Introduction
An indigenous community in Nepal fighting to temporarily halt the construction of transmission lines on their lands until their free, prior, and informed consent is sought, workers in Turkey seeking redress when they are unfairly fired for exercising their freedom of association rights, indigenous communities in Myanmar concerned about the impacts of a conservation project that threatens their access to land and livelihoods. These are some of the individuals or communities that may seek to file a complaint before one of the many Independent Accountability Mechanisms (IAMs) associated with Multilateral Development Banks (MDBs), such as the World Bank or its many counterparts across the world. Their claim will rest on a clear link between the investment (transmission lines, industry, national park) that has harmed their rights and the MDB that provided the financing.
These internal but independent channels are one of the many examples of accountability mechanisms that are associated with transnational institutions. They are a necessity in the field of international development finance where investments have far reaching consequences on the environmental, social, and human rights of already marginalized communities and domestic legal avenues to seek redress remain effectively shut. The first IAM, the Inspection Panel (IP), was created in 1993 amid demands from communities in the global south who had been severely harmed by World Bank investments. Since then, they have proliferated with every major MDB having its own IAM. In this article we will describe how IAMs (and their parent institutions i.e. MDBs) operate, locate IAMs in international law, and briefly discuss the strength of IAMs’ impact on project-affected communities, domestic legal systems, and international organizations.
Understanding MDBs and their Accountability Processes
MDBs are specialized financial institutions that have national governments as majority shareholders and exist to finance development through provision of concessional financial products and services (loans, grants, extended repayment time-frames, or expertise and training). MDBs are not fully bound by international human rights law that have traditionally been incumbent on their signatories, or on actors with international legal personality – although it has been argued that considering their composition and exercise of public functions, they are bound by customary international law. Instead MDBs use safeguard policies or due diligence requirements to ensure that their investments are in compliance with their self-imposed environmental and social (E&S) obligations. If at any stage of the project cycle, communities suffer from or have a reasonable likelihood of suffering harm, project-affected communities can file a complaint to the IAM requesting either a review of whether the MDB has complied with its E&S obligations and remedy if harm is found, or a dispute resolution process aimed at finding solutions to the problem.
These policies did not come outright and willingly as an admittance of legal responsibility by MDBs, but gradually. They began with the inclusion of general administrative principles of transparency, participation in decision-making, internal accountability, and overall good governance to ensure the financial viability of its investments. But these principles also began to have ripple-effects on-ground for communities. As affected communities increasingly began to claim remedies against harms caused to them from MDB involvement in development projects, possible reputational, financial, and legal repercussions warranted MDBs act to reduce the risks of such exposure externally, including through the institution of risk management processes, grievance mechanisms, exercise of oversight over projects, and leverage over their borrowers and project implementers. E&S policies are thus reflections of increasing debates over MDB obligations, and the requirement for a “social license to operate”.
In their current iterations, E&S obligations may require clients to comply with the international legal obligations of their host countries and can explicitly refer to international human rights law instruments including ILO and UN conventions. Moreover, since some of the E&S obligations are higher than what borrower states might have ratified (and private clients are subject to as a result), E&S obligations can also promote upward harmonization of obligations by requiring that borrowers use the higher E&S standards. It is worth noting that different MDBs adopt different E&S obligations, although there are ongoing efforts in the field to harmonize and ensure material consistency.
E&S obligations directly are required to be implemented by borrower-clients, but are incumbent on the MDBs themselves, who are required to incorporate these as mandatory, contractual requirements for availing finance and conduct dynamic due diligence and monitoring prior to approval and throughout the project cycle to ensure compliance.
Location of IAMs in International Law
It can be argued that IAMs developed outside of an international legal obligation that mandated them, however, international law (IL) is increasingly recognizing the existence of IAM-like bodies and MDBs themselves rely on international soft law, such as the UN Guiding Principles on Business and Human Rights to design and shape their IAMs. For example there is reason to suggest that not having a reasonable alternative means of dispute resolution, could lead to court piercing the immunity of an International Organization. Moreover, developments in business and human rights law also require that when business enterprises (that are supported by MDBs) cause or have direct linkages to harm, they have a corresponding responsibility to use their leverage to remedy said harm. This includes for example the obligation on non-state actors to create non-judicial grievance mechanisms and even lays down an effectiveness criteria for them, which guide many MDB’s as they design or amend their IAM policies.
