Nov. 7, 2023
How Lessons from MICI Cases Can Inform IDB’s Strategy Review
As the IDB Group embarks upon adopting a new Institutional Strategy, set to be released by April of 2024, the IDB should learn lessons from its independent accountability mechanism to ensure that its new seven-year strategy prioritizes improving community impact in addition to focusing on growth.
The Inter-American Development Bank Group’s (IDB) upcoming strategy review presents an opportunity to improve, but if it does not learn from past mistakes, it risks harming the very communities it seeks to serve. Understanding the net impact of its lending on local communities in Latin America and the Caribbean is key for the IDB to meet its mandate of improving lives through development finance and its new strategic goals to “address today’s unprecedented challenges, preempt emerging challenges, and achieve greater impact in the region’s countries.”
This article discusses lessons learned from former cases brought to the IDB's independent accountability office, the Independent Consultation and Investigation Mechanism (MICI). MICI manages complaints from communities reporting environmental and social harm arising from IDB Group-financed projects. Lessons from MICI cases about prior financing provide insight into how the IDB can improve its net impact of its future financing.
Lesson 1: With only 20% of complaints to MICI eligible for review, the IDB is not hearing the majority of harm reported from their projects. For the IDB’s strategy to succeed, it must know the issues its projects face.
To meet its lofty goals of addressing today’s unprecedented challenges and preempting emerging challenges, the IDB must ensure that effective remedies are provided when its projects harm people and the environment. Failing to do this weakens the IDB’s commitments to environmental and social responsibility and exacerbates harm done to local communities. Worryingly, analysis of MICI cases in the Accountability Console shows that only 20% of complaints to MICI were found eligible, with the IDB ranking among the independent accountability mechanisms with the lowest eligibility rates. This low eligibility rate means that the vast majority of issues raised to MICI are going unremediated within the IDB’s accountability system.
- the complaint cited an inadequate link between bank action and harm alleged (8);
- there were active parallel proceedings at the time the complaint was filed (6);
- the IDB was no longer funding the project or considering the project for funding (6);
- the good faith requirement was not met (5);
- the complaint failed to meet the MICI - IDB Policy that complaints must be submitted before 24 months from the last disbursement otherwise they are found automatically ineligible for both the Consultation Phase and the Compliance Review Phase (5); or
- the complaint was filed by only one individual (1).
Some of these eligibility constraints within MICI’s current Policy unduly limit the number of cases heard by MICI citing harm from IDB financed projects. The IDB must commit to reviewing MICI’s Policy as part of its strategy review to ensure that MICI is fit to hold the IDB accountable for its new strategy. MICI’s Policy should meet key DFI IAM benchmarks by simplifying admissibility requirements, removing requirements for complainants to resolve their issues through other means or mechanisms first, and allowing complaints by one or more individuals.
Lesson 2: Even when negative project impacts are substantiated, remedies are lacking. If the IDB does not address project issues, it cannot be confident that its new strategy will be sustainable.
The majority of complaints heard by MICI never actually see a remedy. Of the 206 complaints filed to MICI, only 22 have resulted in any commitments from the IDB or its clients to remedy harm, which includes 16 dispute resolution agreements and 9 compliance reviews resulting in noncompliance findings. Implementation of some remedial commitments have only been confirmed to have occurred in 12 of those 22 cases.
And even when some remedy is provided, in the form of commitments after a dispute resolution agreement or the IDB’s remedial actions in response to a compliance review, the IDB fails to effectively remedy the harm or mitigate future harm. To illustrate, in Bogotá, Colombia, the IDB invested in Grupo Operadora Aeropuerto Internacional S.A. to expand and modernize the El Dorado International Airport. The airport expansion project dramatically increased the number of air operations, significantly worsening noise pollution. A complaint was filed to MICI in 2011 by local organizations representing the community of Fontibón. MICI, through its compliance review process, found the IDB in violation of its environmental and social safeguards, but the IDB failed to adopt MICI’s most impactful recommendation, for the IDB to work with relevant Colombian authorities to analyze ways to improve the sustainability of the airport. Communities that live near the airport still suffer from the noise pollution without any new mitigation strategies.
Further, in Panama, the IDB invested in the Pando-Monte Lirio Hydroelectric Power Project developed by Electron Investment S.A. Complaints filed with MICI raised concerns about the project’s potential environmental and social impacts and led to MICI conducting a compliance investigation. MICI’s compliance review report found numerous policy violations by the IDB including that the company repeatedly missed deadlines to complete required environmental impact studies and commit to adequate harm prevention measures. The IDB also conditioned the first loan disbursement on a key environmental study; however, the IDB released the first disbursement as planned even though the environmental study failed to meet lender requirements. MICI’s report confirmed that the IDB approved the loan despite knowledge that the project failed to meet Bank safeguards. The IDB’s failure to acknowledge the risk that the project, along with 25 other dams in construction or planned for the Chiriquí Viejo River would transform the river into a series of isolated pools and do obvious harm to the region’s biodiversity, severely compromised the IDB’s commitment to environmental and social responsibility.
