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Procedures for World Bank’s new accountability mechanism lacks transparency and inclusivity
In a press release issued early last week, the World Bank has announced that the review of its independent accountability mechanism, the Inspection Panel, has been completed and that a few major reforms were added to the Inspection Panel. Accordingly, a new accountability mechanism – an “expanded” one as the Bank says, called ‘World Bank Accountability Mechanism’ will be in place from September 2020 and will constitute two separate roles – the Inspection Panel (IPN) will focus on the review of compliances of projects with Bank’s operational policies and a separate Dispute Resolution Mechanism (DRS) will resolve the grievances of affected communities, in a time bound manner, instead of compliance review. While housed under one umbrella, the DRS will organisationally be separate from the IPN to ensure its effectiveness and to avoid conflict of interests.
New Roles, Governance Structure
Independent Accountability Mechanisms (IAMs) of Multilateral Development Banks have different governance structures and varied roles with assigned functions. It is necessary to see the new reforms of WB’s IPN in comparison to the previously established roles of both Compliance Advisor Ombudsman (CAO) of the International Finance Corporation (IFC) and Accountability Mechanism (AM) of Asian Development Bank (ADB), since most of the complaints from Indian communities have been registered with these IAMs.
There were only four IAMs that offered both compliance review and dispute resolution services – namely CAO of IFC, the Complaints Mechanism (CM) of European Investment Bank (EIB), AM of ADB, and Independent Review Mechanism (IRM) of African Development Bank (AfDB). Now WB’s new IAM will also offer both compliance review and dispute resolution.
The CAO reports to the President of the World Bank Group, while the dispute resolution component or ‘problem solving function’– the Office of the Special Project Facilitator in ADB’s AM report to the Bank President, and the compliance review component – Compliance Review Panel in AM report to the Board of Directors. The new IAM of WB will be governed by an ‘Accountability Mechanism Secretary’ (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. While administratively integrated in this new mechanism, the IPN members will remain fully independent and continue to report directly to the Board on all compliance investigation matters. Which effectively means, the DRS staff will report to the AM Secretary who then will report to the Board, whereas the IPN will directly report to the Board (Whereas, the CAO staff along with its three functions – dispute resolution, compliance and advisory- report to the CAO Vice President).
Organisationally in the new IAM, the IPN will have no role in DRS. The IPN will continue to be constituted and operate as established in the IPN Resolution.
Operationally, the new IAM will apply the existing eligibility criteria of IPN for compliance for its dispute resolution function. There will be no change to the current practice of recommending eligibility, when a complaint is registered, based on the IPN’s current eligibility criteria. During the eligibility phase, the IPN recommends eligibility for compliance. After the Board has approved the eligibility for compliance, the AM Secretary will offer an opportunity for dispute resolution to the parties. If Borrower and Requesters voluntarily agree to go for a dispute resolution, the case will be referred by the AM Secretary to the DRS. The AM Secretary will inform the Board, the IPN and Management of the parties’ decision. In case the parties agree to use the DR process, the compliance process of the IPN will remain in abeyance. If the parties do not agree, the AM Secretary will inform the Board, the IPN and Management and the case will be taken up by the IPN for a compliance investigation. The Parties to the DR process would be the Requesters and the Borrower’s relevant project implementing agency.
While ADB’s AM has a slightly different approach – one can approach its problem solving function office – the Office of the Special Project Facilitator and file a complaint regardless of whether ADB operational policies and procedures have been violated ( this mandate is required only if one is approaching the Office of the Compliance Review Panel).
Meanwhile, the CAO’s Ombudsman function responds to dispute resolution complaints and if they are not solved, they are transferred to the compliance review function.
Extended Eligibility time limit for Requesters to file Complaints
Except the IPN, almost all other IAMs had established their own mechanisms much earlier. They all have longer eligibility time periods for complaints registrations than the IPN. Yet, In the case of the CAO, the eligibility ends when the institution’s engagement with the client or the project ends. Whereas for AM, the latest date by which a complaint can be filed is 2 years after the loan or grant closing date. This date is known in advance, disclosed to the public, and can be found on the ADB website. Their brochure also shows the timeline in which a complaint is processed and responded to.
For IPN, this time requirement will be changed so that any request filed up to fifteen months after the closing date of the loan financing the project can be accepted by the IPN. This requirement will be applicable only to new projects approved by the Board after these changes take effect.
Formal recognition of the Inspection Panel’s advisory role
Advisory services focus primarily on the lessons that the IAMs learn about the functioning of MDB operational policies. The advice can be given as recommendations in specific compliance reports, lessons learned sections in annual reports and in other publications. The CAO has a robust advisory policy, where the CAO provides independent advice to the President of the World Bank Group and management of IFC and MIGA. CAO advice focuses on broader social and environmental concerns, policies, procedures, strategic issues, and trends. CAO’s focus is on preventing future harm and improving IFC/MIGA’s performance systemically as their policy states,
The IPN did not have explicit advisory authority. The IPN does provide informal advice through statements in its compliance reports and its publications, including its annual report and Emerging Lessons series. The press release states that this advisory role has been formalised from 2018.
Formalization of the Inspection Panel’s practice of coordinating with co-financiers’ accountability mechanisms on joint complaints
The World Bank engages in co-financing arrangements with other MDBs. In these cases, requesters could file requests for investigations regarding the same set of issues with the IAMs at two institutions. This always led to two challenges. The first challenge arises when one IAM receives a request regarding a project whose agreements stipulate that the policies of another institution govern the project, like the case is with Asian Infrastructure Investment Bank (AIIB). The second arises from differences in the procedures of the two IAMs, such as different time limits for eligibility and different rules on sharing draft reports with the requesters. None of the IAMs have developed any explicit policies or practices on how to deal with these situations. Instead, they have dealt with these situations by signing a case-specific MOU detailing how they will cooperate in investigating the same project. The World Bank is yet to clearly state whether these challenges have been addressed or they remain the same, irrespective of formalising arrangements with co-financiers’ IAMs.
