Browning the bank: The World Bank's growing investment in urban environmental management

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BROWNING THE BANK: THE WORLD BANK'S G R O W I N G INVESTMENT IN U R B A N ENVIRONMENTAL MANAGEMENT Josef Leitmann The World Bank (on leave)

The World Bank began financing urban development projects in 1972; it has tackled specific aspects of the brown agenda I through sectoral lending for a longer period o f time. However, in recent years, there has been a conscious effort to enhance urban environmental quality by integrating sectoral interventions and linking them to urban development activities. By 1995, 55 projects that exclusively focus on the brown agenda were being implemented, totaling over $6 billion in Bank loans and credits. Urban environment and pollution management projects now account for over 60% o f the Bank's lending for the environment (World Bank 1995). What has led to this dramatic increase in the depth and breadth o f the Bank's involvement with the brown agenda? © 1996 Elsevier Science Inc.

An Evolving Paradigm The World Bank began to finance projects that comprehensively addressed urban pollution and brown issues in the mid-1970s. However, these remained isolated experiences and were not replicated in all regions, nor were lessons drawn from experience and systematically reflected in the Bank's urban or environmental policies (Lee 1985). Things began to change rapidly in 1987, as indicated by the benchmarks in Box 1. ~The brown agenda is defined as the most immediate and critical set of problems facing developing country cities: lack of safe water supply, sanitation, and drainage; inadequate solid and hazardous waste management: uncontrolled emissions from motor vehicles, factories, and low-grade domestic fuels: accidents linked to congestion and crowding; and the occupation and degradation of environmentally sensitive lands, as well as the relationships among these problems (Bartone et al. 1994).

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This change was motivated by compelling financial, economic, developmental, and political factors. Financially, the failure to account for environmental effects in project planning and to mitigate them in implementation had a negative impact on several projects' financial rate of return. Economically, there was a growing realization that the lack of planning with the environment in mind could have important sectoral as well as macroeconomic costs. Developmentally, the notion that not taking environmental costs into account today could preclude future development options (sustainable development) was beginning to take hold. Politically, during the 1980s, the Bank was drawing increasing criticism from environmental groups and some donors for environmentally harmful projects 2 or for a failure to invest more in environmental projects? An important shift in thinking has emerged from this historical experience. Some of the key elements of this new paradigm are that: • • •

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environmental quality and urban development are linked and must be considered in tandem; many urban services do not reach the poor and must be delivered by alternative means if they are to be sustainable and equitable; the multisectoral and interjurisdictional nature of environmental issues in a rapidly urbanizing world requires strategic approaches that are nontraditional, participatory, and timely; and the limited administrative and financial capacity of many developing countries and their cities require a strong emphasis on priority setting, cost effectiveness, blunter instruments, self-enforcing policies, and community participation, with less of the heavy-handed approaches of industrial countries.

The World Bank's Urban Environmental Initiatives

One needs to examine the Bank's projects, programs, policies, and research to comprehend the concerted effort that has emerged to address the environmental problems of developing country cities.

Projects Fifty-five projects that addressed brown agenda problems in 31 countries were under implementation in FY95, amounting to over $6 billion in loans 2There was a particular focus on the "dirty half-dozen" projects for hydroelectricity, livestock, transportation, and resettlement that were underway or planned in India, China, Brazil, Indonesia, and Botswana. This was later supplemented to include iron ore and power investments in Brazil, a dam in India and a cotton scheme in Sudan. For representative N G O criticism, see Greenpeace International and Friends of the Earth, Financing Ecological Destruction: The World Bank and the International Monetary Fund, Oxford: The Dot Press, 1988. 3Several groups focused on constructive criticism of the Bank by documenting and publicizing financially or economically viable environmental investments. An influential document at the time was Walter Reid et al., Bankrolling Successes: A Portfolio of Sustainable Development Projects, Washington, DC: Environmental Policy Institute and National Wildlife Federation, 1988.

