While USAID uses guidance and regulations issued by  the Council for Environmental Quality when reviewing different aspects of  environmental assessments, Treasury often uses internal requirements  issued by the World Bank.
Although not required to do so by law, Treasury occasionally conducts  additional, more in-depth investigations of a few World Bank Group  proposals that it determines to be controversial, such as mining or oil and  gas projects, or that present opportunities for reducing adverse impacts.  Unlike its more procedural reviews of proposals for compliance with the  Pelosi Amendment, Treasury officials said they may evaluate these  proposals’ documentation for compliance with the multilateral  development banks’ internal requirements for assessing environmental  and social impacts. However, they do not necessarily determine, for  example, whether the World Bank’s “good practices” have been followed.  The World Bank’s good practices, compiled in its Environmental  Assessment Sourcebook, give examples of practices that the World Bank  considers models for project managers to emulate, such as establishing  project supervision and monitoring programs.
section_title: U.S. Government Agencies Focus Attention Predominantly on Projects Identified by Nongovernmental Organizations
paragraphs: According to officials from U.S. agencies, of the few proposed projects  that Treasury and USAID select for in-depth analysis, many come to their  attention through regular interaction with nongovernmental organizations.  To foster dialogue with interested non-governmental organizations and to  fulfill legislative requirements, Treasury and USAID meet with  nongovernmental organizations in a forum commonly referred to as the  Tuesday Group, since it generally meets on the first Tuesday of each  month. At this forum, the agencies often obtain leads on potentially  controversial projects through discussions of planned and ongoing  multilateral development bank projects that may have significant adverse  environmental and social impacts.
In mid-2008, Treasury informally proposed changing the structure of these  meetings. Specifically, Treasury’s proposal establishes a steering  committee consisting of a representative from Treasury, USAID, and two  nongovernmental organizations for the purpose of reviewing and  selecting submitted discussion topics for subsequent meetings, which  would then focus the discussion on those issues that the steering  committee identifies. Treasury officials said that this proposal is meant to  make the meetings more efficient, since the officials have many  responsibilities and can devote only a small share of their time to  assessing the environmental impacts of multilateral development bank  projects. We discussed this proposal with the Bank Information Center in  September 2008; the Center and Treasury are considering a compromise  proposal that would have an agreed-upon agenda while setting aside some  time for open-ended discussion.
section_title: U.S. Government Ability to Identify Environmental Concerns Is Limited, and World Bank Group Projects with Potentially Significant Adverse Impacts Proceed with or without U.S. Government Support
paragraphs: Time constraints limit the U.S. government’s ability to identify the  environmental and social concerns associated with World Bank Group  projects before the World Bank Group board votes on them, and projects  with potentially significant adverse impacts proceed with or without U.S.  government support. By the time a project is ready for board vote, it is  often in its final design stage or, in some cases, already under  construction, which limits U.S. agencies’ ability to identify ways to  mitigate environmental and social issues associated with the project.  Furthermore, the World Bank Group consistently approves projects with  potentially significant adverse impacts without U.S. government support;  between January 2004 and April 2008, all 34 of the projects the U.S.  Executive Director did not support because they did not meet the Pelosi  Amendment requirements were still approved by the World Bank Group’s  Board of Directors and moved forward. In addition, the U.S. government  occasionally supports projects with significant environmental impacts,  due to competing priorities and a belief that potential impacts can be  mitigated.
subsections: section_title: The U.S. Government’s Ability to Identify Environmental and Social Issues Associated with Most World Bank Group Projects Is Limited by Review Time Frames
paragraphs: Officials from agencies that participate in the interagency working group  told us that they usually do not have sufficient time to identify  environmental and social issues associated with projects in the few weeks  encompassing the World Bank Group’s notification of a proposed project  scheduled for a vote, the working group meeting at which the project  could be discussed, and the date the board votes on the project. Figure 1  shows the timeline of events related to the U.S. government’s review of  proposed World Bank Group projects.
Treasury officials said that they are notified about projects when they  receive a project appraisal document, which describes the project and is  what the board reviews when it votes on a project. They said they  generally receive this document about 1 to 3 weeks before the board is  scheduled to vote on the project. They then put these projects on the  working group meeting agenda. The working group meetings generally  take place approximately 1 or 2 weeks before the board votes on projects,  and Treasury e-mails a list of projects and estimated board vote dates to  relevant U.S. agencies about 1 week before each meeting. State and USAID  officials noted that this compressed time frame makes it difficult to review  project documentation and solicit input from relevant officials from other  offices within their agencies. Furthermore, USAID staff in countries where  projects are being proposed have limited time to review project  documentation because they do not have access to the necessary project  documents and depend on staff in Washington to make this information  available to them, according to USAID officials. Even when U.S. agencies  are able to identify project-related issues, the U.S. government has little  time to discuss these issues with the World Bank Group. USAID officials  stated that project stakeholders are unlikely to alter the project without  sufficient time for discussion before a vote.