Sharing IPN report with requesters before consideration of the Board
This procedure came into effect from 2018, but is officially declared now under the enhancements for IPN. Earlier, IPN’s investigation report was not shared with the requesters until after the Board had approved it. The requesters maintain that this had created two problems. First, the practice was unfair because requesters were being treated differently from Management. Second, requesters lack the knowledge to engage effectively with Management about the action plan.
Independent and proportionate risk-based verification of Management Action Plans
All the IAMs, except the IPN, are expressly authorized to monitor the implementation of the management action plans (MAPs) developed to address the IAMs findings of non-compliance and the outcomes of dispute resolution procedures. All IAMs that engage in dispute resolution have authority to monitor the implementation of the outcomes of the dispute resolution if the parties so request. In addition, the IAMs including CAO and those at the AfDB, ADB, EIB, EBRD and IDB have authority to monitor the implementation of management action plans developed in response to findings of noncompliance. The authority of the IAMs does vary. In some cases, the IAMs are authorized to monitor all cases in which they have made findings of non-compliance. This is the case with CAO and ADB’s CRP. In the case of the AfDB’s IRM and the IDB’s MICI this authority requires prior Board authorization. It is usually given at the time the board approves the IAM findings on compliance and is based on a recommendation from the relevant IAM.
From September 2020, the IPN can now verify MAPs in those cases where proportion and risk criteria will include (i) urgency of redress, (ii) risk of repetitive harms, (iii) number and vulnerability. The IPN recommendation, generally, will be made after substantial implementation of the MAP or, if the monitoring report indicates lack of implementation, at any stage of implementation. In exceptional cases, upon IPN recommendation, with input from Group Internal Audit, the Board can discuss and assign verification at the stage of approval of the MAP or shortly after. This process will avoid an automatic “one-size-fits-all” approach. The benefit of this option is that the Board would be assured of receiving independent reports on the adequacy of the management action plans, but restricted to few cases only.
How the procedures fell short
The World Bank’s Inspection Panel was the first accountability mechanism (1993) of its kind for the development finance institutions, which was established as a result of people’s struggles against the Sardar Sarovar Dam Project on river Narmada in India. The tenacious campaign around this project led to the formation of the Morse Commission, which strongly criticized the World Bank’s performance in the areas of environment and resettlement of people displaced by the construction of energy projects. Over the years, the Panel has played a major role in trying to adhere to accountability at the Bank and attempting to secure redress of grievances in some cases. Though established as an independent mechanism from the Bank management, the Panel majorly reported the eligibility of the complaint to the Board of Directors of the Bank and did not possess strong recommendatory powers.
When the review of IPN was first announced officially in 2017, Indian peoples movements, civil society and affected communities had called out to the Bank to keenly call forth to strengthen the IPN mandate. While appreciating the World Bank on this effort for a review on the occasion of Inspection Panel’s 25th Anniversary, the CSOs criticised the Bank for giving less than a fortnight to seek comments on this issue. They demanded to extend the deadline by at least two months in the interest of the sanctity of the process. They further stressed that wider publicity should be given to ensure better participation in the process. “The current consultation is designed and carried out to exclude affected communities, for whom the Inspection Panel is established,” the signatories said with much disappointment.
During the deliberations in a symposium organised in India at the 25th year of IPN, in which both the Inspection Panel and Compliance Ombudsman Advisor (CAO) participated remotely, the inadequacy of IAMs in functioning independently and efficiently; lack of capacity and powers to promote and ensure accountability; failure in intervening timely to ensure that the voices of the affected people are adequately heard, addressed and issues resolved; and lack of powers to stay the progress of project construction in cases of extreme violations, were highlighted.
A brief look into the newly released report of the Bank, ‘Report And Recommendations On The Inspection Panel’s Toolkit Review’ (March 05, 2020) shows that the external review “did not make recommendations but provided options in seven areas: (i) advisory services, (ii) Bank Executed Trust Funds (BETFs), (iii) co-financing, (iv) sharing findings with Requesters, (v) problem solving/dispute resolution, (vi) time limit on eligibility for requests and (vii) monitoring of Management Action Plans (MAPs)”. And that subsequently, a Working Group of the Committee on Development Effectiveness (CODE) that included members from all Executive Directors’ offices, was established to consider the areas identified by the Review.
When the Bank announced in 2018 that CODE was inviting submissions from relevant stake holders, the Indian civil society had strongly asked for transparent and wider consultative processes with extended time period for affected communities. Opening up the process; adhering to the principle of free, informed and prior consent; adequate time; holding consultations widely and not in national capitals/metros alone; unmasking the ritual format of such processes; IPN having suo moto powers; IPN having suo moto powers for timely intervention – even during the early stages of project appraisal; IPN having a pro-active role even to delay the progress of any project until the violations of the project have been comprehensively corrected and compensated; IPN having monitoring function; IPN having punitive powers and measures for demanding for a fresh Environmental and Social Impact Assessment (ESIA) wherever erroneous ESIA have been found, were the recommendations from the Indian groups.