B O X 1. U r b a n E n v i r o n m e n t a l B e n c h m a r k s at the W o r l d Bank 1987: A reorganization resulted in a major shift in emphasis and resources towards the environmental aspects of the Bank's work: a central Environment Department and four Regional Environment Divisions were created; existing internal environmental policies were improved and new procedures, such as environmental impact assessment, were instituted; research was initiated to enhance the analytical basis for integrating economic development and environmental protection; environmental lending and sector work became part of the Bank's operational portfolio; and new partnerships gave the Bank additional environmental responsibilities, such as management of the Global Environment Facility. 1989:. Initially, the focus of these changes was on the green agenda, i.e., intergenerational environmental problems linked to natural resource degradation occurring primarily in rural areas or at the global level, However, several groups within the Bank felt that the environmental problems of the current generation of increasingly urbanized developing countries merited serious attention. Two programs were initiated with support of partners outside the organization. The Urban Management and Environment Programme (UMP/E), executed by the Bank with support from UNCHS (Habitat) and the UNDP, was created to conduct research, develop management tools, and undertake city-based activities to better understand the brown agenda in the developing world. MEIP, executed by the Bank with funding from UNDP, was started to improve environmental management in Asian cities. 1990:. The Bank developed a new policy designed to guide urban lending and sector work during the 1990s (Cohen 1991). The policy embodied a new framework for guiding investments in the urban sector by focusing on the links between urban economic activities and macroeconomic performance. The four pillars of this policy emphasized urban economic productivity, poverty alleviation, enhanced urban research, and protection of the urban environment. The paper argued that degradation of the urban environment has adverse effects on human health and resources, both of which have subsequent negative consequences for the urban poor and economic productivity. 1992: This conceptual shift toward urban concerns in the Bank's official environmental portfolio was reinforced with the preparation and publication of the World Development Report on development and the environment (World Bank 1992). The report began with the recognition that urban populations would soon overtake rural populations for the first time in history and that this rapid urbanization posed huge environmental challenges for cities, as well as having important consequences for the rural environment. The Bank used the report and other initiatives to take a leadership role in advocating the brown agenda at the UNCED Earth Summit. 1993: A Vice Presidency for Environmentally Sustainable Development was created, encompassing the central departments for the environment, agriculture, and infrastructure (transportation, water and sanitation, and urban development). This change also enabled the Bank to better organize its activities in support of Agenda 21 that emerged from the UNCED Conference the previous year. 1994: The brown agenda was the focus of a major international conference hosted by the Bank and the National Academy of Sciences, "The Human Face of the Urban Environment," with associated events on sustainable community and private sector development (Serageldin and Cohen 1995). Urban environmental indicators were developed by the Bank and UNCHS for both project work and national reporting on the environmental status of cities. 1995: The Bank deployed substantial funding in support of the 1996 Habitat II Conference that will have an important environmental focus. Fourteen brown agenda projects were financed, along with another 20 projects that had significant urban environmental components.

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and credit, with total project costs reaching $16.1 billion. Urban environment and pollution management projects now account for over 60% of the Bank's total lending for the environment (World Bank 1995). Some of these stand-alone environmental projects that address urban environmental problems in an integrated fashion include: Shanghai Environment, Colombo Environmental Improvement, Lobito-Benguela Urban Environment Rehabilitation, Morocco Historic Cities Renovation, Colombia Urban Environmental Management, and Mexico Northern Border Environment. Finally, the FY1994-98 pipeline contains 64 projects that are being developed with urban environmental components. These include, for example, investments that improve water quality through better sanitation and water treatment; minimize urban environmental risks through flood control, drainage, and earthquake rehabilitation; reduce air pollution through transportation regulation and pricing, and industrial pollution control; or protect urban land resources through solid waste management and upgrading low-income communities. In addition to traditional lending, the Bank manages the Global Environment Facility (GEF), with UNDP and UNEP, that can be a source of finance for urban environmental projects that address transnational problems. Some examples of GEF-financed components of Bank urban-oriented projects include: China Ship Waste Disposal, Mali Household Energy, Pakistan Landfill/Waste-to-Energy Systems, Teheran Transport Emissions Reduction, and Poland Coal-to-Gas. Lending, which constitutes the core of operational work at the Bank, is guided and preceded by sector work. Examples of completed sector work that focused on urban environmental issues include the following: Mexico Transport Air Quality Management, Pakistan Urban Environment, Senegal Urban Environment, and Thailand Pollution Mitigation.

