Job Investment that Works: Accountability in Focus
Labor and working conditions are central to IFC’s mandate and to development outcomes. How firms treat workers affects productivity, competitiveness, and shared prosperity. IFC’s Performance Standard 2: Labor and Working Conditions, recognizes that economic growth through employment creation and income generation should be accompanied by protection of workers’ fundamental rights, which are also key to a project’s success. Its requirements are guided in part by international conventions and instruments, including those of the International Labour Organization (ILO) and the United Nations (UN).
Decent work is not just a development outcome; it is the foundation of sustainable private sector growth. This makes CAO’s case experience with labor and working conditions especially relevant to IFC’s and MIGA’s institutional learning and improvement.
Labor and Working Conditions: Insights from CAO Cases
CAO’s Advisory Note, Labor and Working Conditions: Insights from CAO Cases, examines lessons from labor-related complaints to assess how IFC, MIGA, and their clients can strengthen the implementation and application of Performance Standard 2. The Note focuses on three areas: wages, contracts, and terms of employment; freedom of association; and workers’ grievance mechanisms.
The Note analyzes 59 labor-related CAO complaints connected to 33 IFC projects from FY2013 through FY2024, including an in-depth review of 12 compliance investigations linked to 10 projects. It complements this analysis with a review of IFC project documentation; interviews with IFC and MIGA environmental and social staff; a comparison of Performance Standard 2 with peer multilateral development bank (MDB) frameworks and ILO standards; and a review of emerging labor issues. Labor complaints accounted for 39 percent of all CAO-eligible complaints during this period, and concerns related to wages, contracts, and terms of employment appeared in more than 80 percent of labor cases.
The benchmarking analysis identifies gaps and opportunities. While Performance Standard 2 establishes high-level principles, the Note finds that it is less detailed and prescriptive in the three areas assessed than many peer MDB frameworks and ILO standards. Important protections, including wage protections, limits on working hours, and termination safeguards, are absent or not explicitly required, while some operational details are contained in IFC’s nonbinding Guidance Note.
Closer alignment with peer institutions and international standards presents one opportunity. The Note also identifies areas where IFC could go further, including establishing clearer termination safeguards, explicitly prohibiting threats and reprisals, strengthening protections for freedom of association, and requiring workers’ grievance mechanisms to be safe, credible, and effective. Taken together, these changes could strengthen Performance Standard 2 as a leading global standard.
Standards are only part of the picture. CAO’s review of implementation found that IFC has a broad set of due diligence and supervision tools, but their application has been uneven. Challenges included inconsistent labor-risk identification throughout the project life cycle; limited verification of client-provided information; inconsistent workforce engagement; infrequent use of labor assessments and audits; and mitigation and monitoring tools that sometimes lacked sufficient specificity or follow through.
The timing is significant. IFC’s update of its Sustainability Framework provides an opportunity to strengthen labor standards, processes, and procedures. The Note organizes its recommendations around four priorities: update and modernize Performance Standard 2; strengthen labor-risk identification during due diligence; enhance labor-risk mitigation and supervision; and strengthen monitoring, accountability, learning, and transparency.