During both times, the Bank did not acknowledge the receipt of the submissions from India. Despite the recorded exhaustive measures which were being adopted by the Bank to see through this review, this process has been quite the opposite in nature– opaque, extremely limited opportunities for concerned civil society stakeholders and especially for the affected communities to share relevant inputs. The information available in the public domain was restricting in its scope and the final draft proposal was not shared, despite requests being sent by concerned groups from outside India to the Bank. This was a striking drawback, especially in the wake of IFC having faced defeat at the United States Supreme Court on the Immunity Verdict last year, on the case filed by Indian farmers and fishworkers on serious violations caused by IFC-funded Tata Mundra Ultra Mega Power Project in Gujarat India.
With the assistance of the IPN and Management, CODE identified eleven projects whose stakeholders had experience in the IPN process within the last seven years to provide feedback. The selected projects took into consideration regional representation and included projects that had gone through all the different steps of the IPN process. The procedures for arriving at this decision and who all were the stakeholders from these eleven projects is not in the public domain. This tunnel vision and consequent decision making is flawed.
The entire process lacked transparency and inclusivity.
It is further stated in the recommendations that the new Mechanism will be headed by an “Accountability Mechanism Secretary” (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. The AM Secretary will be responsible for planning and overseeing the processes of the Accountability Mechanism in line with agreed procedures and will be responsible for keeping the records of the AM proceedings. She/He will also oversee the Dispute Resolution Service. All staff of the Accountability Mechanism will report to the Accountability Mechanism Secretary with the exception of the Inspection Panel members, who will continue reporting to the Board of Directors. The DR process would have a one-year time limit in order to provide assurance that the process is not prolonged and incentivize the parties to reach an agreement. This administrative challenge is going to present problems with the affected communities who would find it challenging – in the first place to finish the eligibility process of their complaint in English language, the wait during delayed timeline of these complex processes and now having to identify whether they need a compliance review or a dispute resolution.
While it is appreciated that requesters of complaint can submit their grievances beyond project closure (for new projects with effect to the new change in IPN), a distinct DRS will be operational in six months, and an independent and proportionate risk-based verification of Management Action Plans would be established as an additional assurance, they still do not address the fundamental questions ever posed at the Bank by the communities. Will these changes impact the affected people in any positive way? The tight schedules and methodologies lacked a genuine effort for meaningful consultation. Currently, the onus of identifying Bank’s lending to a particular project, understanding the Bank Operational/Safeguard Policies, knowing about the existence of IPN and developing a complaint in a manner acceptable to IPN is on affected communities. This structure disempowers the communities for they are never consulted in advance with full disclosure of impacts, lenders and of compensation/rehabilitation for their losses in most of the projects. Hence in projects, IPN has knowledge about serious impacts, it should have powers to take suo moto investigation as well as actions. Particularly in cases of high risk or ‘Category A’ projects, knowing the potential irreparable consequences, the IPN should proactively look out for the involvement of the potentially affected communities and facilitate their observations/complaints. Sadly, none of these reflect in the “enhancements” mentioned in the review report for the mechanism which boasts of 27 years’ wealth of documented information and engagement with affected communities and civil societies all around the world.
Symposium on India’s Engagements and Experiences with Accountability Mechanisms of Multilateral Development Banks
The Inspection Panel is completing 25 years in its role, as an accountability mechanism of the World Bank. As you are aware, the Bank’s failure to comply with its operating policies was seen by the entire world in the Bank’s financing with the Sardar Sarovar Dam project on River Narmada. The tenacity of massive grass-roots uprisings from our communities in the 80’s and the sustained hard work of our social movements along with our resoluteness to link it with international coalitions to question the hegemony of the Bank, subsequently led the Bank, for the first time, to commission an independent review of its project. The Independent Review Committee (Morse Committee) constituted by the Bank in 1991 to review the social and environmental costs and benefits of the dam, after years of consistent struggle by Narmada Bachao Andolan (Save Narmada Movement) and its allies led to a demand from the civil society around the globe for the creation of a grievance redressal system for project-affected communities, which ultimately pressurized the Bank to constitute the Inspection Panel in 1993. We expected this might be a crucial backstop and an opportunity for us to raise our issues of livelihoods, economic loss, displacement from our lands, alienation from natural resources, destruction of environment and threat to our biodiversity and cultural hotspots, where Bank invested in large, supposedly ‘development’ projects like mega dams, energy and other infrastructure projects. Yet, the outcome we expected rarely delivered sufficient remedy for the harm and losses people have experienced over the years.
A number of accountability mechanisms over the next couple of decades in several development finance institutions were formed following the model of World Bank, commonly known as ‘Independent Accountability Mechanisms’[IAMs]. Each year the number of complaints rise which is an indication of the increasing number of grievous projects happening around the world. While IAMs of most MDBs are advertised to provide strong and just processes, many of our experiences imply that the banks are accommodating practices which suit their own needs and their clients, which are borrowing countries and agencies, and not the people for whom the IAMs were built to serve.
Many a time, we have been disappointed by these mechanisms, since these are designed by the banks who are lending for disastrous projects in our lands. And as a result, the already existing narrow mandate of IAMs is further restricted.
In our efforts to hold the lending bank accountable, the communities are always presented with the arduous process of learning the complex formalities and detailed procedures to initially approach the IAMs and get our grievances registered. Our many years’ time and energy then is channelised into seeing through the various cycles of these complaint handling mechanisms, that our entire efforts go into this process, and often our complaint gets dropped off in midst of the procedural rules of the IAMs. People are made to wait many months to clear procedural levels and our cases with the IAMs get highly unpredictable. Further, we face intimidation and reprisals from the state and project agencies for having contacted the IAMs who themselves do not possess any authority to address the violations hurled out to us when we seek dignity, fair treatment and justice from them. There are many of us who feel a loss of morale after long years of struggling with lenders when we fail to see concrete benefits or changes in our circumstances, by which time considerable irreplaceable harm is already done to our lives, environment and livelihoods.