Programs The Bank actively manages or cooperates with a number of programs that focus on urban environmental issues. They operate at the city level, regionally, or globally. These programs are processes that contribute to Bank lending operations or sectoral studies, build on Bank experience, and/or use Bank resources for activities that are of interest to a wider audience beyond the institution itself. At the city level, three programs are active: the Metropolitan Environmental Improvement Program (MEIP), U R B A I R and MEDCITIES. The MEIP is designed to help large Asian cities tackle their rapidly growing environmental problems through development of investment opportunities, preparation of long-term environmental management strategies, and institutional strengthening. Funded by bilateral donors with the UNDP and executed by the Bank, the MEIP is active in Beijing, Colombo, Jakarta,

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the Kathmandu valley, and Manila where city-based steering committees and local program coordinators support studies, workshops, networking, and community-based initiatives. The U R B A I R program, an outgrowth of the MEIP, was created to develop policies and economic incentives for improving air quality in Bombay, Jakarta, Kathmandu, and Manila. MEDCITIES is an urban environmental network that is part of the Environmental Program for the Mediterranean (METAP). Supported by the European Investment Bank, the European Commission, and UNDP, the Bank has managed the preparation of environmental audits and municipal action plans for five secondary cities in the Mediterranean (Limassol, Oran, Sousse, Tangiers, and Tripoli/E1 Mina), with five others in the pipeline. At the regional level, there are four "brown agenda" programs that operate in Europe and Asia. In Europe, the Central and Eastern Europe Environmental Action Program, supported by the Bank and European donors, seeks to provide a regional framework for integrating priority environmental problems into national action plans. The Program for Environmental Management and Protection of the Black Sea is an initiative supported by multilateral and bilateral donors to reverse environmental degradation of the Sea, partly through priority investments in municipal services, industrial pollution control, and port reception facilities in participating countries (Bulgaria, Georgia, Romania, Russia, Turkey, and Ukraine). The Bank is now considering investments, including municipal waste water treatment, to support the Baltic Sea Environment Program that involves Estonia, Latvia, Lithuania, and Poland. In Asia, the Bank is managing RAINS-Asia, with inputs from a variety of partners, to support national and local strategies for reduction of acid rain at the regional level. At the global level, the UNDP/UNCHS/World Bank Urban Management Program (UMP) has an environment component that supports city and country consultations on urban environmental issues (e.g., a rapid urban environmental assessment of the Dakar metropolis), workshops on the preparation of environmental strategies for cities (e.g., a national workshop on infrastructure and environment in Brazil), research (e.g., economic valuation of urban environmental problems), and development of management tools (e.g., strategies for controlling urban vehicular air pollution). Policies

Urban environmental issues are addressed through policy work in two different ways at the Bank. Internally, the organization has several policies that guide urban environmental lending operations. These include: •

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Urban policy: The Bank realigned its policy that guides urban development projects in 1991 to emphasize the interrelationships among urban economic productivity, poverty, and environmental quality. Environmental assessment: Projects likely to have significant environ-

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mental impacts are assessed early in the design stage, either individually, sectorally, or regionally. In FY95, 14 urban, transport, water, and sanitation projects fell into this category, accounting for 60% of such projects at the Bank (World Bank 1995). Cultural heritage: Guidance has been issued on the inclusion of cultural heritage issues in environmental assessments of Bank projects and a cultural heritage conservation program is being created that will include a focus on historic urban environments. Resettlement: The Bank has had a resettlement policy since 1980 that provides general guidance for both urban and rural areas. The objectives of these policies are to promote sustainable development as well as to assess and mitigate the adverse effects of Bank-financed projects. Another type of policy work is designed to help borrowing countries address urban environmental issues through improved development policies. Most directly, this occurs through sector studies on the urban environment. These have been initiated for a range of countries, from the smallest (Urban Environmental Sanitation Services for Pacific Island Member Countries) to the largest (China Urban Environment Service Management). Beyond specific urban sector work, urban issues are addressed or may even be the primary focus of country environment strategies prepared by the Bank. For example, a strategy developed in collaboration with the Mexican government stressed the importance of pursuing environmental concerns in particular urban regions (Mexico City, the Gulf Coast, and along the U.S. border) and for particular brown issues (water and sanitation, solid and toxic wastes, and other industrial pollution). Similarly, the Bank has supported the preparation of National Environmental Action Plans (NEAPs) that often help identify urban environmental issues and options. Also, country economic memoranda and other country-level studies may focus on the urban environment. Recent country economic studies on Argentina, Chile, Malaysia, and Thailand were primarily analyses of the economic consequences of deteriorating urban environmental conditions. Finally, regional environmental strategies that highlight urban concerns have been drafted for Latin America and the Caribbean, the Middle East and North Africa, and Asia.

