Inclusive Development International submitted comments urging the World Bank Group members to substantially strengthen their proposed ‘Approach to Remedial Action’ for communities harmed by their investments, in line with international human rights standards.
In February 2023, the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group published their draft Approach to Remedial Action, a new institutional approach to addressing potential or actual harm that may arise in the development process. A corresponding public consultation, focusing on the proposed remedy approach but also addressing the IFC responsible exit principles, took place from 21 February to 20 April 2023.
Inclusive Development International joined with many other civil society organizations and advocates for communities affected by IFC and MIGA-backed projects to demand a much more comprehensive and systematic remedy approach in line with the international human rights and responsible business conduct standards.
As part of the public consultation process, Inclusive Development International submitted our own detailed comments responding to IFC/MIGA’s proposal. Drawing on our work with affected communities in Guinea, Cambodia, Indonesia, the Philippines and elsewhere, we make several key recommendations for how IFC/MIGA can improve its approach to remedy, including:
1) Contributing to remedy: IFC/MIGA should commit to contribute to remedy when it contributes to harm, in line with internationally accepted human rights norms. Unfortunately, the proposed policy ignores this and other recommendations put forward by the External Review of IFC and MIGA’s Environmental and Social Accountability commissioned by the World Bank Group board in 2020.
2) Expanding and increasing use of existing leverage to remediate harm: IFC/MIGA should be doing more to exercise the existing leverage they have and to build additional commercial, legal and relational influence with clients upfront and throughout the project cycle to ensure remedy for harm. As part of this, we call on IFC/MIGA to include provisions in their investment agreements that recognize project-affected people as third-party beneficiaries able to enforce environmental and social covenants, including through arbitration. As rights-holders and beneficiaries of the entitlements conferred by the IFC environmental and social Performance Standards, affected communities should be empowered in the agreement to claim their rights against the IFC client in court or through arbitration. We believe this additional option for recourse would significantly enhance access to remedy for affected communities.
3) Building the capacity of staff to assess project risk and impact: IFC has proposed increased staff training on assessment of clients’ abilities to implement risk mitigation plans, but it should be doing more to ensure staff are also capable of assessing the quality of those plans themselves—including whether there is broad community support for projects. IFC should also provide technical support to both clients and affected communities to develop and implement those plans throughout the project cycle, including the execution of remedial action when needed.
4) Support to clients throughout project cycle: Our own experience engaging with IFC clients, especially in the context of dispute resolution processes facilitated by IFC’s Compliance Advisor Ombudsman, is that even after problems arise, leading to conflict with communities, IFC is not providing the crucial technical support that is needed to solve those problems. Even where clients are motivated to address the issues and resolve conflict but are unable to find the technical expertise needed, IFC is neglecting to help. We agree with the External Review’s recommendation that “ IFC and MIGA will have to spend considerably more resources at the front end during project design, preparation, and implementation to help their clients mitigate adverse impacts and achieve positive E&S outcomes.” And that “when things go wrong, IFC/MIGA should support the client with high-quality E&S advice.”
5) Technical support to affected communities throughout the project cycle: We recommend that IFC/MIGA also provide support to project affected communities throughout the project cycle so they can effectively engage in the development and monitoring of environmental and social risk mitigation measures themselves, and if harms occur, the development of remedial action. IFC could do this by providing the community with relevant E&S specialists and by establishing a technical assistance fund for affected communities to hire their own technical experts. The technical assistance fund should also be accessible to affected communities during remedial processes, including CAO-facilitated mediation and arbitral proceedings.
6) Establishing contingent liability funds: IFC/MIGA should require that clients establish contingency funds to cover the costs of remedial action and ensure, through contractual provisions, that IFC/MIGA can access those funds and ensure they are used for their intended purpose in the case that a client has failed to provide remedy. Unfortunately, instead of grappling with one of the major impediments to remedy and addressing the External Review recommendations, IFC/MIGA only propose considering contingent financing instruments for remedy on a case-by-case basis at their unfettered discretion, arguing that systematic use of contingency funding requirements would “indiscriminately raise project costs, decrease IFC’s and MIGA’s competitiveness, and could unnecessarily undermine development impact by reducing the likelihood of reaching financial close (given higher capital requirements).” This argument ignores the fact that when IFC/MIGA and their clients fail to ensure contingencies are set aside to cover the costs of remedial action, the cost of adverse impacts does not just disappear: it is externalized on to the shoulders of some of the world’s most vulnerable communities, who, by no choice of their own, lose their productive resources and economic base to make way for IFC-supported projects. It is galling to see IFC/MIGA argue that it could undermine development if it were to systematically ensure that the poorest communities do not bear those costs.
7) Applying remedy policies to its financial intermediary portfolio: In recent decades, IFC has dramatically expanded its investments through financial intermediaries, but it lacks the necessary systems, policies and procedures to ensure that its financial sector clients are effectively managing their environmental and social risks and undertaking remedial action when it is needed. The proposed remedy approach does little to alleviate this problem, promising only to apply unspecified “relevant elements of the proposed Approach” to new financial intermediary transactions. We call on IFC to spell out exactly which elements of the Approach will apply to financial intermediary investments and related sub-projects and which elements will not or will require adaptation to be applied to its financial sector portfolio. In our view, the Approach can and should be applied to financial intermediaries with respect to preparation for remedial action, facilitating and supporting remedial action by financial intermediary clients and sub-clients, and contributing directly to remedy when IFC contributes to harms.
Our full recommendations can be found here.