In this manner, our immediate and larger goal of holding banks for their failure to consult with and obtain consent from communities before devising action plans for our lands, water and forests is deflected in the pretext of problem-solving and grievance hearing offered to us in the name of IAMs.
With over 50 registered complaints sent to different IAMS from India in the past 25 years, many more left unregistered due to technical reasons and only a few got investigated, assessed and monitored at different levels, we have a baggage of mixed experiences with the IAMs. A few of the prominent cases from India apart from Narmada project are Vishnugad Pipalkoti Hydro Electric Project [WB’s IP], Tata Mega Ultra-01/Mundra and Anjar [IFC’s CAO & ADB’s CRP], India Infrastructure Fund-01/Dhenkanal District [IFC’s CAO], Allain Duhangan Hydro Power Limited-01/Himachal Pradesh [IFC’s CAO] and Mumbai Urban Transport Project (2009) [WB’s IP].
As we now know, what is being witnessed recently is an influx of approved and proposed investments majorly in energy, transport, steel, roads, urban projects, bullet trains, industrial zones/corridors, smart cities, water privatization and other mega projects in India. This has been financed from different multilateral and bilateral sources, foreign corporations, private banks as well as Export-Import Banks (ExIm Banks). It has become a brutal challenge for communities, social movements and CSOs, with lenders and governments constantly shutting their eyes and ears to us who demand accountability for their actions. A compelling and timely need has arisen among diverse groups amongst us to gather together and critically analyze the various trajectories of our engagements with accountability mechanisms of MDBs in order to bring together past 25 years’ learning, insights and reflections of various actors of this accountability process. This urging demand is also an attempt to define the collective experiences in India among our social movements, projected-affected communities and CSOs with IAMs and lending banks, especially appropriating the global political opportunity of Inspection Panel celebrating its 25 years this year.
The schedule and list of speakers will be shared soon.
It is noteworthy that currently, coal-based power projects are under threat due to lack of coal linkages and power purchase agreements, thus stalling many existing power projects and discouraging many companies from expanding to new coal power projects. This would give a boost to hydropower projects in many regions, especially in the Himalayan regions.
Press Release:People’s Movements Determined to challenge the unbridled expansion of infrastructure financing by international financial institutions
Chennai: June 4, 2018
• Peoples Movements & CSOs to organise Peoples’ Convention on infrastructure financing coinciding the 3rd Annual Governors Meeting of Asian Infrastructure Investment Bank (AIIB) in Mumbai
• Determined to challenge the unbridled expansion of infrastructure financing by international financial institutions
Posing a challenge to the rapid expansion plans of international financial institutions like AIIB, people’s movements, civil society organisations and their allies are holding a Peoples’ Convention in Mumbai just days before the 3rd Annual Meeting of AIIB. This was announced by the Working Group on International Finance Institutions (WGonIFIs) in a press conference in Chennai today. WGonIFIs is a platform of a large number of people’s movements and CSOs fighting against negative impacts of large infrastructure projects, financed by international capital, like bullet trains, energy projects, large commercial ports and transport projects.
“Looking at the history of IFI investments in India, like that of the World Bank, where a large number of people has been severely impacted due to rapid expansion of mega infrastructure projects, we are concerned that a new infrastructure investment bank like AIIB without even the basic social environmental safeguards will take away people’s rights over natural resources, deprive them of their livelihood and impact the climate, causing irreversible damages”, energy and climate change expect Soumya Dutta said.
In the Chinese led bank AIIB, India holds the second largest shares, next to China and is a favourable destination of their investments securing 25% of the already approved lending. Within a short span of 3 years, India received loans worth $1.2 bn, out of a total $4.4 bn. The approved projects for India include transmission lines in Tamilnadu, rural roads in Madhya Pradesh and Gujarat, 24 X7 electricity for Andhra Pradesh, financial intermediary India Infrastructure Fund. The highly controversial Amravati capital city project is under the consideration of AIIB Board. Another $3 bn worth projects are in the pipeline for India.
Senior activist Jesuratnam from the Coastal Action Network, Tamilnadu said that “Infrastructure banks like AIIB is likely to investment in projects like Sagarmala which has three coastal economic zones in Tamilnadu comprising of ports, roads and associated infrastructure which will disrupt fishing operations and livelihood of fisherpeople. Large-scale infrastructure will not only displace and destruct the livelihoods but lead to disruption of coastal ecology and public indebtness”.
People’s organisations, CSOs and concerned citizens, under the aegis of WGonIFIs will be holding a Peoples’ Convention in Mumbai from June 21-23, just days before the official annual meeting which will be held in the same city from June 25-26. The Convention will bring together people fighting against large infrastructure projects, and people negatively impacted by the international financial institutions financed ‘development projects’ in the country.
Some of them include, National Alliance of People’s Movements, Bhumi Adhikaar Andolan, National Fishworkers’ Forum, Natioanl Hawkers Federation, Narmada Bachao Andolan, North East Peoples’ Alliance, Guajrat Khedut Samaj and All India Union of Forest Working People.
“The program will bring voices from across the country who are affected by large infrastructure projects and will devise strategies to make financiers accountable to the people’, co-ordinator of the People’s Convention Maju Varghese said.
The People’s Convention will witness coming together of over 250 groups, deliberations in around 20 parallel workshops on the impacts of international lending, cultural expressions of protests and mass action.