Even when agencies can identify issues before the board vote, the project  is often in its final design stage or, in some cases, already under  construction, so the extent to which the World Bank Group can mitigate  the issues is limited. Treasury officials stated that there is little  opportunity to influence project design once the World Bank Group has  released the project appraisal document shortly before the board votes on  the project. In addition, an April 2008 USAID report to Congress stated  that there are inadequate opportunities to identify, avert, or mitigate  adverse environmental and social impacts associated with the projects  even when the multilateral development banks release the environmental  documents 120 days before the board votes, as the Pelosi Amendment  requires. In some instances, projects may already be under construction.  For example, construction began on an IFC-financed gold mine in  Guatemala a month before the project went to the board for a vote,  despite problems associated with the project, including inadequate  consultations with the affected community and potential water  contamination, according to a USAID report. In its 2005 annual report to  Congress, Treasury noted that, while the timeliness and quality of  environmental impact assessments of World Bank Group projects had  improved, the agency remained concerned about the need to determine  appropriate interventions if projects had already begun construction or  suffered from a legacy of unaddressed environmental damage.
section_title: The World Bank Group Consistently Approves Projects That Lack U.S. Government Support
paragraphs: Since 2004, the World Bank Group has always approved proposals that  lack U.S. support, even if they have potentially significant adverse  environmental and social impacts. A lack of U.S. government support for  proposals that do not comply with the Pelosi Amendment does not prevent  the board from approving such proposals because one member country’s  vote cannot prevent approval. Between January 2004 and May 2008, all 34  of the proposed projects the U.S. Executive Director did not support  because they did not meet the Pelosi Amendment requirements were still  approved by the World Bank Group Board of Directors and moved  forward. (See fig. 2 for the number of proposals Treasury has not  supported due to lack of compliance with the Pelosi Amendment.)
Treasury officials told us that overall U.S. interests are sometimes served  when the board approves projects that the Pelosi Amendment prevents the  United States from supporting. For example, in one case, the board  approved a proposal for a development project in Iraq that the U.S.  government would have otherwise wanted to support, but could not  because it did not meet the amendment’s 120-day disclosure deadline.
Furthermore, once proposed projects are approved by the board, they are  unlikely to be modified to address U.S. concerns about adverse  environmental and social impacts. U.S. government officials informed us  that changes are seldom made to a project as a result of the U.S. Executive  Director not supporting it. According to Treasury officials, once the  board has approved the proposal and the World Bank Group has funded  the project, Treasury has little leverage in influencing any changes to  mitigate adverse environmental or social impacts.
section_title: The United States Occasionally Supports Projects with Significant Environmental Impacts, Due to Competing Priorities
paragraphs: In some cases, Treasury recommends that the U.S. Executive Director  support projects with significant adverse impacts. Some U.S. agencies may  want to oppose these projects because of environmental concerns, but  Treasury sometimes recommends that the U.S. Executive Director vote in  favor of the project if it determines that it is in compliance with the Pelosi  Amendment and that potential impacts can be mitigated. As the lead U.S.  agency in formulating the U.S. government’s position on proposed  multilateral development bank projects, Treasury’s determination takes  into account competing priorities—such as economic development—as  well as environmental concerns and, therefore, does not always reflect  consensus either among agencies or among units of the same agencies.  For example, when reviewing an environmental assessment and  associated documentation for a hydroelectric dam project in Uganda,  USAID and EPA raised environmental concerns and recommended that  Treasury instruct the U.S. Executive Director not to support the project.  USAID and EPA officials opposed the project because, among other  things, they believed the environmental analysis was incomplete and the  analysis of the impact of the dam on endangered species was inadequate.  However, Treasury ultimately supported the project due to economic  considerations, having determined that the measures the project sponsor  would take to mitigate the adverse impacts were sufficient. In its memo to  instruct the U.S. Executive Director to support the project, Treasury stated  that the project would help reduce Uganda’s electricity shortage and,  thereby, lower an obstacle to economic growth and development. State  also ultimately supported the project because it brought an acceptable  balance across multiple issues, including clean energy, economic  development, and political support for the Ugandan government,  according to State officials.