Research A number of applied research activities have been initiated at the Bank that seek to fill knowledge gaps about various aspects of the brown agenda. This work forms part of a much larger environmental research program that is being managed throughout the Bank. Urban-focused studies include development of urban environmental indicators; formulation of urban air

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pollution control strategies; participatory design and operation of low-cost sanitation systems; disaster prevention and mitigation in metropolitan areas; economic valuation of urban environmental problems; techniques for understanding household and community environmental problems; strategic solid waste management; and best practices for urban environmental planning and management. Additional brown agenda research with an urban emphasis tackles nonmotorized transport; good practice for pollution management; decision support systems for industrial pollution control; evaluation of health and environmental methodologies; and fiscal policy and pollution control. The results and lessons of this research as well as the programs and projects is communicated within and outside the Bank through various media. Within the Bank, urban environmental management is a required course for all professional staff in the urban sector; there are also numerous seminars on urban environmental issues, reviews of interim reports, and internal publications such as the Infrastructure Notes that has an urban environmental series. Externally, the Vice Presidency on Environmentally Sustainable Development and the regional technical departments issue reports and policy papers on brown agenda issues, Bank staff attend and present papers at conferences on the urban environment, and urban environment training courses are offered through the Bank's Economic Development Institute. Lessons and Directions

Currently, urban environmental projects and components fall roughly into three categories: multifaceted operations that interpret the urban environment as a collection of loosely connected investments in different sectors, some of which seek to improve environmental quality; targeted activities that seek to address a high-priority problem within or around a city, such as air pollution or watershed degradation; and fully integrated projects that are based on environmental management strategies and which seek to build long-term institutional capacity (Leitmann 1994). There has not yet been a formal assessment of this experience, partly because much of the story is still unfolding. Two partial and preliminary evaluations have been undertaken and have yielded useful lessons. At the local level, a study (Operations Evaluation Department/World Bank 1992) compared urban environmental investments in one city as part of a review of selected environment projects in Brazil that was conducted by the Bank's Operations Evaluation Department. This assessment for Sao Paulo concluded that: (1) sustained involvement in pollution control over a 12-year period helped to build effective technical and administrative capacity; (2) this capacity, combined with an adequate legal framework dnd strong political support at all levels of government, were essential to realizing successful

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projects; (3) however, the Bank's approach, while having improved over time, was piecemeal and did not directly confront several of the key sources of environmental contamination in the metropolitan area; and (4) future urban pollution control operations should begin with as complete an understanding of the sources and causes of environmental degradation as possible. At the global level, the Bank managed a U M P study of environmental conditions and issues in seven cities and urbanizing regions of the developing world (Leitmann 1993). This work yielded economic, institutional, and analytical findings: •

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economically, urban environmental degradation has a disproportionate negative impact on the poor, a city's economic structure significantly shapes its environmental problems, and the level of urban wealth is linked to the prevalence of certain types of environmental problems; institutionally, environmental management is complex because the problems often involve more than one environmental medium, economic sector, and administrative jurisdiction, institutions, policies, and problems are not synchronized, and municipal capacity can seriously affect environmental quality; and analytically, public opinion and professional/scientific priorities may differ, and cities have significant extra-urban environmental impacts that require attention.

Are these lessons and findings being heeded? It appears so--the most recent Bank report on the environmental dimension of its activities notes that work in urban areas is increasingly being guided by the following principles: •

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Promote integrated resource-based project design. A new generation of projects, especially those dealing with water resources, recognize the need to coordinate interventions around a resource, rather than around a jurisdiction or sector. The Estonia Haapsalu and Matsalu Bays Environment Project, for example, includes both water supply and treatment as well as management plans to improve beaches for tourism and protect endangered wetland habitats. Encourage decentralization to municipalities and communities. As urban centers grow and become more complicated to manage, it is increasingly clear that municipal governments are more likely than national governments to find effective solutions for urban management. In addition, stakeholder participation is proving to be an essential component of successful project implementation. As an example, the Asuncion Sewerage Project in Paraguay decentralizes activities to improve water and sewerage services; this also enables private sector participation.

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Subsidies for urban services not only are costly but rarely benefit the poor whose plight is used to justify their existence. Bank-financed projects continue to put emphasis on applying appropriate tariffs and cost-recovery mechanisms for urban services. In addition, in urban environmental management, as in environmentally sustainable development more generally, private sector participation is critical to mobilize financial resources as well as innovative capacity. Bank-supported urban infrastructure projects for privatization or corporatization have been approved over the last 3 years throughout the developing world. Build partnerships for the urban environment. Beyond the project level partnerships with municipalities and communities, the Bank has reached out to join global and regional partners in addressing the issues of urban pollution. Notable among these efforts are the MEIP, the UMP, and MEDCITIES initiatives mentioned previously (World Bank 1995). Incorporate cost recovery and d e m a n d management.