For more information on the Peoples Convention visit http://www.wgonifis.net
Contact: Maju Varghese: email@example.com | 8826249887
April 9, 2018: 62 Civil Society Groups from four continents issued a public statement to express their concern about the Asia Infrastructure Investment Bank’s (AIIB) ongoing Board meetings in which it is being proposed to empower Bank’s Management to approve some projects.
“The forthcoming Board decision to delegate responsibility to AIIB Management to approve its projects represents a fundamental shift in the way the AIIB is governed. Such a radical move should not happen without significant public debate and at a minimum full disclosure and discussion around the thresholds for such delegation,” the groups argued.
The statement, which was endorsed by grassroots organisations, research and advocacy organisations, and individuals, observed that this proposal raises questions on the governance at the AIIB — the world’s newest multilateral development bank — as the Board members are accountable to their governments, which are also shareholders of the Bank. Shareholder governments, in turn, are responsible to their citizens for ensuring that the Bank upholds its environmental and social standards in its lending operations. “Transferring the right of approval from the Board to Management undermines this crucial chain of accountability,” the groups emphasised.
Responding to the news that ‘thresholds’ could be set for determining which projects will still come before the AIIB’s Board, the grassroots organisations argued that such thresholds are not meaningful regarding potential harms to local communities and the environment.
The civil society groups requested that the Board defer its decision on the process of approval until further discussions have taken place among key stakeholders.
Via electronic mail
Asian Infrastructure Investment Bank B9 Financial Street
Xicheng District Beijing 10033
People’s Republic of China
19th January 2018
Mr Joachim Von Amsberg, Vice President, firstname.lastname@example.orgDr. D.J. Pandian, Vice President, email@example.com
Mr Dong-Ik Lee, Project Team Leader, firstname.lastname@example.orgMr. Hamid Sharif, Director General, CEIU, email@example.com
Mr Yuanjing Sun, Principal Communications Officer,firstname.lastname@example.orgMr. Oliver Barron, Executive Officer, Office of the President, email@example.comMembers of the Board of Directors of the AIIB
Re: The AIIB’s investments in financial intermediaries: CSOs call for disclosure and accountability
Dear President Jin,
We write to you as representatives of civil society organizations to draw your attention to concerns associated with the AIIB’s investments via financial intermediaries (FIs), including infrastructure funds.
We note that the AIIB has, in 2017 invested in three FIs – the Indonesia Regional Infrastructure Development Fund, the India Infrastructure Fund, and the Emerging Asia Fund – and that further FIs are on the proposed projects list, including the India National Investment Infrastructure Fund. In addition, we have learned that the AIIB is in the process of developing a strategy for investment in equity and funds. This is an opportune moment for the AIIB to consider the lessons learned from other development finance institutions to avoid the pitfalls and reputational risks associated with FI lending.
While investing in FIs can help mobilize funds and attract private capital for economic development, this form of third-party or ‘hands-off’ lending also comes with significant risks – in particular around clients’ adherence to environmental and social (E&S) safeguards. In recent years, the International Finance Corporation (IFC) – over half of whose investment portfolio is channelled via FIs – has come to acknowledge these risks, and has taken some steps to address them. Following critical findings from both the IFC’s own accountability mechanism, the Compliance Advisor Ombudsman (CAO) and from civil society, the IFC’s CEO, Philippe Le Houérou, has committed to reduce high-risk lending through FIs, saying “we will reduce IFC’s own exposure to higher risk FI activity and apply greater selectivity to these type of investments, including equity investments.”1
In March 2017, the CAO released its third monitoring report on the IFC’s financial sector portfolio..2The report examined actions taken by IFC to address the findings of the CAO’s 2012 Audit of a Sample of IFC Investments in Third Party Financial Intermediaries, in which the CAO found, among other things, that the “result of [IFC’s] lack of systematic measurement tools is that IFC knows very little about potential environmental or social impacts of its F[inancial] M[arkets] lending.”3In this year’s update, it is of particular concern that the CAO found that the “IFC does not, in general, have a basis to assess FI clients’ compliance with its E&S requirements.” As the CAO states, this is highly problematic in relation to FI clients that are supporting high-risk projects, and “where IFC does not have an assurance that the development of a client’s ESMS [Environmental and Social Management System] is leading to the implementation of the Performance Standards at the sub-project level.”4
Independent research carried out over the last year has supported these findings. Inclusive Development International (IDI) conducted a financial investigation to track IFC’s investments in financial intermediaries to their end use. This research only examined the business of a tiny segment of the 700 financial institutions and 220 private equity funds in the IFC’s FI portfolio; however, IDI found more than 130 projects and companies funded by two dozens IFC intermediaries that are causing or are likely to cause serious environmental harms and human rights violations. The projects are located in 24 countries and come from a range of high-risk sectors, including energy, industrial agriculture, mining, transportation, infrastructure, and even private military contracting. In each of these cases, it is apparent that IFC’s environmental and social Performance Standards are not being applied. IDI has detailed these findings, in collaboration with Bank Information Center, Urgewald, 11.11.11, Ulu Foundation and Accountability Counsel, in a four-part investigative series, entitled Outsourcing Development: Lifting the veil on the World Bank Group’s Lending through Financial Intermediaries.