We could not determine the extent to which the U.S. government balances  competing priorities for projects with potentially significant adverse  environmental and social impacts that are compliant with the Pelosi  Amendment. Between January 2004 and July 2008, Treasury supported 17  World Bank Group proposals for which it determined that significant  environmental impacts would occur, but be mitigated. However, because  Treasury does not generally write memos to the U.S. Executive Director  for projects it supports, it does not maintain documentation to show to  what extent other issues may have outweighed environmental and social  concerns in these cases. Treasury officials responsible for conducting  environmental reviews stated that for controversial projects, decisions are  made by senior-level administration officials.
section_title: Conclusion
paragraphs: Given the potential consequences of World Bank Group projects with  significant environmental and social impacts, the overriding constraints  posed by the World Bank Group’s project development and approval  process, and the restrictions the Pelosi Amendment imposes on the U.S.  government’s decision-making, U.S. agencies must coordinate efficiently  to maximize their resources within the very limited time they have  available to review upcoming projects. However, Treasury is not  maximizing the effectiveness of a major mechanism for gathering  interagency views on projects—the weekly interagency working group it  leads. The working group meetings, which Treasury uses to meet its legal  requirement to consult with other agencies on the possible impacts of  World Bank Group proposals, are meant to provide an opportunity for all  participants to utilize their expertise and discuss their perspectives and  concerns as part of the vetting process to determine a U.S. position on the  proposals. Prior to the meetings, Treasury’s staff flag those projects that  they believe have potentially significant environmental and social impacts.  Treasury has not, however, been routinely passing this information on to  the other participants of the working group in advance of group meetings.  For example, Treasury only identified about 15 percent of such projects in  working group agendas in 2007. Without this identification, working group  agencies have been limited in their ability to effectively contribute to the  interagency effort to evaluate proposed World Bank Group projects.
section_title: Recommendation for Executive Action
paragraphs: In order to improve U.S. agencies’ ability to effectively contribute to the  interagency effort to evaluate World Bank Group proposals that are likely  to have significant adverse environmental and social impacts, we  recommend that the Secretary of the Treasury, in his capacity as the chair  of the Working Group on Multilateral Assistance, routinely identify all  proposals of concern in advance of working group meetings with other  agencies in order to maximize the ability of all participants to contribute  to the evaluation of World Bank Group proposals.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Treasury and USAID for their review  and comment. Treasury and USAID provided written comments, which are  reprinted in appendix II and III respectively. Treasury also provided  technical comments, which are incorporated as appropriate throughout  the report.
Treasury agreed with our recommendation and noted in its technical  comments that it welcomes this recommendation and is already taking a  number of measures to comply with it. Treasury also disagreed with two  of our findings. First, Treasury disputed our finding that its efforts had  little impact, because it believed we did not adequately note Treasury’s  behind the scenes efforts to influence project design. In response, we have  added language to the report to reflect some of these efforts. However,  Treasury did not provide us with information to gauge the impact of these  communications and Treasury officials also told us they could not  determine what impact these communications have on project design.  Second, Treasury also believed that we characterized the interagency  process as limited to weekly meetings. While we disagree with Treasury’s  interpretation, we added language to clarify the extent of interagency  communication.
In its comments, USAID suggested that the recommendation may warrant  further guidance to more clearly address very short lead times for notice  to other agencies. We did not, however, revise this recommendation  because we believe it is up to Treasury to determine how best to  implement the recommendation. USAID’s comments also raised several  issues, including that our report title was overly expansive. In response,  we modified the title to clarify that the report addresses certain  procedures required by U.S. law. USAID was also concerned that our  report did not address all provisions in Title XIII, such as creating a system  for information exchange with other interested member countries. These  were not within the scope of this report because we focused our review on  those sections of Title XIII that directly address U.S. government oversight  of the potential environmental and social concerns associated with  proposed World Bank Group projects. USAID was also concerned that we  did not address whether Treasury has sufficient expertise to evaluate  measures to mitigate environmental damage. However, it is beyond the  scope of this report to determine whether mitigation measures have been  effective; we anticipate addressing this issue in our next report, which will  focus on project implementation. More detail on USAID’s comments and  our evaluation can be found in appendix III.
We are sending copies of this report to interested congressional  committees, the Secretary of the Treasury, and the Administrator of  USAID.  The report is available at no charge on the GAO Web site at  http://www.gao.gov.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to assess (1) how U.S. agencies implement their  legislative requirements to review the potential environmental and social  concerns associated with proposed World Bank Group projects, and   (2) agencies’ ability to identify and address these concerns.