Just as E&S obligations can differ among MDBs, IAMs do not operate similarly across the board. They may differ in their institutional structure, policies and practices – all of which are factors that contribute to their effectiveness as remedy mechanisms. These could varyingly include: their level of independence from the management, the transparency with which they operate, the ease of accessibility, and most importantly perhaps, their ability to recommend and monitor remedial measures when harm is confirmed.
Contributions of IAMs
Till date there have been at least 1811 complaints across IAMs and over 25% have led to some type of output, either a compliance report, a negotiated agreement, and/or an informal resolution outside of the process. A review of these outcomes and their impact on project affected communities, development effectiveness, and contributions to law is long due. In this section, we will share a few examples of the types of normative consequences IAM processes have had on domestic legal contexts, on internalization of norms within international organizations, and contributions to international law. We will also briefly discuss the reasons due to which these contributions have been restricted.
Project affected communities often rely on IL to ask for the enforcement of rights and there have been examples of IAMs recommending that MDBs to ensure their clients operationalize higher international law standards in project specific contexts, even when in potential conflict with national law. In a compliance review case before the European Bank for Reconstruction and Development’s Project Complaints Mechanism (now the Independent Project Accountability Mechanism), complainants who had been unfairly dismissed due to their participation in industrial strikes (“a wild-cat strike”), submitted that EBRD failed to ensure that the client complied with Performance Requirements 2 which included their rights under ILO Conventions 87 (Freedom of Association) and 98 (Right to Collective Bargaining). The client responded that under Turkish law, “disruption of production in the absence of a formal negotiation process is defined as an unlawful strike and allows the employers to take certain legal measures, including termination of employment contracts of those participating in the strike.”
After analyzing both Turkish law and ILO jurisprudence, the PCM concluded that “If Turkish law permits an employer to take action against workers in particular circumstances, but to do so would create a conflict with ILO principles and standards referred to in PR 2 (7), EBRD’s obligation is to ensure that its client acts in compliance with those ILO principles and standards, so that it fulfills its obligation…” The PCM also drew limits around the precedence granted to international law by observing that “(T)here is a difference however between asking a client to refrain from doing what is permitted by national law in order to meet the spirit of ILO principles and standards and asking it to do something that is illegal as a matter of national law, which EBRD must avoid.” However, in finding non-compliance and making recommendations to remedy the harm, the PCM observed that it did not have the authority to recommend reinstatement of the dismissed workers.
Further, the IAMs involvement, findings and recommendations, do not always translate into impacts across the overall domestic system. For example, some communities affected by economic displacement in a WB-funded project in Nepal received 100% compensation for their land, even when no prior law or practice existed, but that did not lead to the same benefits being extended to other communities affected by the same project, let alone made into new legal requirements. Nevertheless, IAM processes have allowed project-affected communities to participate in dialogues with government officials, business actors, and banks, and have led to positive actions, such as the institution of project-level grievance mechanisms, withdrawal of funding from badly designed projects.
Conversely, IAM processes have led to improvements to E&S safeguards, IAM policies, and even led to the creation of a new IAM, thus creating norms that would apply to borrowers in the future. For instance, community efforts to bring complaints against an IFC-MIGA funded hydro-power project in Chile (Prangue Ralco) before the World Bank IP – whose mandate did not extend to private sector lendings coordinated by the IFC – led to the establishment of the Office of the Compliance Adviser (CAO) after the project earned much negative publicity. In another case from Honduras, where the Dutch-bank, FMO invested in a run-of-the-river hydro project (Agua Zarca), the resulting abuses, including the assassination of an indigenous affected community member and human rights defender (HRD), resulted in the bank belatedly promising to include newer contractual provisions as a standard in its subsequent investments in complex projects. Amongst others, these revised standards included conduct of FPIC across all stages, and in all cases impacting indigenous peoples, not only by the borrower client or the state, but also by the Bank itself – which was beyond then IFC Performance Standards (2012) that confined FPIC only to cases where indigenous lands and natural resources were affected, and cast such obligation to take and document FPIC on the client. It also included ensuring broad based consultation, and not simply with appointed or nominated representatives, and the establishment of early warning systems for HRDs at risk.