Responding to these problems, the IFC’s CEO recently announced that the IFC has cut its high-risk lending from 18 to just 5 investments5, and has committed to increasing the number of FI investments ring-fenced for such ends as climate mitigation and women-owned SMEs6. In addition, the IFC has also begun “tracking FI clients’ exposure to coal and plans to incorporate a reporting requirement on coal exposures in legal documents with all new FI clients”.7
In this context, we urge the AIIB to learn from the IFC’s problematic experience with its financial intermediary portfolio and act to avoid the associated social, environmental and reputational damage. The AIIB can do so by putting in place robust policies and systems around financial intermediary investments to ensure transparency, accountability and efficient channels of communication with all stakeholders. These requirements, in AIIB’s policies, investment decision-making and contracts with FI clients should be mandatory and include:
- Scrutinising the existing project portfolio and pipeline of proposed FI clients to ensure that all projects are in line with the bank’s policies and strategies;
- Ensuring that the proposed FI client has in place a robust environmental and social management system before the investment is approved;
- Reviewing the track record of the FI client in applying the environmental and social framework and making this assessment public;
- Ensuring that FI clients require sub-projects to be compliant to all AIIB policies especially the Environmental and Social Framework (ESF), Complaints Handling Mechanism (CHM), Public Information Policy, and all relevant sectoral strategies and guidelines. This should enable FI sub-projects to remain accountable to AIIB oversight and due diligence at all levels of the project cycle;
- Monitoring the proposed client’s social and environmental due diligence and supervision of its investment; and
- Ensuring FI sub-project affected communities have access to redress, including through the AIIB’s accountability
In addition, it is crucial that the AIIB contractually require the FI client to disclose publicly all of its investments and permit the AIIB to disclose the information on its website. This will help ensure that affected communities and other stakeholders are aware that the sub-projects must comply with environmental and social standards and can alert the client, the AIIB, and its Board at early stages if those standards are not being met. A provision requiring this disclosure of FI sub-projects should be included in the AIIB’s forthcoming Public Information Policy. In this regard, as a first step, the AIIB could follow the ADB’s policy requiring 120-day public disclosure of draft environmental and social assessments “where the subprojects financed by the FI … through either credit-line, other loans, equity, guarantee, or other financing instruments, have the potential for significant environmental or social impacts.”8
In any case, funds routinely disclose a range of information. For example, PT. Indonesia Infrastructure Finance, a financial intermediary with equity held by the ADB, the IFC, and PT. SMI, where the AIIB’s Regional Infrastructure Development Fund will be housed, discloses all subprojects and discloses environmental and social impact assessments.9Other funds, routinely disclose a range of information.10
In addition, DJ Pandian told NGOs in Jeju during the AIIB AGM that he can see no obstacle to disclosing publiclyhighriskAIIBsub-projects supported by private equity funds. Such information would enable the Board, bank management, civil society and potentially affected communities to monitor whether the AIIB’s standards are appropriately applied to these investments, greatly increasing transparency and facilitating and incentivising better management of the environment, social, and governance issues acrossAIIB’s financial sector portfolio.
We look forward to your response to these concerns and your commitment to ensuring that the AIIB takes on the lessons learned at IFC to reduce high-risk FI lending.
Rayyan Hassan, NGO Forum on ADB
On behalf of:
Kindra Mohr, Accountability Counsel
Kate Geary, Bank Information Center-Europe
Elizabeth Summers, Bank Information Center
Anna van Ojik, BothEnds
Luiz Vieira, Bretton Woods Project
Paolyel MP Onencan, Buliisa Initiative for Rural Development Organization (BIRUDO) Uganda
Sarah Wykes, CAFOD
Wawa Wang, CEE Bankwatch Network
Joe Athialy, Center for Financial Accountability, India
Frances Witt, Christian Aid
Hasan Mehedi, Coastal Livelihood and Environmental Action Network, Khulna, Bangladesh
Heinz Hödl, Coordination Office of the Austrian Bishop’s Conference for International Development and Mission (KOO), Austria
Shalmali Guttal, Focus on the Global South
Helen Tugendhat, Forest People (FPP)
Dr Eduardo Tadem, Freedom from Debt Coalition (FDC), Philippines
Katharine Lu, Friends of the Earth, USA
Manana Kochladze, Green Alternative
Calvin Quek, Greenpeace East Asia
David Pred, Inclusive Development International
Karavali Karnataka Janabhivriddhi Vedike, INSAF
Andi Muttaqien, Institute for Policy Research and Advocacy (ELSAM), Indonesia
Jocelyn Soto Medallo, International Accountability Project
Kate Horner, International Rivers
Maurice Ouma Odhiambo, Jamaa Resource Initiatives, Kenya
Sukhgerel Dugersuren, OT Watch and Rivers without Boundaries, Mongolia
Nadia Daar, Oxfam
Eugene Simonov, Rivers without Boundaries International Coalition
Thilak Kariyawasam, Sri Lanka Nature Group
Stephanie Fried, Ulu Foundation
Korinna Horta, Uganda
7 IFC 2017 Improving IFC’s Approach to Environmental and Social Risk Management: Listening, Learning, and Adapting (updated April 2017). See: https://www.ifc.org/wps/wcm/connect/77c11449-261e-484b-a885-f9d77b087386/Improving-IFCs-+Approach-to-ES-Risk-Management-Updated-April-2017.pdf?MOD=AJPERES
8 ADB Safeguard Policy Statement, 2009. SAFEGUARD REQUIREMENTS 4: SPECIAL REQUIREMENTS FOR DIFFERENT FINANCE MODALITIES
10 In addition to PT Indonesia Infrastructure Finance see, for example, the India Infrastructure Fund (IDFC) http://www.idfc.com/alternatives/infra-equity/portfolio_companies.htm.
The Asian Development Bank was conceived in the early 1960s as a financial institution that would foster economic growth and cooperation in Asia. India was a founding member of the Asian Development Bank (ADB) and is now the fourth-largest shareholder. ADB commenced operations in India in 1986 and has approved 240 loans totalling $36.8 billion.
