IFC provided Corporación Dinant, a vertically-integrated palm oil and food company in Honduras, with a corporate loan to enable it to develop young palm oil plantations, increase production capacity in its snacks and edible oils divisions, expand and upgrade its distribution network, and build a biogas facility to generate electricity for own and third-party consumption. The total project cost was estimated at $75 million, and IFC’s proposed investment was a $30 million loan.

Dinant is headquartered in Tegucigalpa, Honduras. It owns palm oil plantations across the Aguan and Lean Valleys and operates two palm oil mills and an edible oil refinery near the cities of Tocoa and La Ceiba. The company also operates a port storage facility at Puerto Castilla; owns vegetable greenhouses and a food processing plant in the Comayagua Valley; and has a snacks plant in San Pedro Sula.

In April 2012, the CAO Vice President informed IFC that CAO was initiating an appraisal of IFC’s investment in Corporación Dinant in response to concerns raised in a letter to the World Bank president in November 2010 and subsequent discussions between CAO and local NGOs. Key allegations in relation to the project are as follows:

• that IFC’s client (Dinant) conducted, facilitated or supported forced evictions of farmers in the Aguan Valley;

• that violence against farmers on and around Dinant plantations in the Aguan Valley occurred because of inappropriate use of private and public security forces under Dinant’s control or influence.

• that IFC failed to identify early enough and/or respond appropriately to the situation of Dinant in the context of the declining political and security situation in Honduras, and specifically in the Aguan Valley, following the ouster of President Zelaya in June 2009.

Having conducted a preliminary appraisal of IFC’s investment in Dinant, CAO found that IFC’s social and environmental performance warranted further inquiry. Thus, in accordance with its Operational Guidelines, in August 2012, CAO prepared terms of reference for a compliance audit with regard to the following questions:

• whether IFC exercised due diligence in its review of the social risks attached to the project;

• whether IFC responded adequately to the context of intensifying social and political conflict surrounding the project post commitment; and

• whether IFC policies and procedures provide adequate guidance to staff on how to assess and manage social risks associated with projects in areas that are subject to conflict or conflict prone.

CAO’s audit was conducted with input from two expert panelists. According to CAO’s mandate, the audit focuses on IFC’s performance and does not make findings in relation to the allegations against the IFC client.

The audit made a number of key findings related to IFC’s environmental and social due diligence, and environmental and social performance during supervision. Specifically:

Environmental and Social (E&S) Review

• IFC accepted an overly narrow definition of project E&S risk, without adequate consideration of project context or contemporaneously available sources of information regarding land conflict and insecurity in the Bajo Aguán.

• CAO found that IFC’s E&S review was not in compliance with the requirements set out in the Sustainability Policy (2006) and Environmental and Social Review Procedure (ESRP). In a sector and country where risks of conflict and violence around land were or should have been known to the team, CAO finds that IFC’s review was not “commensurate to risk”, and thus did not meet a key requirement of the Sustainability Policy.

Integrity Due Diligence

• IFC was or should have been aware of a series of public allegations and negative perceptions in relation to its client that went significantly beyond those that were considered in the course of its integrity due diligence process.

• IFC should have adhered to the more detailed six part integrity due diligence process should have been adhered to. IFC’s failure to do this was out of compliance with the relevant procedure.

Environmental and Social Categorization of the Project

• IFC’s E&S review process provided the IFC team with insufficient information to categorize the project appropriately.

• Given compliant E&S review and IDD processes, the project would properly have been assigned E&S category A (significant adverse impact) rather than B (potential limited adverse E&S impact

Disclosure & Consultation

• IFC’s failure to disclose the Dinant E&S Assessment was not compliant with its Policy on Disclosure of Information (para. 13). IFC remains non-compliant on this point.

• IFC failed to ensure that the Dinant E&S Assessment met the consultation requirements set out in Performance Standard 1 (para. 21). CAO found no evidence that the communities living most proximate to Dinant’s properties were consulted during the preparation of the E&S Assessment,

Adequacy of Review of Conditions of Disbursement

• CAO concludes that IFC did not ensure that E&S conditions of disbursement were met by the client. IFC disbursed US$15 million to a client that was in apparent non-compliance with its E&S undertakings in a risk environment that had deteriorated significantly since appraisal a year earlier.

• IFC investment staff did not keep E&S staff apprised of developments in relation to land disputes around the client’s plantations of which they were aware.

General Supervision (post-disbursement)

• CAO finds IFC’s supervision to have been inadequate in that it failed to “develop and retain the information needed to assess the status of [its client’s] compliance with the Performance Standards (PSs)” as required by the ESRP.

• In particular, CAO finds no indication that IFC supervised its client’s PS4 obligations: (a) to investigate credible allegations of abusive acts of security personnel; or (b) that the use of force by security personnel would not be sanctioned other than for “preventative and defensive purposes in proportion to the nature and extent of the threat.”

IFC Policy, Procedure and Practice

• IFC non-compliance identified in the report are due in large part to problems with the interpretation and application of existing policies and procedures.

• The combination of client relationship, operational and compliance functions within project teams can generate conflicts of interest and conflicting incentives for staff and management.

• At a time when the Bank Group is being challenged to expand its risk appetite, CAO finds it crucial to also invest in structures that provide management with assurance that E&S risk is being rationally identified and managed.

CAO released the audit report on January 10, 2014 together with a response from IFC. Since the audit report was released, CAO has been monitoring actions taken by IFC to address its findings of non-compliance. The undertakings in IFC’s response were taken into consideration as part of this process. CAO released a first monitoring report in April 2015 and a second monitoring report in August 2016. CAO conducted a field visit to Honduras in March 2017 in the context of its appraisal of the Dinant-02 and -03 complaints, as well as its ongoing monitoring of the 2014 audit. In June 2017, CAO decided to combine the Dinant-02 and -03 complaints with the ongoing monitoring of the Dinant-01 case. CAO expects to release a third monitoring report in 2017.

A second monitoring report was released in August 2016. In the normal course of events, CAO's next monitoring report will be released in 2017.

Since the audit report was released, CAO has been monitoring actions taken by IFC to address its findings of non-compliance. The undertakings in IFC’s response were taken into consideration as part of this process. CAO released a first monitoring report in April 2015 and a second monitoring report in August 2016. CAO conducted a field visit to Honduras in March 2017 in the context of its appraisal of the Dinant-02 and -03 cases as well as its ongoing monitoring of the 2014 audit. In June 2017, CAO decided to combine the Dinant-02 and -03 cases with the ongoing monitoring of Dinant-01.

CAO released a monitoring and closure report for the three Dinant cases in November 2018. CAO’s report acknowledged work supported by IFC to ensure that Dinant’s policies and practices for the management of private security personnel reflect IFC’s Performance Standard 4 (PS4). The report also recognized IFC learning from the Dinant Audit, particularly regarding contextual risk, use of security forces, and procedures related to client E&S performance, as well as supply chain and conflict risk assessments for agribusiness investments. However, CAO’s report notes that IFC’s response only partially addressed project-level non-compliance findings. PS4 requires investigation by the client of credible allegations against its security personnel. Although IFC reported that a third-party inquiry was commissioned under the supervision of its security consultant, this has not been delivered to IFC. As a result, CAO cannot conclude that this finding has been satisfactorily addressed. As per client commitments of the Enhanced Action Plan and PS1 requirements, depending on the outcome of the inquiry, remedies for adverse impacts caused by the project, including compensation, may be required. Nevertheless, CAO has decided to conclude its monitoring and close these cases considering that Dinant fully repaid its loan to IFC in April 2017 and given IFC does not propose any further project-level action.