IFC Board Approves Action Plan for CAO Investigation Related to IFC’s Investment in Lonmin PLC in South Africa
Washington, D.C., December 12, 2023 — The IFC Board of Executive Directors has approved IFC's Management Action Plan in response to an investigation of IFC's investment in Lonmin PLC in South Africa conducted by the Compliance Advisor Ombudsman (CAO), IFC's independent accountability mechanism.
IFC's investment supported the development, expansion, and mechanization of Lonmin's platinum mines, with the aim of increasing employment, linkages with suppliers, and taxes and revenues paid to national government and royalties paid to local communities. The project also supported the development of a large-scale community and local economic development programs. IFC's investment included a US$50 million equity investment (1.1% stake), which IFC divested starting in 2009, with a full exit achieved in December 2015. The company was acquired in June 2019, and IFC's former client no longer exists.
CAO initiated a compliance investigation after dispute resolution efforts fell through following a June 2015 complaint citing concerns about contamination of air and groundwater and negative impacts on the living conditions of communities near the Marikana mine in North West Province, South Africa, owned and operated by Lonmin PLC. The complaint cited impacts on housing, water, sanitation, infrastructure, and employment and concerns about the project's environmental and social commitments, IFC's E&S due diligence, and the company's non-compliance with national law.
CAO's investigation concluded that IFC was noncompliant with its environmental and social oversight requirements during both preinvestment review of Lonmin and its supervision of the client throughout the investment. Specifically, CAO found that during its preinvestment review IFC gave insufficient attention to historical and other contextual risk factors. It found that during the course of the investment IFC did not properly supervise implementation of Lonmin's Social and Labor Plan. Given the time that has passed since IFC's divestment, and the subsequent change in ownership of the mining company, CAO determined that there was limited scope for a project-level response to the investigation. However, CAO did make systemic-level recommendations for IFC to consider in its response.
"IFC Management appreciates the systemic recommendations presented by the CAO and would like to highlight that many of these recommendations have been substantially implemented since this investment and are embedded in institutional practices," said Emmanuel Nyirinkindi, IFC's Vice President of Cross-Cutting Solutions. "We recognize the importance of more systematically having our clients cost and resource E&S measures and will work to enhance IFC's practices in this regard."
The Board-approved Management Action Plan (MAP) was developed by IFC alone because the company no longer exists and complainants no longer engage with CAO on the investigation. It seeks to outline systemic areas for improvement in response to CAO's recommendations, including:
- IFC will develop guidance and strengthen internal controls process: i) to review adequacy of client's estimates of resources for the implementation of the Environmental and Social Action Plan (ESAP) as required in Performance Standard 1, and; ii) to document the review as part of the appraisal documentation.
- IFC will update and disseminate ESAP guidance as part of the Environmental and Social Review Procedures (ESRP) Handbook.
"This case demonstrates challenges in IFC's assessment and supervision of client compliance with relevant environmental and social national laws, in this case related to the Social and Labor Plan required under South African law. We therefore welcome IFC's commitment to address this systemic gap identified by CAO and ensure that client environmental and social action plans are adequately costed and resourced," said Janine Ferretti, CAO's Director General. "It was also a legacy case where project-level outcomes for the communities were not forthcoming given IFC's exit and the lengthy CAO process. We are committed to enhance CAO's responsiveness and ensure that learning from our cases informs IFC's evolving approach to responsible exit."
CAO will monitor effective implementation of the actions set out in the Management Action Plan and will publish IFC's progress reports on its website and in an annual monitoring report.
More information about this case, including the CAO Investigation Report and IFC Management Action Plan, are available here:
The Compliance Advisor Ombudsman (CAO) is the independent accountability mechanism of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), members of the World Bank Group. CAO's mandate is to address complaints from people affected by IFC and MIGA projects in a manner that is fair, objective, and constructive, improve environmental and social outcomes, and foster accountability and learning to reduce the risk of harm to people and the environment. For more information, visit www.cao-ombudsman.org.
IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2023, IFC committed a record $43.7 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org
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