Asian Development Bank (ADB) has grown to be the third largest source of development finance in the Asia-Pacific region, next to the World Bank Group and the Japanese Government. Documents published in 2017 reveals that from a lending portfolio of just over $3 billion during the first decade, ADB has expanded its lending to $123 billion during the last 10 years.
However, the Mid-term Review (MTR) of ADB’s strategy for 2015 and 2020 have acknowledged that the Asia-Pacific region faces widening inequalities in income and access to economic and social opportunities. Increased investment in infrastructure has failed to provide inclusive growth and social protection to the vulnerable sections of the populations including the workers and women.
India had about 84 ongoing sovereign loans from ADB amounting to $11.9 billion at the end of 2015. Currently, we have about 170 active projects in the country of ADB alone. The massive Vizag-Chennai corridor, the numerous urban development projects across the country, the ReNew clean energy projects in Andhra Pradesh, Gujarat, Jharkhand, Madhya Pradesh, Telangana and Karnataka, are only a few of the 50 odd active and approved projects. Further 23 projects have been proposed to the ADB waiting for approval. These are just projects covered by ADB, adding them to the projects funded by all IFIs shows the extent of their influence in almost every sector – energy, infrastructure, health, etc. The scale of land grab, loss of livelihood, environmental destruction has been completely overlooked by both the IFIs and the government. The rampant privatisation of all the sectors, including health care, is going to affect all those who would not be able to afford health care. In such a time, holding the development banks accountable has become imperative for one’s survival with some modicum of dignity.
ADB Investments in India. Source: Answer by the government to the parliament of India
ADB 50 campaign in India
The first week of May 2017 was marked by actions across the country against ADB and other IFIs. It coincided with ADB’s 50 years celebrations in Manila. The massive protest actions were intended to send a strong message to the ADB and other IFIs of the havoc their investments have caused. Thousands of people, in over 140 locations spread in over 21 states in India and over 80 organisations, came together to make this campaign a massive success. These protest actions are both a reminder of the reckless lending of ADB and hope to continue the struggle against the IFIs and their inequitable development model.
The coming together of so many organisations resulted in a wide range of programmes, including the public meeting, lectures, demonstrations, and human chains. Activists also made short video clips highlighting the impacts of the investments by IFIs. The protests actions raised concerns about investments of IFIs like World Bank; International Finance Corporation; Japan Bank of International Corporation (JBIC); Asia Infrastructure Investment Bank; New Development Bank; Exim Banks of Korea, United States, China among others. Many of these agencies are co-financiers, with increasing investments in the infrastructure and cross border projects, thus causing irreversible damage to the people and environment, while their policies to safeguard the harm caused by their investments are made opaque and watered down.
The actions mentioned above on the occasion of 50 years of ADB are a part of the continuous struggle of the people from all the regions that have been affected by the projects.
After a Judge declared World Bank immunity cases “wrongly decided,” the communities affected by the Tata Mundra project approach US court to review “absolute immunity” doctrine
Communities harmed by Tata Mundra coal power plant in India continue to seek justice from World Bank Group’s International Finance Corporation
July 26, 2017, Washington, D.C., and Mundra: After a federal judge in US declared that the cases giving the World Bank Group an “absolute immunity” from lawsuits were “wrongly decided,” the communities affected by private-lending arm of the World Bank Group have filed a petition asking the full D.C. Circuit Court of Appeals to revisit its immunity doctrine.
In June, a three-judge panel of the D.C. Circuit, in the case Budha Ismail Jam v. IFC, had ruled that the International Finance Corporation (IFC), the private-lending arm of the World Bank Group, could not be sued for its role in the controversial Tata Mundra coal-fired power plant, which has devastated fishing and farming communities in Gujarat.
In its June ruling, the panel, citing the legal precedents, concluded that the IFC is immune from suit in this case. Justice Nina Pillard, however, wrote a dissenting opinion criticising those decisions as “wrongly decided” and suggested that the full D.C. Circuit, which has the authority to change the law of the Circuit, should revisit those cases.
“The panel’s ruling gives international organisations like the IFC an unparalleled immunity, insulating them from legal accountability regardless of how much harm they cause,” said Richard Herz, senior litigation attorney at ERI, who argued the case for the plaintiffs. “Such sweeping immunity, which is far greater than the privileges enjoyed by sovereign foreign governments, is inconsistent with multiple Supreme Court precedents, and is contrary to the IFC’s development mission,” added Herz.
“We will not give up our struggle for justice,” said Budha Jam, a plaintiff in the case, after the verdict.
“This decision tells the world that the doors of justice are not open to the poor and marginalised when it comes to powerful institutions like IFC,” added Gajendrasinh Jadeja, the head of Navinal Panchayat, a local village involved in the case. “But no one should be above the law.”
It is noteworthy that the plaintiffs filed suit against the IFC in April 2015 over the destruction of their livelihoods and property and threats to their health caused by the IFC-funded plant. The IFC recognised from the start that the Tata Mundra plant was a high-risk project that could have “significant” and “irreversible” adverse impacts on local communities and their environment. Despite knowing the risks, the IFC provided a critical $450 million (Rs 1800 crore) loan in 2008, enabling the project’s construction and giving the IFC immense influence over project design and operation. It failed to take reasonable steps to prevent harm to the local communities and to ensure that the project abides by the required environmental and social conditions for IFC involvement.
The plant has destroyed the local marine environment and the fish populations that fishermen like Jam rely on to support their families, and vital sources of water used for drinking and irrigation. Coal ash contaminates crops and fish laid out to dry and has led to an increase in respiratory problems.