To assess how U.S. agencies implement their legislative requirements, we  reviewed environmental legislation, including: Title XIII of the  International Financial Institutions Act of 1977, as amended; the  procedures for the environmental review of proposed projects of  multilateral development banks in 31 C.F.R. Part 26; as well as the U.S.  Agency for International Development’s (USAID) Environmental  Procedures contained in 22 C.F.R. Part 216. We also reviewed legislation  governing U.S. environmental assessments, such as the National  Environmental Policy Act of 1969 (NEPA) and Council on Environmental  Quality Regulations for Implementing the Procedural Provisions of NEPA,  40 C.F.R. Parts 1500-1508; and, Council on Environmental Quality  guidance on implementing 40 C.F.R. Part 1500-1508. To determine how  agencies implement their legislative requirements, we interviewed U.S.  government officials from the Environmental Protection Agency (EPA),  USAID, and the Departments of State and the Treasury (Treasury), as well  as expert staff from environmental non-governmental organizations.  Because not every agency keeps complete records of its environmental  oversight activities or has internal policies governing such actions, certain  procedural documentation could not be provided. In such cases, we relied  on agency officials’ testimonial evidence.
To examine agencies’ ability to identify and address environmental  concerns of proposed World Bank Group projects, we reviewed agency  documents such as periodic reports to Congress, agency decision memos,  and the U.S. government’s voting record on World Bank Group proposals.  We also interviewed U.S. government officials from EPA, USAID, and the  Departments of Commerce, State, and Treasury. In addition, we  interviewed relevant World Bank Group officials from the International  Bank for Reconstruction and Development, the International Development  Association, the International Finance Corporation, and the Multilateral  Investment Guarantee Agency, as well as environmental experts from  nongovernmental organizations, and the private sector.
To determine the number of World Bank Group projects that the U.S.  Executive Director abstained from voting on due to the requirements of  the Pelosi Amendment, we collected data from Treasury on the U.S.  Executive Director’s voting record from January 2004 through May 2008.  We also used these data to identify projects supported by the U.S.
Executive Director that Treasury determined may have significant  environmental impacts, but that the U.S. Executive Director supported  based on Treasury’s determination that such impacts have been addressed  and mitigated in the design of the project.
To assess the reliability of Treasury’s data on the U.S. Executive Director’s  voting record, we (1) interviewed the Treasury official responsible for  managing the team of analysts who record data on the status of  multilateral development bank projects; and (2) reviewed the voting  record data. During the course of our review, we identified incomplete  data fields and manual data entry errors, such as duplicate entries of the  same project. However, based on our intended use of the data—to identify  how the U.S. Executive Director voted on particular World Bank Group  projects—and the results of our assessment, we determined that the data  provided were sufficiently reliable for the this purpose.
Because Treasury does not maintain a database of the projects it reviews  for compliance with the Pelosi Amendment, we requested that the agency  create a list of projects receiving such a review for calendar years 2006  through 2008. The Treasury analyst conducting these reviews compiled for  us an estimate of the projects she reviewed during this time frame. She  stated that she compiled the list from a manual log she keeps along with  archived emails. Although the analyst stated that the list was generally  accurate it is possible that a few projects may not have been captured. We  determined, however, that the data provided were sufficiently reliable for  the purposes of this report.
To determine the total number of projects the World Bank Group  identified as (1) having the potential for significant adverse impacts;   (2) having the potential for limited adverse impacts; or (3) having funds  channeled through a financial intermediary, we extracted data from the  World Bank’s and IFC’s project Web sites from January 2004 through May  2008. Since the World Bank Group has not completed vetting its response  to our request to conduct a review of World Bank Group environmental  assessment policies and their implementation, it therefore did not allow us  to assess the reliability of World Bank and IFC data. Although we used this  data to identify an approximate number of projects that were categorized  by the World Bank and IFC as likely to have significant adverse  environmental impacts, the reliability of those data are undetermined.
Due to the nature of the Multilateral Investment Guarantee Agency’s  (MIGA) business model (providing political risk insurance and project  guarantees), it was not feasible for us to collect project-related data, since  MIGA’s tracking and monitoring activities are different than those of the  IFC or the World Bank. For example, MIGA does not categorize its support  in terms of individual projects, but rather in terms of individual guarantees  from distinct investors. Therefore, there may be more than one investor  who has applied for and obtained MIGA insurance and, thus, more than  one guarantee for a given project.
We conducted this performance audit from October 2007 to November  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of the Treasury and GAO’s Evaluation
paragraphs: The following are GAO’s comments on the U.S. Department of Treasury’s  letter dated November 7, 2008.
subsections: section_title: GAO Comments
paragraphs: 1.  Treasury disputed our finding that their efforts have little impact.