If the IDB wants to deliver greater impact for the region’s countries, then it must commit to remediate harm stemming from IDB financed projects by: (1) providing for remedy ahead of time; (2) granting MICI the power to recommend and require remedial actions; (3) developing a policy for how it will respond to and remediate issues raised through MICI case process; and (4) assessing net impact–not merely intended impact–and remediate any unintended negative impact.
Lesson 3: The IDB’s financing can be improved by better predicting and then preventing frequently raised harms. In this way, the IDB can achieve its objective of anticipating emerging challenges.
Net impact of IDB’s projects can be improved by better predicting and then preventing frequently raised harm. Past cases to MICI signal specific areas in which the IDB can improve. Case data in the Accountability Console shows that the most frequently raised harm in complaints to MICI from 2010 to 2023 are inadequate consultation and disclosure (31%), displacement (physical and/or economic) (26.2%) and environmental harm (24.3%). Considering the environmental issues, 23 of the 63 complaints citing environmental harm come from a project the IDB has labeled as a “green” project, showing that the IDB might have failed to meet its intended impact. Since the new strategy review aims to align with the Sustainable Development Goals, the IDB should pay particular attention to its projects that intend to improve the environment, but in actuality cause environmental harm.
Lesson 4: The IDB ought to improve its efforts to listen to the communities it's meant to serve to meet its strategic goal of having greater impact in the region’s countries.
With a significant number of MICI complaints citing either inadequate consultation or disclosure, the IDB’s strategy review must place a priority on renewing and strengthening its commitments to adequate environmental impact assessments and community participation to prevent negative impacts. The Ituango Hydroelectric Project, Caracol Industrial Park, and El Dorado International Airport are three cases that demonstrate how a failure to properly consult and disclose information with the community pre-investment can result in more harm than good to the communities affected.
In Colombia, the IDB’s private lending arm, IDB Invest, financed Empresas Públicas de Medellín S.A E.S.P.’s Ituango Hydroelectric Project on the Cauca River to expand electricity in the country. The community knew the geography around the river was unstable because of fault lines making the area prone to landslides. However, the IDB never uncovered this information because it failed to conduct adequate environmental impact assessments and solicit community participation. As a result, two of three diversion tunnels were blocked during construction, and in April 2018 the project experienced heavy rains causing large landslides. The reservoir filled prematurely causing a sudden unblocking of one of the blocked diversion tunnels and flooding downstream of the dam. The flooding destroyed homes and displaced tens of thousands of people, a hospital in Antioquia was destroyed, and the closure of the river flow caused environmental and economic impact downstream for those dependent on the flow of the river for their livelihood. Dam construction went ahead without allowing community members to exhume mass graves from previous armed conflict in the area. The affected communities, represented by the organization Movimiento Ríos Vivos Antioquia, ultimately filed a complaint to MICI. The MICI investigation found noncompliance linked to shortcomings in the consultation and participation processes, inadequate evaluation of project impacts and poor environmental regulation under which the project was authorized.
Similarly, in Haiti in 2011, the IDB invested heavily in the Caracol Industrial Park, a project in northeast Haiti, meant to provide post-earthquake aid to communities affected by the devastating 2010 earthquake through economic development. Instead, hundreds of Haitian farmers and their families lost their livelihoods when they were forced off their land to make way for the large industrial facility. The industrial park was constructed on the most fertile agricultural land in the area that was the primary food source and source of income for the farmers and their families. The harm done could have been avoided through proper consultation with the community pre-investment noted by three separate reports from Gender Action, Worker Rights Consortium, and ActionAid. The IDB continued to invest as late as 2015 despite community members' concerns of cumulative environmental and social impacts on their natural resources. The farmers organized themselves into the Kolektif Peyizan Viktim Tè Chabè and eventually filed a complaint to MICI in 2017 citing economic displacement, and environmental and human rights violations. MICI found the complaint eligible for dispute resolution which resulted in an agreement between the parties. Because the complaint went through dispute resolution, the IDB was not required to investigate IDB’s noncompliance.
Furthermore, in the El Dorado International Airport case, the airport had a history of noise pollution within the community of Fontibón prior to the expansion. The IDB project documents even identified noise pollution as an issue but failed to require effective noise mitigation and denied responsibilty for the severe noise-related harm. According to Bogotá’s Secretary of Health Report, the airport expansion led to 7% of Fontibón’s population sleeping poorly, up to 37% of individuals suffering from chronic insomnia, and children exposed to high levels of noise experiencing early hearing loss that hindered their development and academics.
As past MICI cases suggest, to have an effective project strategy that improves the IDB’s impact, the IDB must: (1) renew its commitments to the right to Free Prior and Informed Consent, environmental impact assessments, and human rights due diligence; and (2) improve its consultation practices through better engagement with local communities pre-investment rather than post-harm.
The only way the IDB’s Institutional Strategy for 2024-2030 will transform the IDB to meet today’s challenges and achieve greater impact in the region is if the IDB learns from past mistakes. MICI cases show where past IDB financing missed its mark. If the IDB wants to transform the IDB to “address today’s unprecedented challenges, preempt emerging challenges, and achieve greater impact in the region’s countries,” it needs to heed these lessons and prioritize improving its impact on local communities.