The IFC’s compliance mechanism, the Compliance Advisor Ombudsman, issued a scathing report in 2013 confirming that the IFC had failed to ensure the Tata Mundra project complied with the conditions of the IFC’s loan. Rather than follow CAO’s recommendation for remedial action, rejected most of its findings, and ignored others. Plaintiffs had no other recourse but to sue IFC. In its ruling last month, the panel recognised the “dismal” situation of the affected communities, noting IFC did not deny that the plant had caused substantial damage and yet found IFC could not be sued.
The harms suffered by the communities are all the more regrettable because the project made no economic sense from the beginning. In fact, in the past month, Tata Power, which owns the plant, has begun trying to unload a majority of its shares in the project for 1 Rupee because of the losses it has suffered and will suffer going forward.
On appeal, the plaintiffs argued that IFC has waived immunity because this suit promoted the IFC’s mission, which includes the goals of reducing poverty without harming its projects’ neighbours. The IFC interestingly argued that it is not bound by its own mission.
“The court’s judgment supports the arrogance of lenders like IFC, who disregard the law, their own safeguard policies, and even the findings of their accountability mechanisms,” said Dr. Bharat Patel of Machimar Adhikar Sangharsh Sangathan (Association for the Struggle for Fisherworkers’ Rights), which is a plaintiff in the case. “This sends the wrong message to institutions like IFC – that you can continue to lend money to bad projects, causing irreversible damage to people and environment and no law will hold you accountable.”
The plaintiffs are optimistic that the full D.C. Circuit will reconsider the case.
~ Joe Athialy
With Subhash Chandra Garg assuming charge as secretary of the Department of Economic Affairs (DEA) in the Finance Ministry, the position of the Indian Executive Director (ED) at the World Bank has fallen vacant. The 1983-batch IAS officer of Rajasthan cadre, Garg was the ED at the World Bank from Nov 2014 until June 2017.
Appointments Committee of Cabinet decides appointment of important posts under the Government of India, including ED at the World Bank. While in the past the Appointments Committee had the Prime Minister as its Chair and the Ministers for Home and in-charge of the concerned ministry, with a notification in mid-2016, the Appointments Committee is reduced to only the Prime Minister and Home Minister.
There are currently 25 EDs on the board, one each for the seven largest shareholders at the Bank – US, Japan, Germany, France, UK, China and Saudi Arabia. Other countries are grouped into constituencies, each represented by an executive director. Indian ED is in charge of Bangladesh, Bhutan and Sri Lanka, apart from India.
The EDs are based at the World Bank Group’s headquarters in Washington DC. It is responsible for policy decisions affecting the World Bank Group’s operation, and approval of the International Bank for Reconstruction and Development (IBRD) loan and guarantee proposals and International Development Association (IDA) credit, grant and guarantee proposals.
There are a few pertinent questions surrounding the appointment and functioning of positions like that of World Bank ED:
Shouldn’t the elected representatives of people have a say in the appointment of an ED at any of the multilateral institutions, who represents the interests and positions of the country?
Shouldn’t s/he be guided by the wise counsel of the Parliament, for the positions s/he takes at the Board, given that the positions could have far reaching impact for the country for a long time to come? (In US, Congress provide “legislated instructions” to the ED representing the US at the Bank).
Shouldn’t s/he be transparent and accountable to the Parliament for the positions s/he takes at the Board?
It is the time that we start asking some hard questions.
Netindia123.com: Medha Patkar demands more transparency in ADB projects
(May 9, 2017)
Webindia123.com: Medha Patkar demands more transparency in ADB projects
(May 9, 2017)
The Statesman: Call for nationwide protests against ADB’s projects in India
(May 8, 2017)
Business Standard: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)
Eenadu: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)
Sify.com: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)
The CEO Magazine: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)
Orrisadiary.com: ADB’s 50 years greeted with mass protest at Bhubaneswar, Odisha
(May 8, 2017)
Sambad: ଏସିଆ ବିକାଶ ବାଙ୍କ ବିରୋଧରେ ଆନ୍ଦୋଳନ (May 7, 2017)
The Shillong Times: ADB’s 50 years greeted with nationwide protests (May 6, 2017)
Navratnanews.com: 50 years of Asian Development Bank Destruction, Displacement and Exploitation of Natural resources (May 6, 2017)
Mumbainewsnetwork: ADB’s 50 years greeted with nationwide protests (May 5, 2017)
Daily O: ADB celebrates 50 years, but there’s a problem with development institutions (May 5, 2017)
The Ecologist: Asian Development Bank must end its 50 year addiction to coal!
(May 4, 2017)
The Telegraph: Protests against ADB projects (May 4, 2017)
Emaatimes.com: पटना: टुकड़ों में बंट कर रह गयी बिजली कंपनियां, गरीबों से दूर हो गयी बिजली
(May 3, 2017)
Janjosh.com: अगेंस्ट ADB की बैठक हुई सम्पन्न (May 3, 2017)
TwoCircles.net: Marking Asian Development Bank’s 50 years, protests to take place in over 100 places in India this week (May 2, 2017)
MattersIndia.com: ADB’s 50 years: Protests to take place in several places (May 2, 2017)
National News Analysis: Marking Adb’s 50 Years, Protest Actions To Take Place In Over 100 Places In India This Week (May 2, 2017)
Governance Now: ADB’s 50th anniversary, civil society’s 100 protests (May 2, 2017)
Counterview.org: Anti-ADB protests begin across India: Planks include loss of livelihood of indigenous people, eco-destruction (May 1, 2017)
Ecologise.in: ADB@50, Resistance@50 (April 28, 2017)
Counterview.org: 50 actions of resistance in India at 50 places against ADB’s 50 year of inequitable policies
(April 28, 2017)