While Treasury officials did note that they communicate with World  Bank Group officials informally about projects, Treasury did not  provide us with information to gauge the impact of these  communications. Furthermore, Treasury officials also told us they  could not determine what impact these communications have on  project design. 2.  Treasury asserted that we characterized the interagency process as  limited to weekly meetings. While we did not specifically state that the  interagency process is limited to the weekly interagency working  group meetings, we have added language to clarify the extent of  interagency communication.
section_title: Appendix III: Comments from the United States Agency for International Development and GAO’s Evaluation
paragraphs: The following are GAO’s comments on the U.S. Agency for International  Development letter dated November 13, 2008.
subsections: section_title: GAO Comments
paragraphs: 1.  USAID commented that several sections of Title XIII are not discussed  in the report, such as creating a system for information exchange with  other interested member countries. This is outside the scope of our  report, which focuses on U.S. government efforts to review the World  Bank Group’s process for assessing the environmental impact of  projects. We have added language to the report to clarify this point. 2.  USAID commented that our draft report title was overly expansive. In  response, we have changed the title to clarify that our report addresses  certain procedures required by U.S. law. 3.  USAID commented that the focus on a short timeline is misleading  because it does not take into consideration the time period leading up  to the release of the project appraisal document. However, Title XIII  does not provide a timeline for when U.S. government agencies should  begin reviewing World Bank Group or other multilateral development  bank proposals. By not specifying a timeline, the legislation leaves it  up to the agencies to determine when they should begin reviewing  proposals. We do note that an April 2008 USAID report to Congress  stated that there are inadequate opportunities to identify, avert, or  mitigate adverse environmental and social impacts associated with  projects even when the banks release the environmental documents  120 days before the board votes. USAID has acknowledged that it can  only use the early, upstream approach to provide a more intensive look  at a limited number of projects.  4.  USAID commented that our report implies that Treasury has the  expertise to review environmental impact assessments and determine  if mitigation measures are appropriate. However, we do not comment  on Treasury expertise. Rather, we acknowledge that USAID and  Treasury review documentation for different purposes. We also state  that Treasury is the lead agency in formulating the U.S. government’s  position on proposed multilateral development projects, and that its  decisions do not always reflect consensus among agencies or even  among units of the same agencies. While the Pelosi Amendment  (Section 1307) requires that environmental impact assessments  contain associated and cumulative impacts and alternatives to the  proposal in order for Treasury to support a project in a board vote,  Treasury is not required to consider specific mitigating measures in  determining how to instruct the U.S. executive director to vote.
Section 1306, a separate law in Title XIII, requires Treasury to instruct  the U.S. Executive Director to vigorously urge the multilateral  development banks to consider other environmental factors and to  circulate to the bank board documents that include these factors,  including mitigating measures. It is beyond the scope of this report to  determine whether mitigation measures have been effective; we  anticipate addressing this issue in our next report, which will focus on  project implementation.  5.  USAID strongly believes that the intent of Section 1307 of Title XIII is  to be more than just a procedural process. However, the specific  provisions of Section 1307 that require U.S. government oversight of  the potential environmental and social concerns associated with  proposed World Bank Group projects are primarily procedural in  nature. We revised the report as appropriate in response to this  comment.  6.  USAID states that Treasury has not consulted with other U.S. agencies  to develop environmental impact review procedures for multilateral  development bank projects. USAID believes that our report should  include recommendations to harmonize disparate review standards.  However, the law does not require agencies to harmonize review  standards. Therefore, we did not address this issue in this report.  7.  USAID commented on several factual errors in the report with respect  to the Tuesday Group. We have revised the report to incorporate the  first point regarding Tuesday Group co-chairs. Regarding the second  point, we characterized the proposal, dating from mid-2008, as it was  described to us by Treasury and the Bank Information Center.  Moreover, in a technical comment regarding this proposal, Treasury  did not dispute its timing. We have added a sentence to an existing  footnote stating that this proposal is very similar to one described in  section 5, annex A of USAID’s 2002-2004 report to Congress.  8.  USAID commented that our recommendation may warrant further  guidance to more clearly address the very short lead times for notice  to other agencies. However, we did not change our recommendation,  which was made to the Secretary of the Treasury. We believe it is up to  Treasury to determine how best to implement the recommendation.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: Anthony Moran, Assistant Director; Kay Halpern; Chris Kunitz; RG  Steinman; Christina Werth; and Linda Wong made key contributions to this  report. In addition, Ashley Alley, Debbie Chung, Etana Finkler, and Joel  Grossman provided technical or legal assistance.