IFC’s Responsible Exit: A Critical Step for Accountability, But Real Test Lies Ahead

By Carla García Zendejas , Director of CIEL’s People, Land, and Resources Program.

On October 4, the International Finance Corporation (IFC) published its long-awaited Approach to Responsible Exit, marking a significant milestone for the institution. This shift represents IFC’s commitment to act and respond to environmental and social harms faced by project-affected communities before it considers withdrawing from a project it has financed.??

This outcome is crucial for communities affected by IFC-backed projects, as it signals deeper accountability from the institution. CIEL welcomes this shift, seeing it as the result of years of conversations, consultations, and advocacy efforts — both inside and outside IFC — between management, board, and civil society.?

The Responsible Exit Approach, while succinct, includes five key principles that will guide IFC in determining whether and how to exit a project responsibly. The principles aim to ensure that IFC considers both the development impact and the potential environmental and social consequences of its departure from a project. It also considers other factors such as its leverage, reputational risk, legal liability, and external partners in the equation.?

A Closer Look at IFC’s Responsible Exit Principles

The five principles are:?

• Principle 1. Evaluate the achievement and sustainability of the targeted development impact.?
• Principle 2. Address environmental and social (E&S) issues.
• Principle 3. Use leverage pre-exit.
• Principle 4. Consider institutional constraints and precedential implications.
• Principle 5. Consider impact on mobilization.

Principle 1: Development Impact

The first principle focuses on evaluating whether the development impact of a financed project has been achieved, whether remaining invested could further improve or sustain that impact, and if this could be done within the range of established timelines. However, the key question is how IFC defines “development impact.”

While the development impact question is a logical consideration, CIEL has long argued that the targeted development impact should be carefully defined to include measurable improvements for those meant to benefit from development, not merely technical, operational, financial, and market parameters.?

Principle 2: Addressing Environmental and Social (E&S) Issues

This principle is perhaps the most critical, as it describes five ways IFC will need to address E&S issues when proactively and voluntarily deciding to exit a project.?

• IFC should consider its Client’s progress in implementing the Environmental and Social Action Plan (ESAP) and then structuring the exit to resolve outstanding items.?

CIEL and partners have long advocated for improvement in ESAP creation and implementation practices at IFC. Early and ongoing stakeholder engagement is key to ensuring that mitigation and corrective measures throughout the project cycle address E&S concerns. Having existing relationships with project-affected people will allow any exit by IFC to be structured in a transparent and constructive way.?

• IFC will have to consider whether, by exiting the project, the existing E&S issues may increase or be made worse by leaving.

In some instances, divestment and exit by IFC occur before project construction or implementation, which can avoid any environmental harm if projects ultimately stop, as our Colombian partners experienced in 2016.?

At the same time, there may still be harm to affected communities, who may have been at risk of reprisals from both private and government actors, who may see them as the cause of projects not going forward. This is when public disclosure and information from IFC about the reasons for exit would go a long way to legitimizing its role as a development institution dedicated to improving lives and livelihoods. In the absence of information from IFC, we have witnessed how our community partners in Nicaragua bear the brunt of being the messengers.??

• IFC will have to look at the life of its investment to assess the risks of exiting: “[w]here feasible, seek to address any other E&S risks identified during the life of the investment that could materialize post exit and cause imminent and serious harm to public health, safety, or security, and/or imminent and significant adverse impacts on the environment.”

We welcome this language and are relying on IFC to provide us with detailed procedural information about how this will be carried out and, most importantly, how project-affected communities will be engaged to address E&S issues to ensure a responsible exit by IFC. The mention of imminent and serious harm to public health, safety, or security is extremely valuable. However, understanding how IFC will determine feasibility will be imperative to ensure this harm does not occur.?

• IFC should “[w]ork with the Client to consider any remediation measures to address a., b. and/or c. above as needed, in each case, to the extent practicable and prior to exit.”

Again, we recognize the importance of considering remediation measures, by remaining in the project, IFC can work closely with its Client to avoid and address environmental and social harm to communities. This is one of the ultimate goals of carrying out a responsible exit.?

• IFC’s evaluation of its reputational risk by remaining in the project if it is unsuccessful in addressing the E&S risks, impacts, and harms it should address.

IFC’s Sustainability Policy sets out its commitment to “do no harm” to people and the environment and to achieve social and environmental sustainability. IFC’s Responsible Exit Approach and the impending remedial action framework will cement IFC’s new stance by joining other financial institutions in adopting international standards that call on those that have caused or contributed to harm to contribute to remedy.?

Principle 3: Using Leverage Pre-Exit

This principle brings forward IFC’s leverage over its Client prior to exiting the project, with the goal of implementing the ESAP and taking actions to address foreseen and severe E&S risks and impacts and, perhaps most notably, to consider possible remediation measures.??

Principle 4: Institutional Constraints and Precedential Implications

In this principle, IFC references its Articles of Agreement to establish that exit from projects should be consistent with its development mandate, operations, and risk considerations, including reputational damage and legal liability. It also states that the implications of setting precedents at IFC should be considered.

If the Responsible Exit Approach proves to be effective, we can ensure lessons learned from the pilot are implemented for the benefit of those harmed, then the Approach and its corresponding Remedial Action Framework will serve as the response and solution that we have all been working toward without the need for any litigation.?

Principle 5: Capital Mobilization and External Partners

The last principle focuses on the other investors and institutions with which IFC may have partnered to mobilize capital for a project via debt or equity financing, funds, or other products. While also pointing out that IFC should consider its own role in this mobilization when deciding to exit.?

According to IFC’s annual report, it mobilized US $15 billion from external partners in 2023. CIEL has often pointed out that IFC’s seal of approval on development projects works to signal their viability, thus attracting a broad range of investors. This is precisely what makes the proper application of IFC’s Policy on Environmental and Social Sustainability and its Performance Standards on Environmental and Social Sustainability critical to ensure positive development outcomes and avoid harm to those who are meant to benefit from its projects.? Therefore, the role that IFC must play in setting standards for responsible exit and addressing harm to provide remedy goes hand in hand with its role of mobilizing financial partners. If other private actors, development banks, pension funds, etc., are not willing to commit to these standards, then perhaps staying away from these investors is the easiest way to ensure IFC’s mandate to do no harm.??

Moving Forward: What’s Next?

While this new approach is a step in the right direction, the real test lies in its implementation. CIEL and partners will continue to engage with IFC to expand and gain a full understanding of how IFC will operationalize its Responsible Exit Approach. The Approach is a huge step forward in acknowledging the role IFC has and must play to ensure that the projects it has financed do not leave people who are meant to benefit in worse conditions.?

Many development finance institutions (DFI) have been waiting for IFC’s lead on responsible exit. Now that it is here, we hope other DFIs follow in their footsteps by creating their own policies and approaches. CIEL and civil society partners look forward to renewed conversations at IFC and with other institutions worldwide, especially the Inter-American Development Bank, as they continue developing their policies.

Read the full analysis on CIEL's website here.

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