IFC Funding of Dinant Project: Call for Overhaul of Risk Assessment for Sustainable Finance

This case won Second Prize in Sustainable Finance Track in the oikos Case Writing Competition, 2016. Organized by oikos International, Switzerland.

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The IFC Investment Service offered a wide range of financial products only to private sector projects located in developing countries. The various financial products offered by IFC were loans, syndicated loans, equity finance, structured finance, risk management products, local currency financing, private equity & investment funds, and trade finance. In addition to this, it provided funds only to environmentally, socially, and technically sound projects which were beneficial to the local economy and fulfilled the environmental and social standards of IFC and the host country..

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In 2014, Honduras, a republic in Central America, was the least developed and most violent country outside the war zone with a wide income and wealth gap between the rich and the poor. Honduras was one of the poorest countries in Latin America with a Gross Domestic Product (GDP) of US$19.39 billion. The service sector contributed about 57.27% to its GDP followed by industry (28.12%) and agriculture (14.61%)...


In 2013, the land area of Honduras was 111,890 sq. km. Of this, agricultural land covered 32,350 sq. km, which was about 29% of the total land area. However, the arable land was just 10,200 sq. km or 1.02 million hectares, about 9.12% of the total land area of Honduras...


Dinant was a family-controlled consumer products company founded in 1960 by Facussé in Tegucigalpa, a southern-central region of Honduras. It was the largest single landowner in Honduras. It had 20,287 hectares of agricultural land out of which 12,119 hectares (60%) were located in the Bajo Aguán region . Dinant had palm oil plantations in Bajo Aguán Valley and Lean Valley from the year 2006. Over the years the company had become the largest palm oil producer in Honduras...


Dinant wanted to expand its business in Honduras. It planned to develop young palm oil plantations, increase the production capacity of its snacks and edible oils division, improve and expand its distribution network, and develop a bio-gas facility to generate electricity. Dinant estimated the total cost of the project to be around US$75 million. It planned to use 85% of it for capital expenditure and the rest for working capital...


In June 2009, locals attacked Dinant’s la Isla property with the intention of occupying it. In December 2009, groups of farmers started large-scale occupation of disputed land which Dinant claimed to own. Activists claimed that Dinant made increased use of security forces after the 2009 military coup to suppress protests against land grabbers and others...


In November 2010, Annie Bird (Bird) and Grahame Russell (Russell) from Rights Action wrote a detailed letter to the then president of World Bank, Robert Zoellick (Zoellick). The letter alleged that security forces employed by Dinant had killed six Honduran farmers in the course of an illegal eviction. It further mentioned several human rights failures and land conflicts, various provable violent actions including murders, and fraudulent land acquisitions. Zoellick took immediate action and talked to the head of the CAO. The then Vice President of the CAO triggered the audit process in April 2012 for the IFC investment in Dinant...


Based on the complaint from Bird and Russell, the CAO conducted an extensive investigation and came out with a 72-page report on the audit of the IFC investment in Dinant’s project, on December 20, 2013. The CAO found that the IFC staff had underrated security and land conflict issues related to the Dinant investment. It found that IFC had accepted a very narrow definition of Environmental and Social (E&S) risk and had not considered available information about land conflict and insecurity in the Bajo Aguán area to properly evaluate risk associated with the Dinant investment...


On January 3, 2014, IFC gave a 5-page response to the CAO, which was signed by two of its directors (Oscar Chemerinski , and Morgan Landy ), who were responsible for the Dinant project. In their response, they mentioned IFC’s commitment to financing sustainable, environmental friendly, and socially responsible projects. They appreciated the CAO audit and said that the audit had helped IFC to improve its policies and procedures, further leading to a reduction in environmental and social risks...


IFC’s action plan, which it submitted along with its response to the CAO, backfired on it when the World Bank board rejected the plan completely and asked it to submit another action plan. In addition to this, Civil Society Organizations (CSOs) from all over the world placed the following demands in front of IFC...


Exhibit I IFC’s Project Cycle

Exhibit II IFC’s Performance Standards

Exhibit III Approximate Location of Dinant Properties in the Bajo Aguán and Garifuna Communities in the Area

Exhibit IV ESAP Conditions of Disbursement

Exhibit V Actions Taken by Dinant till the End of 2013

Exhibit VI IFC’s Five-Point Action Plan

Exhibit VII Equator Principles