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

Letter

Background

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.

U.S. Agencies Take Various Approaches to Meet Legal Requirements for Reviewing World Bank Group Proposals Likely to Impact the Environment

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.

Treasury Addresses Pelosi Amendment Requirements by Conducting Procedural Reviews and Engaging in Interagency Consultations

Treasury Reviews of World Bank Group Projects Generally Focus on Procedural Requirements

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.

Treasury Engages in Interagency Consultations to Address Pelosi Amendment Requirements

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.

USAID and Treasury Analyze a Selected Few Controversial Projects in More Depth, and Learn about Many Such Projects through Regular Interaction with Nongovernmental Organizations

USAID and Treasury Are Governed by Different Statutory Responsibilities for Analyzing the Impacts of Controversial Projects

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.

U.S. Government Agencies Focus Attention Predominantly on Projects Identified by Nongovernmental Organizations

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.

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

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.

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

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.

The World Bank Group Consistently Approves Projects That Lack U.S. Government Support

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.

The United States Occasionally Supports Projects with Significant Environmental Impacts, Due to Competing Priorities

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.

Conclusion

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Comments from the Department of the Treasury and GAO’s Evaluation

The following are GAO’s comments on the U.S. Department of Treasury’s letter dated November 7, 2008.

GAO Comments

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.

Appendix III: Comments from the United States Agency for International Development and GAO’s Evaluation

The following are GAO’s comments on the U.S. Agency for International Development letter dated November 13, 2008.

GAO Comments

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.

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

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.