More importantly, IAM processes have also led to the creation of domestic norms. For example, challenges from the project-affected communities to the WB-funded Arun III Hydro-power Project in Nepal over lack of information-sharing (amongst others), led to a Supreme Court decision that acknowledged their concerns, directed the government to disburse project information in accordance with its transitional guidelines, and eventually come up with an information law also applicable to development projects – where there were none. In 1994, when the complaint was brought before the WB-IP, it found continued non-compliance of the borrower with both the WB’s safeguards, and the SC ruling, on information dissemination that would have enabled the community’s effective participation and consultation. The investigation report ultimately led the WB to scrap funding for the project, and became a matter of national embarrassment. Soon after, and possibly in response to the Arun III debacle, Nepal enacted the Environmental Protection Act and Rules 1997, that included information-sharing as an essential component of scoping projects.
However, this is not just a story of successes. For every small win, affected communities have faced innumerable instances where IAMs refuse to intervene, or often their intervention does not lead to changes on the ground. In fact, effective remedy for affected communities is rare, and hardly ever achieved in full. Communities continue to be not consulted or fairly compensated for their land, individuals continue to face reprisals for asserting their rights, and workers remain unfairly fired long after IAM processes are closed and recommendations are implemented. Even in cases where funding is withdrawn, such as Arun III, there is always the potential or possibility of new funding often with the same issues that project-affected communities had previously raised.
Several factors contribute to these ongoing challenges. For one, the immense power dynamic between communities on one hand and the MDB, borrowing countries, and private sector clients on another that leads to the erasure of communities as equal participants in decision making and as sharers in the benefits of development. Second, the model of development where human rights is considered political and therefore subsumed under due diligence standards as opposed to treated as a matter of rights. These contribute to an IAM structure and process where outcomes are more focused on institutional learnings as opposed to communities’ access to remedies.
Conclusion
In approximately thirty years of their existence, IAMs have slowly and unsteadily been influenced by, while at the same time influenced, international norms and processes. Much of the credit is due to communities and their representatives whose concerted efforts exposed the flaws in development narratives. It is now customary practice for MDBs and their IAM staff to engage – in however limited and flawed capacities – with civil society groups and PAPs to solicit comments and concerns, and thereupon improve upon their policies and practices. This article’s critical observations on norm creation, expansion and operationalization, are an effort to see that the process that started does not lose its rationale and effectively delivers on it.
Radhika Goyal is an Indian-qualified lawyer and human rights advocate. Since 2022, she has been working with Accountability Counsel to advocate for international finance to be more accountable to the communities they impact. Prior to this, Radhika was a legal fellow at Migration & Asylum Project where she worked to strengthen access to justice for migrants and refugees who are at risk of and survivors of sexual and gender-based violence in New Delhi. Radhika has experience working on a range of human rights issues including providing legal representation to asylum seekers, political inclusion of migrant workers, legal aid for populations at risk of statelessness, and prevention of sexual harassment at the workplace. She completed her B.A., LL.B (Hons.) from National Law School of India University, Bangalore in 2019.
Ishita Chakrabarty joined Accountability Counsel in 2023. As an Asia Development Justice Fellow, she works closely with the Communities Program to amplify voices of communities in defending their human rights and environmental rights. At Accountability Counsel, her tasks have variably involved supporting communities with a transmission line complaint case in Nepal or providing para-legal trainings over a geothermal energy project in Indonesia, or conducting proactive outreach to see that communities and their representatives are aware of the existence of concurrent mechanisms, amongst others. Ishita graduated with an M.A in International Law from the Graduate Institute Geneva, where she pursued her studies as a Wilsdorf scholar and with specialisations in global governance and migration.
Image: The image is AI generated using ChatGPT 4.0.
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