Brazil’s Belo Monte Move: Will National Development Banks Start Taking Human Rights and Environmental Concerns More Seriously?

In late November, the Brazilian national development bank (“BNDES”, by its Portuguese initials) announced its approval of a $10.8 billion loan to finance the construction of the Belo Monte dam, the world’s third largest hydroelectric dam.  Approximately $1.5 billion, representing 11.2% of the loan, was earmarked for social and environmental programs — the largest amount ever set aside by BNDES for such purposes.

The Belo Monte dam has been the subject of ongoing and intense controversy. Those opposing the dam’s construction and operation have cited its potential effects on the local and global climate, indigenous groups, and local riverine and urban people.

The proposed dam is the subject of at least 53 judicial actions in Brazil, and construction on the dam has been shut down at least five times in 2012 alone. In August, a mid-level federal appellate court temporarily halted construction due to the failure to consult local indigenous groups and other affected populations regarding the potential impacts of the dam. Furthermore, some see the dam as a harbinger of things to come – its successful completion raises the specter of construction of many more dams in the Amazon basin.

While the Brazilian government and the consortium building the dam have decided to move ahead with the much-maligned project, the conditions imposed by BNDES demonstrate that social and environmental issues have risen to a level of importance not originally anticipated by the project’s planners. That said, NGOs remain critical of its terms and say that BNDES has not gone far enough.

Ultimately, Belo Monte is a lesson for lenders, funders, developers, and governments. BNDES’s decision to devote significant resources to mollifying social discontent and ameliorating social and environmental problems is a reminder of the importance of responsible engagement with local communities regarding the potential impacts of a proposed project. Experience shows that such engagement may both facilitate a project’s progression and help to ensure that the project ultimately operates with respect for human rights.

More significantly, perhaps, it is a sign that national development banks from the global South will begin to incorporate increasingly robust assessments of human rights and environmental impacts into their lending decisions. Many multilateral institutions and major private lenders are already making significant strides in this arena.

The increasing importance of national development banks – the BNDES lends four times the amount of the World Bank, for example – only highlights the impact which this trend might have on how corporations and nations approach large-scale infrastructure and extractive sector projects in the future. Devoting early-stage resources and operational capacity to constructive engagement with local communities and efforts to assess, and mitigate, potentially adverse project impacts will mitigate a range of legal, reputational, and operational project-related risks.

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