Given this learning and the increasing level of investment in the brown agenda, two questions should be posed: what constitutes good practice and how will the Bank and its borrowers know whether an urban environmental project is achieving its objectives? Two activities would help answer the first question: a review of experience and a mechanism for routinely sharing information. To review experience, an assessment of brown urban loans and credits that are under way could be prepared to compare and learn from different approaches. Examples of good (and bad) practice could be documented and shared within the Bank and with clients. This is now being done on a regular basis as part of the Bank's annual report on the environment as well as less regularly through other reviews of the investment portfolio. To answer the second question requires the application of urban environmental indicators that allow systematic assessment and tracking of a project's impact over time. City-wide indicators have been jointly formulated b y the Bank and UNCHS (Habitat) to assess progress toward improving environmental quality, partly in preparation for the Habitat II City Summit. These and other indicators are now being adapted to the project level. Even with good information on promising approaches, best practices, and ongoing project performance, there may be a need for clearer guidance on successful strategies for urban environmental management, both within and outside the Bank. A first cut has been developed by the Urban Management Program, which is addressed at a broader audience of urban managers (Bartone et al. 1994). This document proposes a process for preparing and implementing environmental strategies for cities, based on six policy messages: (1) mobilizing public support and participation for urban environmental management; (2) improving policy interventions; (3)

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strengthening municipal service delivery; (4) building institutional capacity; (5) closing the knowledge gap; and (6) planning strategically. This initiative is already being used in the design of several new Bank urban and environmental projects, not to mention U N D P and U N C H S initiatives. The development of guidance on good practice and indicators is constituting the next level of institutionalization within the World Bank. Externally, however, the struggle for improved quality of life will continue in the cities of the developing world where environmental degradation from problems of the brown agenda is a day-to-day reality.

References Bartone, Carl, Bernstein, J., Leitmann, J., and Eigen, J. 1994. Toward Environmental Strategies for Cities: Policy Considerations for Urban Environmental Management in Developing Countries, UNDP/UNCHS (Habitat)/World Bank Urban Management Programme (UMP) Discussion Paper Series No. 17, Washington, DC: The World Bank. Bernstein, Janis. 1995. The urban challenge in national environmental strategies. Environmental Management Series No. 12, Washington, DC: The World Bank. Cohen, Michael. 1991. Urban Policy and Economic Development: An Agenda for the 1990s, Washington, DC: The World Bank. Greenpeace International and Friends of the Earth. I988. Financing Ecological Destruction: The World Bank and the International Monetary Fund, Oxford: The Dot Press. Lee, James A. 1985. The Environment, Public Health and Human Ecology: Considerations for Economic Development, Baltimore, MD: The Johns Hopkins Press (for the World Bank). Leitmann, Josef. 1993. Rapid Urban Environmental Assessment: Lessons from Cities in the Developing World, (Volume 1: Methodology and Preliminary Findings), UMP Discussion Paper Series No. 14, Washington, DC: The World Bank. Leitmann, Josef. 1994. The World Bank and the brown agenda: Evolution of a revolution. Third World Planning Review 16(2). Operations Evaluation Department/World Bank. 1992. World Bank Approaches to the Environment in Brazil: A Review of Selected Projects, (Volume II: Pollution Control in Sao Paulo), Report No. 10039, Washington, DC: The World Bank, 1992. Reid Walter et al. 1988. Bankrolling Successes: A Portfolio of Sustainable Development Projects, Washington, DC: Environmental Policy Institute and National Wildlife Federation. Serageldin, Ismail, and Cohen, M. (eds). 1995. The Human Face of the Urban Environment: A Report to the Development Community, Environmentally Sustainable Development Proceedings Series No. 5, Washington, DC: The World Bank.

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World Bank. 1991. Environmental Assessment Sourcebook, (3 volumes), World Bank Technical Paper No. 139, Washington, DC: The World Bank. World Bank. 1992. World Development Report 1992: Development and the Environment, Washington, DC: Oxford University Press (for The World Bank). World Bank. 1995. Mainstreaming the Environment--The World Bank Group and the Environment Since the Rio Earth Summit, Washington, DC: The World Bank. World Bank. 1994. Making Development Sustainable: The World Bank and the Environment--Fiscal 1994, Washington, DC: The World Bank.